In-house counsel

Happy to help

By Steven A. Lauer, corporate counsel, Global Compliance Services

Every business must contend with forces in the market that are, to one degree or another, beyond their control. For example, the pace of change requires every organisation, regardless of its industry or internal dynamics, to be as flexible as it can in order to succeed. Standing ‘pat’ no longer assures that those firms at the head of the pack today will remain in that position. Existing and unforeseen competitors will continue to seek ways to dethrone them and take the lead themselves, by offering new or different products or services with competitive advantages for consumers or users. As a result, all business organisations find themselves forced to re-examine their modes of doing business and the costs that underpin their market positions.
This has led to continuous pressure on internal organisational components to review their own contributions to firms’ success, as well as their role in increasing or lowering the cost of that success. Corporate law departments now find their operations increasingly subject to review, oversight or second-guessing — as never before.
This pressure from senior corporate management and others has created a premium on the ability of those departments to demonstrate the value they add to their firms’ operations, or how they contribute to achieving their firms’ strategic goals more efficiently. A significant element of this challenge consists in being able to provide data and statistics that demonstrate that contribution. In other words, law departments’ facility with metrics and their display has become a strategic advantage for in-house counsel.
Law firms find themselves in a position to assist their existing clients – and impress non-clients who might possibly become clients – in several ways. Consider the following four areas of focus for in-house lawyers:

Process improvement. A law firm typically represents multiple clients that have differing approaches to the management of their legal service. Some clients may be more risk averse than others and manage disputes accordingly, or they might somehow utilise the services of outside experts (e.g. environmental consultants) more effectively than other clients. That law firm might be in a position to recommend to the less efficient client ways in which it might emulate another client’s approach to its benefit;
Internal reporting. In-house lawyers need to report to corporate management on a variety of matters, such as ongoing or completed litigation, transactional work, etc. In many or most of those matters, a company will also have outside counsel representing it. Those outside counsel are often closer to the substantive work of those matters than the individual in-house attorneys. Accordingly, outside counsel possess much of the information that those in-house attorneys need to make their reports to the executives. By being aware of the reporting requirements their in-house counterparts face, and standing ready to provide the data needed for the inside attorneys to meet those requirements, outside attorneys will support their counterparts very well and efficiently;
Matter management. Corporate law departments must manage the legal matters entrusted to them. In order to do so, however, they require information about those matters. As outside lawyers handle much of the substantive work for most matters (if not all of it), that information typically resides in the files of outside counsel and the in-house attorneys must request it from the outside lawyers in order to manage those matters intelligently. Knowing the types of information in-house attorneys need to do their jobs for your clients fully and successfully – and proactively providing that information – would serve as a concrete demonstration of the degree to which you share their vision of their responsibilities;
Cost. For corporate law departments, the management of legal service includes a significant element of concern for the cost of that service. Spending more for legal counseling than the value of the matter itself makes little sense to a businessperson and just as little to an in-house attorney. Thus, the quest for the ‘perfect’ legal argument or optimal should be infused or animated (I use that term advisedly) by that concern.

