To The Readers Of The Metropolitan Corporate Counsel:
A fundamental responsibility of in-house lawyers is managing our relationships with outside counsel. Frequently, however, this important and symbiotic relationship seems to evolve rather than be managed - as a result, it is now time for relationship counseling. The current situation of ever-increasing billable rates and highly leveraged law firms focused on profits per partner has struck a nerve in members of the Association of Corporate Counsel. ACC has begun a comprehensive program named the Value Challenge to address the relationship between in-house and outside counsel with the goal of taking a holistic approach to examining how we work together and ultimately creating a new framework, set of goals and paradigm for the relationship. The ACC organized a town-hall style meeting to begin this effort on September 26, 2008, at the Reagan Convention Center in Washington, D.C. The recording of this meeting, as well as other material explaining the Value Challenge, can be viewed online at http://www.acc.com/valuechallenge.
At this town hall meeting, in which I participated, we discussed the need to understand the goals and drivers of both law firms and in-house attorneys in order to create a structure that aligns the interests of all constituents. Meeting participants generally agreed that both law firms and in-house attorneys are either unhappy with the current nature of the relationship or agree there are significant ways to improve the relationship. Law firms noted the following points from their perspective:
• prefer to focus on a portfolio of business in order to institutionalize the relationship and to achieve efficiencies in service and pricing;
• disdain RFPs as depersonalizing the relationship, claiming they do not truly reduce aggregate fees and do not encourage risk sharing;
• must keep pace with profits per partner or risk losing leading partners and practice groups;
• request that they be managed with positive and not just negative feedback/incentives;
• question whether they will be rewarded for risk taking or creating new relationship structures; and
• note that not all matters are rush jobs and request realistic timelines.
Inside counsel noted the following points from their perspective:
• law firms focus on quality in their pitches, but need to understand that that is just a floor and value matters too;
• many business units purchase sophisticated services from vendors based on an efficiency emphasis/presentation, why don't law firms also market themselves in this manner - in other words, to what extent are corporate purchasing lessons/techniques relevant to the selection and utilization of law firms?
• in-house counsel are swamped and do not have time to micro-manage matters, and law firm attorneys should understand their matter is not the only one on the in-house counsel's task list;
• law firms need to improve coordination across groups, resulting in one-client facing presentation/knowledge base;
• in-house counsel are pushed to achieve operational leverage by their executives/businesses, and want the same leverage/efficiencies from law firms;
• while data on profits per partner are telling in some respects, in-house counsel would also like to know about retention rates for associates and counsel that we rely on day to day; and
• law firms should move to the suburbs and drop the expensive artwork - that is not what impresses us.
I would add the following about the current state of the in-house/law firm relationship:
1.In many cases there are no metrics to manage toward and against which to track success.
2.We all need to slow down and spend time managing the relationship instead of just responding to crises in the moment.
3.We need to break out of our current muscle-memory patterns whereby we revert back to old, familiar routines and methods of interacting.
In order to move the relationship forward, one key starting point is understanding what in-house counsel define as "value" from their law firms. Personally, I describe value as a law firm's ability to calibrate the nature of their legal service to the matter at hand. Not all matters have the same economic impact or risk profile, and a knowledgeable and client-focused law firm is able to understand the nature of the particular issue and staff and manage the matter appropriately. Value also includes the timeliness of responses, getting things right the first go round and understanding and working toward achievement of business goals. In summary, customization and personalization of legal services, combined with a managed process that achieves efficiencies, is the key to creating value in legal services.
Once we have defined value and have a sense of what we would like from a law firm, how do we choose a law firm for a specific matter? One of the themes that emerged in the ACC Value Challenge meeting was that there are different tranches of legal work. For example, ten percent of the work sent to outside counsel may be price-insensitive "bet the company" work where work quality is the defining objective, twenty percent may be more "commodity" type work where cost is the key consideration and the remaining seventy percent may be a middle tranche that includes an emphasis on both quality and value. Corporate counsel should think about what kind of legal matters they send out and then should match the appropriate outside counsel to the type of work. In addition, when selecting outside counsel it is helpful to utilize lessons learned or experiences from prior matters in the selection process, as well as metrics or statistical goals and criteria. For their part, law firms should understand the type of matters for which corporate counsel are requesting help, as well as their tracking metrics.
After a law firm has been selected to assist in a particular matter, a corporate counsel's job switches to managing the matter to completion. In-house counsel may have stories or a litany of complaints about outside counsel's work on matters and how their expectations were not met in a certain situation, but a central question is whether these in-house counsel informed their outside counsel exactly what those expectations were and then managed the outside counsel throughout the matter to achieve the objectives. At the Value Challenge town hall meeting, representatives emphasized how important it is for in-house counsel to be specific about their objectives at the commencement of a matter and then to continue the communication and matter management throughout the entire process. To the extent management or production processes like six sigma can be utilized to improve operational performance, that may be an opportunity for a win-win resolution whereby law firms improve their performance on a given matter in a way that enables them to improve efficiencies, reducing client bills, while increasing the volume of work they can perform, which ensures high attorney utilization rates and law firm profitability. Optimally, law firms should not just manage their client workload, but should also understand and manage to client-defined matter resolution goals.
In summary, the goal of the ACC Value Challenge is to help restructure and focus the relationship between in-house counsel and their law firm service providers. Particularly in a difficult economic climate, achieving operating efficiencies by utilizing purchasing and management techniques employed by other parts of our businesses is becoming increasingly important. By implementing some core practice tips, such as being able to articulate what value is in a given situation, thinking about and matching law firms to the types of matters, communicating goals and managing outside counsel throughout the engagement and rewarding firms that take chances and experiment with new structures, we can help create a new paradigm in the law firm-corporate relationship that better aligns interests and ensures that we receive the appropriate combination of quality and value-based legal services.