DS2.0 Panel Recap: Working With Outside Counsel and Gaining Control

It what was undoubtedly one of the most anticipated discussions of Discovery Symposium 2.0, Sue Dyer (HCA), Jan Mendel (AT&T Mobility) and Carlos Provencio (Morgan Keegan) served as panelists and led a lively discussion that detailed approaches to working with outside counsel in the discovery process. Anne Whitaker moderated.

Main Takeaways:

  • Set a line in the sand with outside counsel; Say, “This is how we’re doing it”
  • Building a “virtual law firm” controls outside counsel spending
  • Regional law firms and a collaborative model result in great value
  • It is important to set parameters on the front end
  • Law firms “will not change until we make them change”

Sue Dyer began the session by discussing the “virtual law firm” model, which includes the use of regional law firms and a HCA-dedicated team of Counsel On Call attorneys for discovery. Not only has this approach reduced costs, but it has made the discovery process more straightforward and efficient and eliminated the dependence on one law firm’s process versus another. HCA brings that consistency to each matter, wherever the matter takes place.

The panel and audience also discussed that as far as law firms are concerned, “not much has changed.” Some who came from the law firm background empathized with the law firm argument regarding the use of less expensive attorneys, specifically that “they sign the pleadings” and their work is attached to it. The counter to this, according to Carlos, is that it’s a matter of assigning value to types of work, and he sees the law firm in a more strategic role in litigation. He will pay law firms “for inspiration, not perspiration.” Audience members and panelists agreed saying that “law firms will not change until we make them change” and going as far to say that value pricing should be “part of their corporate responsibility.”

Panelists also discussed e-discovery and its addition to their workload, as well as to the budget difficulties they once experienced. While it was somewhat frustrating, panelists agreed that it has been more disappointing that law firms simply “do not get the team approach.” The turf battles and desire to handle everything on a case only impedes what in-house departments are trying to do. For Jan, this has given her the opportunity to be more creative with her budgeting and thought process, and she has seen dividends already and expects more in the coming months.

The cost of legal services was also discussed at length. Several attendees said they will not pay more than $500 an hour in attorney fees. The suggestion that law firms will continue charging high prices as long as “Corporate America” allows it created a lively discussion with the audience. One participant said she believes it is “offensive” to pay someone $900 to $1,000 an hour and will not approve partner hourly rate increases; she will, however, approve some associate increases (once she gets to know the associate’s work product). Since many big firms are not making changes to their hourly rate approach or insist on rate increases, many companies have utilized a virtual/regional firm network, which is much more in line with hourly rates under $300 per hour.

One audience member said she believes the root of the problem is costly law schools and student loan agencies. Because law school loans are due so soon after graduation, lawyers feel compelled to charge an unusually high hourly rate to pay back loans right away. Another audience member then said he believes the problem is law firms competing for higher profits, that it’s not the law school but the “economic model of the law firm.” He cited the cost of a paralegal at one firm of being more than $300 per hour, which indicated a complete lack of understanding regarding value. He also discussed two of his law firms’ stated goal to be on the “top profit per partner list,” which he said they achieved… but his company no longer works with those firms because of it. He said his company’s goal is to never pay more than $300 for an attorney (they are at the $500 cap currently).

The issue of how to tell a law firm “this is how we’re going to do it” was then discussed. While it can be a difficult conversation, all who spoke agreed that it’s important to set a hard line in the sand. Many stated that it’s become clear that whether or not law firms do realign their business model, there’s a better way to handle litigation and discovery anyway. One panelist noted that she doesn’t know if law firms are ever going to “get it,” but that they haven’t waited around for their firms to do so.

The importance of setting parameters on the front end of a working relationship was also discussed. Several participants stated their desire to get better in this area; clearly defining roles and who will handle what work are important issues to address that aren’t always black and white. Including law firms in the decision-making process regarding the distribution of work and budgeting was one approach highlighted; giving firms the opportunity to match prices for discovery work has been utilized by some, but no firms have “met that offer.” Within that context of collaboration, Carlos discussed Morgan Keegan’s approach in using similar-size regional law firms and how, much like Sue and HCA, Morgan Keegan is already seeing benefits. The firms work well with one another and his Counsel On Call team; when a matter arises that a firm needs assistance with, another firm in his network will step up “seamlessly.”
 