Convergence
How might outside lawyers benefit from taking such steps? With respect to both existing and potential clients, they might find their ‘stock’ will rise when they’ve taken some steps. Given the imperatives of in-house practice, more and more companies have reduced, or are considering reducing, the number of law firms and other outside attorneys with which they work. This process – often called ‘convergence’ in the United States – obviously results in fewer slots on those companies’ lists of outside counsel. For example, DuPont reduced the number of firms to which it assigned litigation from over 400 to approximately 36 in 1992. (In the years since embarking on that process, DuPont Legal has changed the identities of the law firms among its outside service providers a few times and the number has fluctuated somewhat, but the overall programme has maintained a fairly consistent number of outside law firms (now between 35 and 40.) I served as project manager for the law department at Prudential Insurance’s effort to reduce its list of approved outside counsel from 900-1000 down to 270 in 1996 – and then, through a series of requests for proposals for legal service, assigned approximately 60 per cent of its outside legal service to only 80 of those firms. Many other corporate law departments in the United States have engaged in similar exercises, reducing the number of law firms they work with considerably.
The convergence phenomenon and other, not entirely unrelated developments, in the universe of corporate legal service, lead almost inexorably to an increased focus from in-house attorneys on the service capabilities of outside law firms and the degree to which their mode of delivery of legal service matches up with the expectations of the company’s in-house attorneys in that regard. The request for proposals (RFPs) we prepared at Prudential, for example, asked the responding law firms to respond to questions regarding how they would manage legal work on behalf of the company more than on other issues, such as the quality of legal service.
As more law departments work with fewer law firms, the focus on relationship issues will likely become even more prominent, as those departments will find they can use high-quality legal service as the minimum standard for consideration of law firms for the assignment of work. The selection by the in-house lawyers among firms that are all capable of handling the substance of a matter can then focus on how the firm and client will work together.
What does this understanding mean for law firms? How might that appreciation for the situation of in-house counsel (i.e. greater budgetary and reporting pressures) affect the behaviour of law firms? Let’s look at the four areas described above as exemplars. What steps might outside counsel take in response to these pressures on inside attorneys?

Process improvement
As mentioned, business organisations are on a constant search for better ways to run their operations. What might have been acceptable last year will not suffice next year. Costs that were tolerable before will become burdensome before long. Accordingly, benchmarking across industries, and even between industries, has become a frequent activity as businesses compare themselves to each other in the hunt for cheaper, better, faster service and product delivery.
Law firms are well-positioned to assist their clients in the benchmarking efforts of those clients. As a law firm works with different clients as they attempt to accomplish the same thing, it is likely they will be able to observe and take note of the relative success with which those different clients accomplish the shared goal. Lawyers often recommend their clients emulate other companies in respect of the substance of the work or follow a precedent set by another firm in a transactional or litigation context, but they rarely do in other areas.
Should outside lawyers offer their opinions to their clients as to how those clients might improve their management processes? While some clients might bridle at receiving such advice from outside counsel, I believe most would welcome the benefit of their outside lawyers’ observations. As in-house lawyers have demonstrated their respect for outside counsel by selecting them in the first place, they will likely listen carefully to suggestions offered by those outside attorneys. This is likely to be particularly true if those suggestions are offered as just that – suggestions based on close observations of multiple clients engaged in the same process but with different levels of success.
Outside counsel should offer these suggestions without expecting to bill for the time developing the suggestions, or the time devoted to discussing or transmitting them. To send a bill for that would not only contravene the intended purpose of the effort – to assist the client in being more efficient (i.e., saving money or achieving greater value for the same effort) – but would also demonstrate that the outside firm thinks primarily, if not exclusively, about its own fortunes, even at the expense of its client’s fortunes. This would only substantiate the view of many corporate general counsel in the United States that outside counsel do not understand the business pressures that in-house attorneys face1.
Benchmarking also involves finding methods by which to measure the relative performance of one organisation compared to that of another. Law firms can also assist their clients in this aspect of their search for greater efficiencies. This type of benchmarking requires the identification of appropriate metrics by which to measure that performance. Again, due to their work on behalf of multiple clients in one or more industries, law firms are well-positioned to assist in identifying the appropriate metrics for their clients2. One means of doing so in a systematic way would be to get involved in the efforts of the Open Legal Standards Initiative to develop more consistent approaches to the various tasks that corporate law departments must undertake and the metrics appropriate to measuring their success in doing so3.

Internal reporting
Corporate management expects in-house attorneys to report on the status of the legal affairs of the company. The purposes of that reporting include:

Demonstrating that the company’s legal interests and issues are not languishing for lack of attention and that its interests are being safeguarded, and;
Demonstrating the value that the law department represents.

