Letter From The President Of The Washington Metropolitan Area Corporate Counsel Association

2009-11-02 01:00

To The Readers Of The Metropolitan Corporate Counsel:

WMACCA's three goals in 2009 are to serve as: (1) the leading destination for those seeking to develop their careers as in-house counsel; (2) the leading source for the media community and the business leadership community who wish to access legal knowledge; and (3) the leading chapter within ACC at promoting the goals of the Value Challenge.

In this letter, I focus on our challenge to be the vanguard in the revolution in the legal industry to align cost and price with value.This initiative has been dubbed by ACC as the Value Challenge.

It occurs to me that the Value Challenge was presaged by no less an economics scholar than Adam Smith, who wrote in his seminal tome, The Wealth of Nations, the following on value and the cost of work:

There is one sort of labour which adds to the value of the subject upon which it is bestowed: there is another which has no such effect. The former, as it produces a value, may be called productive; the latter, unproductive labour. Thus the labour of a manufacturer adds, generally, to the value of the materials which he works upon. The labour of a menial servant, on the contrary, adds to the value of nothing. Though the manufacturer has his wages advanced to him by his master, he, in reality, costs him no expense, the value of those wages being generally restored, together with a profit, in the improved value of the subject upon which his labour is bestowed. But the maintenance of a menial servant never is restored.

Where would Smith have placed the lawyer?Amongst the productive laborers whose cost is dwarfed by his productive value, or amongst the menial laborers, whose cost must always be monitored?

To be sure, a lawyer can be very productive.Many in-house legal departments never hear the words "cost center" uttered, or have to defend their budget, because the value they add is so manifest.Many in-house lawyers busily apply themselves to the constant question of how to advance the company's mission, while also advising and protecting the company from legal risk.Many outside counsel also add value that exceeds their cost.However, nary an outside counsel can claim that his invoices have never been inspected, discussed, questioned, and evaluated.

One reason why outside counsel's fees are subject to evaluation is billing practices.Compare the outside lawyer's hourly fee structure with other advisers within the CLO's sphere, including auditors, consulting firms, investment banks, banks, real estate advisors, and risk management advisors, who often invoice their services more predictably, through flat-fees or flat percentages of the transaction.In most legal matters, for a lawyer to do the same would involve fairly elementary stochastic analysis and predictive modeling.Yet, many lawyers adhere to the claim that due to the unpredictability of their work, what they are selling is hours.This underserves the ancient and scholarly profession of Demosthenes, Cicero, Thomas More, and Jefferson.

The idea behind the Value Challenge is to enhance the alignment between in-house counsel and the outside lawyer, not to place these two on adverse sides of an invoice. Like me, many in-house lawyers hail from law firms.I want my company's outside lawyers to be very good and to be compensated very well and profitably.The Value Challenge is an effort to align costs, prices, and the value of the work for the client, and to develop lawyers as counselors, advocates and professional partners.

The goal is to foster a dialogue of universal importance to in-house counsel and outside counsel.The goal is to seek economic models for delivering legal services that serve outside counsel very well and that serve their clients better than the present model.The goal is, in sum, to encourage a more entrepreneurial approach to the practice of law.Many firms have already responded enthusiastically and aggressively to the Value Challenge.WMACCA is proud to have helped lead this effort.We have and will continue to host numerous dialogues with CLOs from around the region and the country, and with many of the largest law firms in the country, to develop tools for law firms to use, and to write, speak at public fora, and be quoted in the media about the Value Challenge.WMACCA will continue to be at the tip of the spear in this economic transformation.I urge each member to take part in our Value Challenge efforts and to engage your outside counsel in this healthy and mutually beneficial dialogue.

Sincerely,

Manik Rath