Lather... Rinse... Repeat

I’m sure we’ve all felt like we’re stuck in this cycle at some point. It’s very easy to fall into patterns and ruts, especially with endless piles of work or when something has typically been handled a certain way.

The surface of the earth is soft and impressible by the feet of men; and so with the paths which the mind travels. How worn and dusty, then, must be the highways of the world, how deep the ruts of tradition and conformity!               

- Henry David Thoreau, Walden

 

If we’ve learned anything the last two years, it’s that taking a different look at the delivery of legal services is, at a minimum, a healthy exercise. Don’t get me wrong, I don’t think corporate legal departments used to search for ways to spend more money or work less efficiently. I don’t believe law firms weren’t trying to provide value to their clients prior to 2008. But it’s not a stretch to say that those issues were once lost in the “lather rinse repeat” world of legal services up until the bottom dropped out of the economy.

Now the focus on these issues is apparent, and many in-house departments and law firms have taken dramatic steps in recent months to retool their operations or install cost-containment measures. But what does it really mean? Does saving $2 million a year in legal expenses signal escape from the rut? Does reorganizing who handles a client’s work mean that a new approach has been adopted? These very well may be very positive steps, but real change has more to it – and the benefits could be tenfold.

Think for a moment about a typical EEOC matter, due diligence need or a stack of marketing contracts that must be renegotiated. If the average in-house department is already short-staffed (and swamped), where is the first call going? Outside counsel. Maybe there are good protocols in place for these issues – the associate receives the message and tries to get to these matters as quickly as he or she can, balancing it with the needs of several other clients. Even if an alternative or flat fee has been arranged for this type of work (ahhh – change!), it is still reliant upon a ‘lather rinse repeat’ way of doing things: Work comes in. Outside counsel contacted. Work handled. Invoice sent. Gratitude that the bill was as expected. There is value in known quantities, after all.

What I would say is that there are different ways to handle this work on both sides of the table. We’ve posted here about the Tripartite Model (or “three-legged stool”) model before – basically installing a new model for some of this mid-level work to client-dedicated (Counsel On Call) attorneys who collaborate with both in-house and external counsel. This allows outside counsel to focus on bigger issues and staff work in a more effective way; in-house counsel utilizes attorneys dedicated to their matters who are available as-needed. It’s flexible, fluid and responsive, and allocates resources efficiently and appropriately. It also saves money for both parties.

But let’s take it a step further and focus on value and improvement (not just process). Tracking, reporting and evaluation are cornerstones in everything, not just in e-discovery. What does the client truly get from our services? How can we better handle this work? How can we reduce the costs? What did we learn? How can we use what we’ve learned to make the work product better? Who needs to be plugged into this and at what point? What work is being duplicated by others or requires similar functions? How much time do these matters truly take? What work has been rejected by legal because of a lack of resources to handle it (but legal would really like to handle it)?

If these questions and others are being asked with your different types of work, your “legal pattern” likely has a more beautiful hue to it these days. There must be a broader perspective, even in the most “rut-like” activities.
 

Discovery Symposium 2.0: Brief Notes & Quotes

Everyone is back in the office and looking fresh this morning, having wrapped up our 2nd annual e-discovery client event, the Discovery Symposium, with GCs, heads of litigation and those managing the e-discovery process. It was a fast-paced two days, with nine sessions covering a healthy spectrum of issues. All indications are that it exceeded last year, of which the general consensus was “the best discovery event put on by a wide margin.”

What makes the event so unique are the panelists who volunteer to participate and the open dialogue they help generate from the audience. The group is relatively small by design – we capped it at 55 in-house attorneys from 40 corporations – and there are no vendors in attendance. We also don’t put strict parameters on the content; we want the conversation to flow to what the attendees want to talk about. In the end, it’s peers speaking frankly about their experiences with the goal of identifying best practices and new ideas.

The group is diverse, with numerous Fortune 50 companies to small legal departments, with attorneys managing discovery in a variety of practice areas. What is especially rewarding to us is that our attendees have truly connected and reach out to one another to share ideas once they've returned to their respective offices.