As so much of a company’s legal service is provided by outside counsel, however, that reporting will rely on and include much information possessed by those outside attorneys. What is the status of a company’s motion for summary judgment in a particularly important piece of litigation? Does the portfolio of litigation it faces suggest the need to review the organisation’s business practices with a view to correcting longstanding problems?
To an ever-greater degree, reporting by in-house lawyers to executives will include metrics and objective data. What is the average period of time that a dispute lives? What is the cost of defending each product-liability dispute for each line of business? How many real-estate transactions does the organisation complete each quarter?
With respect to each of those types of information, outside counsel are the primary source of much of the relevant data. Historically, in-house attorneys have requested certain information from outside counsel, either on an ad-hoc basis or regularly. Outside counsel that take a more proactive approach by offering or providing that information to the inside counsel would find a very appreciative recipient at the other end. By making in-house counsel’s job that much easier, outside counsel would demonstrate an appreciation for the demands of the in-house counsel’s job that is often not apparent or existent.
Of course, this would require the outside counsel to have a much better understanding of the informational demands of in-house attorneys in respect of the latter’s reporting obligations than they may have at present. Efforts to learn those demands would be more than rewarded, in my view, by the greater level of understanding that those efforts would engender.

Matter management
Closely related to in-house counsel’s reporting responsibilities is the attorney’s need for information with which to manage the legal matters. The type of data needed by the in-house attorneys varies from company to company, but typically includes information about the substantive qualities of the matter. For example, is it an environmental or an employment-related dispute? Is the transaction a real-estate financing or an unsecured or secured corporate line of credit? As well as information about the details of the matter’s lifecycle. Is the litigation in pre-trial? Has the due diligence been completed for a merger?
Some capture of this information can be effected automatically by means of electronic invoice submission. As to other information, however, more labour-intensive efforts are required. In-house counsel, or a law department staff member, must search through files or call outside counsel to request the data necessary to complete the file entries. Once again, by providing that information without a request, outside counsel can make the job of the in-house attorney or staff member that much easier, thereby earning appreciation that could be of value in the long term.

Cost
The cost of legal service and the out-of-pocket expenses associated with that service cause great concern in corporations. Why do those costs continue to escalate year after year? Can they be controlled? Do the clients realise value from that service corresponds with that cost?
In order for law firms to succeed, they need to receive revenue for their efforts. As clients want to reduce or control cost, however, their interests and those of their law firms conflict on this issue, at least superficially. Accordingly, they need to identify more efficient means of achieving the clients’ goals. A collaborative search for those efficiencies should be in their mutual interests. Rarely, however, do they undertake such a search. Law firms that demonstrate an understanding of their clients’ need to control cost will serve to demonstrate, more clearly than most things the firms might do, how much they support their clients’ interests.

In summary
In-house attorneys are expected to share their internal clients’ business sense. That translates into an appreciation for efficiency and cost control that is often lacking in outside counsel (as viewed by in-house attorneys and corporate management). A clear demonstration by outside counsel that they do share that view would work to the outside counsel’s benefit in the form of more satisfied clients.
Moreover, as in-house attorneys assist each other, through referrals, references and other ways, in finding appropriate outside representation4, satisfied clients constitute an extremely valuable source of new business leads for law firms. Efforts to apply the above advice could also lead to more referrals.

References
1. ‘What’s GCs’ Biggest Beef With Outside Counsel?,’ Fulton County Daily Report, September 14, 2007, posted at http://www.law.com/jsp/ihc/PubArticleIHC.jsp?id=1189674162049;
2. ‘Properly Designed Metrics Can Improve RFP Chances’, LAUER, The Legal Intelligencer (June 1998), p. 7;
3. http://www.openlegalstandards.org/;
4. ‘What is the most important task of in-house counsel?’, LAUER, Corporate Counsel’s Quarterly, vol. 19, no. 2 (April 2003), pp. 73 - 75.

Steven A. Lauer is corporate counsel at Global Compliance Services. He can be contacted at steven.lauer@globalcompliance.com