Fin Reg and Diversity - Federal Agency Requirements And The Lessons For Corporate Legal Departments

Monday, October 4, 2010 - 01:00

The current business environment is making it very difficult for legal departments to control or reduce costs, strive to be socially responsible and keep up with increasing regulatory requirements. Developing an outside counsel management program that is in compliance with recent regulations, enhances the efficiency of the legal department and provides insight into opportunities to reduce legal spend is critical to the success of every legal executive. Recent legislation will put even more pressure on government agencies and their law firms and could well impact corporate legal departments in the future.

The Wall Street Reform and Consumer Protection Act of 2009 contains a little-known provision (section 342) that requires a large number of government agencies to establish an Office of Minority and Women Inclusion. The duties of the director of the office are to:

• Ensure equal employment opportunity and the racial, ethnic and gender diversity of the agency's workforce and senior management;

• Increase the participation of minority-owned and women-owned businesses in the programs and contracts of the agency;

• Provide guidance to the agency administrator to ensure that the policies and regulations of the agency strengthen minority-owned and women-owned businesses; and

• Conduct an assessment, as part of the examination process, for the entities regulated or monitored by the agency of the diversity and inclusion efforts by such entities.

Each director is required to report to Congress the following detailed actions taken by the agency and the director:

• To the extent contracts exceed $50,000 or the contractor employs more than 50 employees, include a statement of the total amounts paid by the agency to third-party contracts since the last report;

• The percentage of such amounts paid to minorities, women, minority-owned businesses or women-owned businesses (see Figure 1);

• The successes achieved and challenges faced by the agency in operating minority and women out-reach programs;

• The challenges the agency may face in hiring qualified minority and women employees and contracting with qualified minority-owned and women-owned businesses; and

• Such other information, findings, conclusions and recommendations for legislative or agency action as the director may determine to be appropriate to include in such a report.

Many government entities and companies have started tracking the referral of matters to minority-owned and women-owned law firms (MWOLFs).However, considering the sometimes meager referral rates, the lack of adequate benchmarks, and the lack of resources to track the metrics, organizations are typically apprehensive about sharing or publishing the information. In an age where chief legal officers are trying to decrease legal spend, and do the same or more work with less personnel, it becomes difficult to rationalize implementing new programs to evaluate or address such issues.Complying with the above diversity and reporting requirements and enhancing the overall management of outside counsel can be accomplished through a multiphase program that includes the following components:

• Assigning a legal department resource as the diversity coordinator for the legal function or creating a diversity office within the legal department;

• Developing an outreach event program to facilitate communication between MWOLFs and the legal department;

• Deploying enhanced firm profiles to include information related to diversity;

• Making the identification and selection of MWOLFs simple/uncomplicated/straightforward for in-house counsel;

• Ensuring increased referrals to MWOLFs through controls;

• Identifying and concentrating specific work among select groups of MWOLFs to build expertise;

• Evaluating and scoring all outside counsel including MWOLFs and sharing evaluation results internally; and

• Establishing and tracking metrics to evaluate progress.

To meet these requirements, each agency's legal department and the entities regulated or monitored by the agency should have a robust outside counsel management program that includes the following components:

• Enhanced vendor selection process

• Preferred, "best fit," MWOLF and available counsel

• Exception tracking

• Enhanced vendor management

• Detailed vendor profiles

• Metrics on performance and volume

• Attorney performance evaluations

• Matter specific evaluations

• Vendor score cards

• Evaluations over time

In addition to defining policies and tracking and reporting legal spend based on diversity, an effective outside counsel management program allows you to:

• Better control outside counsel spend, while increasing your ability to achieve desired results;

• Better manage relationships with key vendor partners by leveraging past experiences;

• Collaborate on performance improvement/feedback, and intelligently select a cost-effective, capable and proven vendor; and

• Create an environment that allows greater visibility into the vendor metrics which provides more control and insight into cost, selection/retention and results.

An effective outside counsel management program provides the processes, metrics and analysis that help to identify the key areas where the chief legal officer can begin to effectively manage outside counsel spend. A successful program will enhance relationships with key vendors, improve the value received for money spent and should increase the use of MWOLFs, ensuring that MWOLFs are considered during the retention process. Each element of a well-structured program is designed to be used in the short term to help in the identification of areas for immediate cost savings and provide data over the long term for comparison purposes to help control and manage outside counsel over time.To cost effectively create the necessary benchmarks and metrics, appropriate use of supporting technologies provide the means for data collection and business intelligence to monitor and modify a program over time. The technology typically consists of quick-to-deploy and easy-to-use SharePoint application, custom application or matter and ebilling systems. These programs are often gradually introduced over time and focused to meet current requirements but flexible enough to meet ever-changing business needs.

Highly functioning organizations assess the people, process and technology to impact change. The following are some examples of components of an effective program:

• Procedural

• Vendor selection process

• Law department

• Business

• Vendor management

• Vendor profiles

• Preferred program

• Preferred, "best fit," MWOLF and available

• Diversity program

• Billing guidelines

• Expense policy

• Retainer agreements

• Exception tracking

• Attorney and firm performance evaluations

• Frequency, criteria, etc.

• Vendor score cards - feedback

• Relationship management

• Technology

• Automated best practices

• Matter management retention

• Vendor management

• Vendor evaluations

• Metrics, reporting and dashboards

• Accessibility requirements

• Law department use

• Business use

The information gathered enhances productivity by establishing clear metrics and giving decision makers access to key information through the use of efficient, standardized tools. In many organizations much of the information is already available. It is simply a question of gathering, interpreting and clearly presenting the information for decision makers in an easy-to-use format. Most companies simply need to update existing policies, procedures and systems to consolidate the missing pieces.

The resulting metrics can be used not only to track and report referral and percent of legal dollars spent with minorities, women, minority-owned and women-owned businesses, but also to track:

• Your benchmark against peers

• Actual cost of legal work

• Spend vs. budget

• Actual cost savings

• Matters that require immediate attention

• Leverage

• Trending

• Actionable next steps

An effective outside counsel management program can provide the organization, structure, compliance and metrics to impact change within the legal department. The resulting information and data must be continuously reviewed and evaluated to correct undesirable behavior and encourage favorable results and the advancement of strategic goals.

Dozens of federal agencies have only a few months to design and implement these programs.Corporate legal departments, however, would be well served to undertake the same sort of initiative.While the initial impetus for the program may be creating a program to track MWOLF progress, the outcome can be the infrastructure that broadly enables more effective management of outside counsel spending, typically one of the largest line items in any legal department budget.

Robert Kirtley Is A Managing Director of Duff & Phelps, LLC. Tim Strong is a Director of Duff & Phelps, LLC and Reese Arrowsmith is a Vice Presidentof Duff & Phelps, LLC.

Please email the authors at robert.kirtley@duffandphelps.com, tim.strong@duffandphelps.comor reese.arrowsmith@duffandphelps.com with questions about this article.