In-House Departments Won't 'Double Dip'

While the credit and debt crises and the political bickering in Washington have sent markets onto yet another roller coaster ride (and disgusted most of us) -- and on the heels of an interesting article in the Wall Street Journal on in-house hiring practices -- it’s worth revisiting the impact the last recession had on the legal marketplace – all of three years ago.

At that time (2008), law firms were just truly beginning to feel the burn of hiring masses of high-paid associates – the going rate in large markets was $160,000 for a first-year, but much of the work first-years were expected to handle (see: e-discovery) was already going away. When the economy’s bubble burst, the effect was quick and uncompromising: corporations instituted immediate hiring freezes, put off litigation and other large and expensive projects as long as possible, and there were dramatic reductions in legal spend. That was the whammy that sent giant and mid-size firms alike into a state of layoffs, mergers and dissolutions, as well as hourly rate reductions… which, of course, was soon followed by masses of news releases about alternative fee arrangements and value pricing for clients. It was what I have heard some refer to as the “we get it, you need to cut costs, trust us we can do it” age.

The reason for much of this was the movement by corporate legal departments to flesh out internal processes while operating on a very lean budget, which resulted in the identification of resources that could produce good work at a reasonable cost. In the fall of 2008, I spent many hours with our corporate clients working on alternatives to laying off in-house staff, and those sessions created a number of innovations in how some of the work gets done. Many of those innovations have “grown up” and will help those legal departments weather whatever storm may come their way in 2011 and beyond.  

The results of this maturation process have been outstanding in many instances – better communications, workflows and use of resources, a better work product, close partnerships with service providers, a more strategic use of outside counsel, and, ultimately, millions of dollars in savings. The reason: they (and we) gained a better understanding of the value of their legal work and how to appropriately allocate it, and business decisions -- not just legal decisions -- became a vital criteria for structuring work. Many corporations have now permanently instilled these processes and philosophies into their everyday practice and are well prepared to face a difficult economic environment if it comes again. While it might not all be caviar and champagne, they aren’t going to have as bumpy of a road when they had to lay down the law with their legal service providers in 2008. This is good news for everyone.

If anything, a double dip recession will only solidify that legal work is handled differently now than it was in 2008. It will prompt some corporations who might not have been pushed over the edge three years ago to further explore and develop new ways of handling their matters from top to bottom -- and there are plenty of existing frameworks to draw inspriation from. The values are a lot more defined. But most relevant to this post, legal work is a collaborative process and there are partners throughout the lifecycle of all legal services that can be effective, whether it be a piece of litigation, an acquisition or everyday contracts negotiation… and it’s clear that it's no longer a world dependent on one partner and there is no lone, single way of delivering legal services.

A Lawsuit Delayed Is A Dollar Saved

I know that's a really bad take-off on a common expression, but it can be used to describe the prevailing attitude in legal departments toward filing suit against another company -- or even defending against a suit brought against your company. More accurately, the mindset is, “a lawsuit avoided is many, many dollars saved,” and those savings can directly effect the bottom line.

In past downturns, the Bar has been able to take some solace in the loss of transactional work knowing that the litigators would soon have more than enough cases to carry the load. Everyone expected that to be the case this time around as well. The common thought was that corporate work goes down, litigation goes up. But this recession is not like any other in so many respects, so why should it follow that course?

Since the beginning of this year, I’ve taken note of the lack of an appreciable increase in litigation. Companies are not willing to make the huge investment that even the smallest case requires; big cases can quickly become a massive drain on resources. Has the recession created an incentive to avoid these cash sponges? I believe it’s coincidental for a lot of legal departments.

Monday’s National Law Journal contains an interesting and well-written article by Karen Sloan. In it, she notes that there seems to be a dramatic shift in how corporate America is thinking about litigation as a result of the recession. Ms. Sloan shares my humble opinion that you cannot blame this change in attitude totally on the recession and cites other logical reasons why there has been a shift. There are many, many factors that lie outside of the current economic climate which have, through the course of time, changed the mindset of our corporate colleagues. The reality is that it’s just too darn expensive to enter into a courtroom battle where there are other options for dealing with the problem that are infinitely more cost-effective and efficient.

For years now we have been working with corporate clients on how best to tackle some of the more costly aspects of litigation in the most cost-effective and efficient manner. That being said, there’s little question that most changes or strategic shifts regarding litigation policies are reactive; there is usually something on the front end that demands a change. After all, in our profession the tried-and-true path gets worn bare unless a giant boulder is thrown across it. The recession certainly has provided the needed incentive for many to produce a new course of action.