Posted below are a handful of the great comments made during the sessions by our panelists and attendees. We will likely have several posts in the next couple of weeks recapping specific sessions.

“What differentiates some of the (software) tools often comes down to whether or not a lawyer can actually use it… I shouldn’t need two days of training, and no one on our team has 16 hours for that anyway.”
- ‘Software Decisions’ panel

“We truly develop and invest in our relationships, whether they’re with outside counsel, our IT department, or partners like Counsel On Call… otherwise it’s constant re-education.”
- Fidelity Investments panel

“I tell them it’s my risk, not theirs. And it’s what we’re doing, so you’re either in or you’re out.”
During discussion about law firms who regularly ‘fight’ when e-discovery is shifted in-house and Counsel On Call attorneys are utilized. The group cited instances in which the law firm said, ‘Well, it’s my name on the pleadings and I won’t risk it.’

“Let’s get real: you can’t budget everything. We’re creating budgets during the summer for the following year... we ask everyone to track key metrics and forecast their work volume, then make mid-year projections.”

“Yes, the action is in the forecast.”

- Discussion during ‘The Budgeting Puzzle’ panel

“I have gotten religion about value. I’m focused on cost and how to reduce it. The events of the past 18 months… there is no turning back. This is the way of life moving forward.”

I’m a lawyer with a practice who has to report to my clients. This IS a legal practice and we have to show we’re providing value. I communicate that to everyone on my team.”
- ‘Litigation Leaders’ panel

Two of our law firms made a conscious decision to pursue inclusion on the best ‘Profits Per Partner’ list. Well… they made it. But they’re no longer working with us."
- ‘Working With Outside Counsel’ audience member; his company has more than 1,000 cases annually
 

Legal Budgeting: It's The New Black

Remember your days as a law firm associate when you were told the exact number of hours you must bill to receive a bonus? You focused your attention on the research memo, brief or closing binder at hand and only looked up to count up your weekly hours to make sure that you were hitting your billable quota. You didn’t pay attention to your receivables or whether the partner wrote off your time (you’d worry about those business-related matters later, perhaps during your 7th or 8th year of practice when you were up for partnership), because you knew that if you met that magical 2200 hours at the end of the year, your annual bonus was as good as deposited in the bank.

However, for corporate in-house counsel (and even those same law firm associates just one year later), those days are quickly fading into the rearview mirror. We are now entering the Golden Age of Legal Efficiency -- meaning that an attorney now needs equal expertise with Lexis, Westlaw and Excel.

Budgeting is a huge part of in-house counsel’s struggle for legal efficiency. There is no endless supply of revenue coming into the legal department; there are no bottomless pits of outside counsel spend. Every dollar is under a microscope these days; the ends must justify the means; and we all must do more with less – all points echoed in an article in Metropolitan Corporate Counsel magazine. This trend has had a notable effect on all facets of the legal profession: as an attorney or legal services provider, you better understand your client and know the actual cost of your services in order to survive this tightening of the belt.

Litigation is a great example of the legal-efficiency trend because it’s an enormous line item for many in-house departments. There is so much more data available to in-house counsel now that it has become relatively easy to break down costs and identify areas of savings throughout process, particularly in the discovery phase. The number of documents to review, processing costs, software platforms, attorneys’ review rates, hourly bill rates . . . these all are areas for significant cost savings. And when in-house counsel focuses on getting the work done properly and efficiently, it causes all of his or her partners/vendors to budget properly or risk losing the business. With everyone on the same page (or spreadsheet) and keeping an eye of the bottom line, it helps the client budget for future matters more accurately and to make prudent business decisions on every piece of litigation going forward.

The point is that there are many items that can now be budgeted that previously weren’t observed with a honed eye. You want to charge $200 per hour for your associates to conduct the review? That’s fine, but show me the actual benefit, don’t just pitch me on the law schools they attended. You want to use your preferred hosting company? OK, but give me the cost analysis. You want to handle our litigation moving forward? Give me detailed estimates on all the costs involved and explain to me how you’re going to make our process better and less expensive for the next case.

