DuPont Legal Shares The Secrets Of Its Success

Monday, February 1, 2010 - 01:00

The Editor interviews Andrew L. Schaeffer and Gerald F. Deery, DuPont.

Andrew L. Schaeffer , over the past two and a half years, was Managing Counsel - Operations and Partnering at DuPont. In that role, he was responsible for all facets of DuPont Legal's partnering program, including law firm and vendor selection, firm performance evaluation, internal and external case assignment, rate negotiations and matter conflict resolution. His operational responsibilities included litigation budget management, supervising DuPont Legal's e-discovery team, overseeing legal technology initiatives, and briefing DuPont's outside auditors and Company management on litigation matters to facilitate compliance with Sarbanes-Oxley.

Gerald F. Deery, who is part of DuPont Finance, is essentially the CFO of DuPont Legal, having worked in it for about ten years.

Editor: Please explain why and how strategic budgeting and forecasting are critical components of the DuPont Legal Model.

Deery: The DuPont Legal Model is an ever-evolving business-focused integrated approach for managing change within the law department, and it is a basis for continuously improving how legal services are provided to DuPont business clients in terms of quality, cost and efficiency.

While legal departments have long been under considerable pressure to reduce their legal spend, the recent economic environment has heightened our level of accountability and our need to deliver cost-effective business-focused results.

Strategic budgeting and forecasting with respect to each significant case or matter are key elements of the strategic partnering between in-house counsel, outside counsel and the DuPont business client. This strategic partnering is a key component of the Model and actually lies at the foundation of delivering strong results. Strategic budgeting includes an ongoing discussion of the costs associated with the execution of a litigation plan for a significant case or the completion of a significant matter including cost forecasting, cost management and accountability. It works hand in hand with early case assessment.

Together, strategic budgeting and early case assessment create the foundation for a discussion on alternative fee arrangements.

Editor: What are the main parts of litigation budgeting at DuPont?

Deery: There are two main parts to the litigation budgeting process. One is the operational budgets, which establish the annual spending targets for DuPont Legal and form the basis of DuPont Legal's business-client and corporate-profit-objective submissions. The second is the strategic budgeting process, which is regularly revisited and not projected for more than six months at a time.

Schaeffer: The real difference between the two is that the strategic budgeting process as Gerry noted is more short-term focused to allow flexibility as events occur. The various professionals handling litigation, whether they be in-house counsel, outside counsel or the client, get together sometimes as often as once a month or maybe only every six months. This is to kick the tires and see if DuPont Legal's operational budget still makes sense or whether there needs to be changes. These changes might be necessary to reflect such things as alterations in the strategic direction of a case, the use of ADR, filing some kind of motion or getting ready for trial.

Editor: What is the difference at DuPont between operational budgeting and the strategic budgeting process?

Deery: Let me start with operational budgets. First off, in terms of understanding operational budgets in today's dynamic environment, they are more fluid than ever before and they are highly influenced by corporate priorities and affordability. At DuPont, the days of legal services being immune to cost considerations are over. There was clearly a time when Legal said this is what we need to spend and members of management were concerned that any push-back might increase DuPont's risk. The days when the Legal Department had a blank check are now in the distant past.

Senior corporate guidance on spending levels is not new within DuPont. However, the development of a plan and delivering results in line with that plan has reached a new level of importance.

While the budgeting process remains an annual exercise, cost analysis reporting adjustments occur in real time. We set monthly and/or quarterly targets against which we measure our performance and then set new targets to be achieved. In 2009, for example, DuPont Legal took its annual operating budget and actually broke it into quarters. We set an aggressive first quarter target and then we measured our progress against that. Then in effect we got a new second quarter target from corporate management and we were asked to go after that.

At the end of the year, if you added up our quarterly targets they actually equaled a number that was slightly less than what our annual operating budget was at the start of the year. So that is just how dynamic that process can become in a really stressful economic climate.

When we do operational budgets, we include a matter regardless of how material it is. It can be $500 and we will include it in our operational budget. When we talk about strategic budgeting, we are generally talking about individual matters on which we spend at least $1 million annually.

Our operational budget reflects the amount of time individual attorneys expect to spend working for their respective business clients. They don't turn in time cards. However, once a year they advise us of the business client or clients they intend to support during the coming year and the amount of their total time they expect to allocate to their respective clients. That is based on the docket that they have today and that they believe they will have next year. We then use that as a basis to distribute our in-house cost.

Also included in our operational budgets are our outside counsel costs and our IP spend for maintaining and supporting our patent and trademark docket as well as our regional costs.