But for many of our clients, that boulder was placed in front of them long ago, during better economic times, whether it was with rising outside counsel costs, new company standards or policies, or simply an early recognition that e-discovery was going to become more difficult to deal with in the future. So they started looking working with regional law firms instead of the AmLaw 100, or enacted procedures when dealing with specific types of litigation, or they expanded their in-house litigation teams and created strict e-discovery and data storing policies. Collectively, these changes meant there was a new approach to litigation, how and when to respond, and how to manage it. These clients were the early adopters of this shift and forged the path for others to follow. Once the recession set in, the shift accelerated somewhat uniformly throughout the profession.

Sure, we haven’t had a surge in lawsuits like has happened in other challenging economic times. There are many positives to this fact, though. The practices that have been developed during the good times are playing a role in decisions whether or not to sue (or to enact procedures when one is sued). They are certainly playing a big role in how to conduct a piece of litigation.

Is That Thunder In The Distance?

There’s an interesting phenomenon happening in the litigation arena right now: nothing.

Well, that’s not entirely true. There is plenty going on, of course, but the sour economy has put a different spin on how litigation is being managed. Cases are not marching in lock-step with a normal timeline. For instance, some companies are putting everything related to a piece of litigation on hold until they are required by time, or the case itself, to act. And action this time around is preceded (in most instances) by a lot of anxious planning and budgeting.

Now this isn’t anything new – many companies have longstanding policies not to act on litigation until forced to do so. It’s often a cash-flow-versus-workflow approach. However, I am seeing a palpable sense of hesitancy with regard to litigation and case management. Companies are taking an ‘I’ll believe it when I see it’ stance, whether it’s regarding the various stimulus measures and burgeoning economic turnaround, or the stability of a company and their department's budget, or any number of other things. That attitude is impacting case management. These companies know that eventually they are going to have more work (i.e. revenue), but they simply do not want to spend the money now, when times are tight, addressing litigation matters unless they have to.

All is not dour under this approach. One great side effect is that companies are taking this time to create, refine or institute their approach to e-discovery for when the storm finally does come. If their ducks aren’t already in a row, they are briskly walking toward the line.

We’ve participated in dozens of planning or strategy meetings that are seeking to solve the bigger issues: how to create repeatable discovery processes, how to budget discovery costs, the software tools to use, the action items surrounding a litigation hold, the data collection and management process, analyzing the benefits of early case assessment tools, and creating processes that facilitate collaboration with outside counsel and all their legal vendors, among many, many other issues.

All of this is ultimately focused on cost and efficiency, of course. And it’s never too early to make that a priority – or in some cases, it’s not too late.

The Client's Best Interest

Recently I participated in a conference call with a prospective client about a voluminous e-discovery assignment. The call involved all of the players: several of us from Counsel On Call, the corporate legal department and its outside counsel (a prominent East Coast firm). These collaborative meetings are occurring more frequently now, which is refreshing. 

This trend roots from the determination that most law firms were not created to handle today’s e-discovery, but are better positioned to oversee and manage the discovery phase of litigation at a macro level. The client wants to save money on the review, let the law firm manage the process, and have an efficient communications process -- so a team approach involving corporate counsel, law firm lawyers and companies that provide litigation support services is practically a requirement today. It is this collaboration -- and open communication from the assignment's onset -- that ensures an excellent work product, as all of the players are working at their best use from Day 1. The process is more efficient, quality control is central and it ultimately better serves the client's interest and goals. It’s a business-partner approach.

Buyng into this approach is a big step for a law firm to take, but a very necessary one because legal departments need real business solutions and cost containment. The days when a firm can justify the cost of 50 associates (at $250+ per hour) conducting a large e-discovery review are over. What was somewhat surprising about the conference call, however, was that the law firm was Counsel On Call’s biggest advocate, as opposed to viewing us as the competition. But it seems that many law firms realize -- some organically, some by necessity -- that developing quality partnerships can be an asset to their practice (and put them in a better position with their clients). The ABA also seems to recognize (and bless) this outsourcing trend, as its Standing Committee on Ethics and Professional Responsibility recently came out with Formal Opinion 08-451 outlining lawyers’ obligations when outsourcing legal support services.

Much like what this law firm coordinated (and what legal departments are insisting upon these days), it's always good to get everyone at the table together, bring all the challenges/issues out, and discuss the best possible solutions. We're seeing a lot more of this, and it's because a lot of money can be saved throughout the process by collaboratively hammering everything out on the front end.