The emphasis on budgeting is by no means specific to discovery. Due diligence, trademark and copyright, contracts and employment matters, among others, are each just as conducive to scrutiny. It is no longer good enough to simply say, “Sure, we have great attorneys who can handle these cases” or “We can do that for one-third what you’re accustomed to paying.” The service providers who are differentiating themselves are the ones who demonstrate, “Yes, we have the experienced attorneys who can handle these cases. Here’s how many hours we expect it to take, here’s the data to back that up, and here’s what we can do to make it work for your budget.”

Transparency in budgeting and in project execution are here to stay. It is a much better starting point for many clients, or should I say the only starting point. I recently read an article where a senior partner at a large multinational firm in D.C. stated, “I’m not really interested in the business of the law,” explaining that as lawyers focus more on the bottom line their role as a trusted advisor diminishes in value. Well, in my opinion, it’s possible to do both – serve as a trusted advisor, while also recognizing and planning for the costs involved in the legal representation. And if you don’t believe me, just ask an in-house attorney – most of them have to do it every day.
 

Maximize Resources, Achieve 'Value'

You can’t scan a legal rag nowadays without seeing an article predicting the end of the billable hour, or the revamping of the business of the practice of law, or some other projection of how the practice is going to look at the end of this recession. Some insights are better than others, like the recent Law.com article about in-house departments requesting their outside counsel to reduce rates or present an alternative fee arrangement. Patrick Lamb’s commentary on the matter on his blog also really drew my interest – I think he hits the nail on the head.

Undoubtedly there is some room for firms to reduce rates and I believe, in time, the market will bear that out (I love the anecdote from a lawyer who told Susan Hackett at ACC that $700/hour was a “suicide” rate). But what’s more central – and the article skims over this while Patrick calls attention to it – is that hourly rates are really only a small part of the equation and that efficiency and quality are the key elements. I'd add one more factor to this cost-saving/value formula: maximizing resources.

Based on hundreds of conversations I’ve had with in-house attorneys in recent months, there really isn’t as much pushback on the partners’ high hourly rates. Sure, clients would like them to be lower, but they also understand you have to pay for great legal counsel. The real problem is at the associate level, where it’s much tougher in some instances to defend the value received. In many cases they’ve turned to smaller or regional firms to get the rates they seek across all levels.

But where we’re seeing in-house departments achieve budgetary success is in conducting an audit of the work that needs to be done and overlaying that with the available resources. Here’s a rudimentary example of how the process works for a fictional department that has (only) three operational units: litigation, contracts and labor and employment:

Litigation

Old Way
Call outside counsel to handle; review might be outsourced and marked up, then the documents re-reviewed by first-second year associates; law firm controls the entire process

New Way
Call outside counsel and discovery team for a planning session; discovery team controls costs and productivity in a transparent manner, liaises with technology vendors, and works closely with law firm(s); law firm handles strategy; in-house department controls the process

Savings: 30-75% or more, typically in the millions annually

Contracts

Old Way
All matters that can’t be handled in-house are sent to outside counsel, including simple matters, such as routine leases, costs $300+ per hour, 10-15 hours of work per week


New Way

Most complex matters are still handled by outside counsel; routine matters like leases and overflow work handled by experienced contracts attorneys billing less than $100 an hour, supervised by in-house attorney(s)

Savings: $150,000+ per year

Employment

Old Way
Routine and EEO matters and trainings are handled by law firm associates for $400+ per hour; such work is sporadic, but typically averages 10 hours of work per week; monthly trainings are required in different areas of the country


New Way

EEO matters are handled by attorneys with 10+ years of experience for less than $100/hour; trainings are conducted by the same attorney(s), who know the company’s policies well, for the same hourly rate or an agreed-upon flat rate

Savings: $150,000 per year on EEO matters; $35,000-$50,000+ on trainings


So while this is far from a detailed example -- and many in-house teams have more than three operational units -- it provides a glimpse of how many of our clients are approaching their legal work now. There is always going to be a significant amount of work that needs to go to outside counsel; there is always work that will need to be done in-house; and there's a growing recognition of this middle ground of work where costs need to be cut, and that's where a lot of value is being discovered.

It also shows that it doesn’t take wholesale changes or eliminating outside counsel to achieve significant cost savings – just maximizing resources and reaping the resulting value.