Editor: A major expense for any corporate legal department is outside legal costs. How does DuPont Legal handle requests from its network of Primary Law Firms and Service Providers for rate increases?

Schaeffer: We have over the years turned this into a more disciplined process. Instead of allowing firms or providers to ask for rate increases at any time, we provide them with a small window to ask for rate increases, usually at the end of the year (November and December).

In the last few years, we have gotten away from making requests for increases in rates an annual event. We have where possible put in place multi-year deals - at least two years and sometimes as much as three and four years. This gives us a lot of predictability so that we know what we're facing. It also saves time by not having to deal with the issue every year.

Also, we have dissuaded firms from asking for across-the-board rate increases, particularly those firms that are working on some of our larger matters where it's going to have the biggest impact on our budget. In a few of these cases, we make adjustments for individual timekeepers to reflect special circumstances.

Editor: To combat the "billable hour" syndrome, many corporate legal departments have developed alternate fee arrangements with their outside firms. Has this been something that DuPont Legal has done?

Schaeffer: Yes. One of the basic tenets of the DuPont Legal model is to explore alternative fee arrangements (AFAs) that focus on value to the client, which is another way to counter the expectation of regular increases in hourly rates. Between 30 and 40 percent of DuPont's total law firm legal spend is currently based on AFAs. Some AFAs take the form of fixed fees while others are incentive based. In recent years, we have also put in place AFAs that, while still based in part on hourly rates, essentially put all the work the firm does for DuPont under an umbrella arrangement where the firm is putting skin in the game, risking money in a holdback pool based on a percentage of the approved hourly fees.

We have continued to try to drive more and more use of AFAs. Particularly in our bigger matters, it provides a way that we can control cost, bring predictability, and share risk and reward. A variety of alternative fee arrangements that we have used are discussed in additional detail in Chapter Seven of DuPont Legal's newest edition of the book on its Legal Model entitled The New Reality: Turning Risk into Opportunity through the DuPont Legal Model.

Editor: Are there other initiatives that DuPont Legal has employed to control legal costs and to find ways that DuPont Legal can increase DuPont's income?

Schaeffer: We have looked for ways to reduce the costs of discovery, particularly e-discovery. We have a dedicated discovery attorney in the Legal Department who is our e-discovery expert. That attorney works closely with experienced and seasoned litigation paralegals to drive the process and bring consistency across our matters. We know that e-discovery is really the 800-pound gorilla, and we continue to try to drive down those costs whenever we can.

One of the other initiatives that DuPont Legal has pushed particularly hard over the last six years is what we call our Recoveries Initiative. This is our effort to go beyond just trying to minimize or control costs by helping various DuPont business units bring in more income by way of recoveries. By that we essentially mean not leaving money on the table that rightfully belongs to DuPont and its shareholders by pursuing everything from IP to insurance to tax-related issues in which DuPont can realize a recovery. Often this occurs before litigation is ever necessary.

We have also provided incentives to our law firms to seek out recovery opportunities and bring us new ideas. When we need to pursue litigation, we've done that usually through an attractive alternative fee arrangement. In some cases, we have offered a firm a pure contingency arrangement in which they will get a percentage of any recovery.

In the past some of these recoveries might not have been pursued. Now we look at all these opportunities and consider pursuing them when appropriate. Most are not pursued by litigation but rather by discussions at a business level or through ADR-like mediation.

The good news is that over the last two years we have helped bring in more money through these kinds of efforts than DuPont Legal's total annual operating budget. In Chapter 13 of our new book, The New Reality , we detail the various steps we've taken and the success we've had with the Recoveries Initiative.

Deery: In this tough economic environment we've also taken an extremely hard look at our patent portfolio to make absolutely sure that we cull out and no longer protect technologies that are no longer worthy of that protection. We also look for opportunities to license our patents where appropriate.

We have a very active Six Sigma program, and that has really served us well in terms of taking a look at defects that we have within our processes and eliminating them. We also have been very aggressive in the use of mediation and settlements to head off the much greater cost and uncertainties of litigation.

In addition, we do all the things other companies do in the tough economic environment. We have head count control, we limited the number of consultants we have on board, and we've restricted our travel and have gotten far more creative in using alternative approaches to jumping on planes and visiting people. We have put in place training processes so that most of our attorneys do not have to travel to get their CLE credits. We utilize offshore resourcing whenever we can, and we have had some exposure to limiting wage increases and giving people the opportunity to take a furlough if they so desire.

For more information about controlling legal costs and the other initiatives of DuPont Legal and its Network of law firms and service providers, visit www.dupontlegalmodel.com. Orders for copies of The New Reality can also be placed on the website .