New England Biz Law Update
As the Dow continues to plummet and the credit squeeze forces companies in every sector to cut costs, it comes as little surprise that legal budgets are on the chopping block.
According to a November 2008 survey by management consulting firm Altman Weil, about 75 percent of corporate general counsel say their law departments are facing budget cuts next year, with an average cut of 11.5 percent. Most of the reductions will target outside law firms that assist the corporate attorneys, Altman Weil reports.
Altman Weil surveyed the top lawyers at companies in November and included responses from 115 general counsel. They reported that outside counsel costs and the unpredictable nature of legal spending were the top two concerns for 2009.
Even though only 115 in-house lawyers responded, it’s a good bet that every legal department has been asked not only to trim the fat but to achieve meaningful savings.
Broad strategies are obvious: About 65 percent of general counsel said they will bring more legal work in-house next year as a budget-cutting method; 53 percent plan to switch some work to lower-priced outside counsel; and more than half will require more alternative fee arrangements.
But real savings will require a more sustained effort. So we propose the following tips for corporate counsel:
1. Get to know your lawyers. No matter what the assignment, a good relationship with outside counsel is critical not only to success, but to controlling the bill. Experienced in-house lawyers know that mid-level associates are their best point of contact. More senior lawyers cost more just to talk to, while more junior lawyers multiply costs because they are not yet ready to take action or give advice without escalating the issue to their supervisors.
Just as important, a good relationship with outside counsel will help you know which lawyers are productively engaged on your matter and enable you to spot associates who may have been brought on board because they needed the hours, not because you needed the services. Some matters require the full resources of a national firm, but the vast majority just requires two or three good lawyers. When selecting outside counsel, find out who will be responsible for your matter and carefully evaluate how many lawyers are really necessary.
2. Hire busy but happy lawyers. Someone once said that if you want something done fast, give it to a busy person. The temptation to stretch an assignment to fill a timesheet is much greater for attorneys with too little to do, while lawyers with enough work to meet their billable-hour requirements will focus on completing the task at hand and move on.
But be careful that your lawyer isn’t too busy; don’t expect a lawyer who is chained to his or her desk day and night, with no time for outside interests, to be the most effective counselor. A well-rounded lawyer with outside interests is more likely to enjoy the practice of law and will go to work every day intent on succeeding, not just on filling his timesheet. And lawyers with interests outside the office are more likely to have relationships and experiences that can benefit your company.
3. Diversify — a little. The attorney-client relationship is not a marriage, and while firms may prefer a lifetime commitment, a little competition is healthy for the relationship. When firms know they have competition, efficiency comes more naturally. So does meaningful negotiation of legal costs.
4. Specialize — a little. A little competition is a good thing, but so is efficiency. Not all matters are created equally, and it is important to choose lawyers with meaningful experience with the issue at hand and who are attuned to your company, its policies and its business objectives. In any matter, your company is going to have to produce discovery or respond to due diligence requests, and attorneys who are familiar with your corporate structure and who know how to reach your IT department will be more likely to locate responsive information quickly without unnecessarily burdening departments with no connection to the matter at hand.
5. Learn a lesson from your insurer. Insurers can be the bane of an outside counsel’s existence. Unlike the average client, insurers scrutinize every bill and ask about the value they got for every tenth of an hour. And unlike most clients, insurers are experts at negotiating more competitive rates from the firms that work with them. Before you hire any law firm, be sure it is offering you the best rates — and then ask if it can do better.
6. Pay only for your work. You remember from your law firm days that in order to bill the 2,000 or more hours required by many large firms, attorneys have to work a lot of late nights. When they do, they are likely to order dinner and take a cab home. If these lawyers are under a deadline for your matter because of an upcoming closing or a short order of notice, you should expect to pay these costs.
But if your lawyers are working late because that’s the only way to get through the pile of work on their desks and hit their billable target, insist that the firm pick up the cost of dinner and cab ride home. These relatively small costs can add up quickly and eat into a budget you had planned to dedicate to substantive legal work.
7. Take the budgeting process seriously. Accurately predicting a budget for litigation matters in particular can be virtually impossible, but effective budgeting should go beyond a bottom line number. Experienced litigators will foresee decision points that may change the landscape and associated costs of litigation.
When reviewing a proposal for a litigation matter, look for, and ask counsel to highlight, those contingencies. And don’t be afraid to talk frankly with outside counsel, not only about your litigation objectives, but also about your business goals.
8. If the budget seems too good to be true, then it probably is. When reviewing a budget, keep in mind that you get what you pay for. Speak directly with the lawyers proposed for your team and review their biographies to make sure you are hiring a firm that can see the matter through without getting outmaneuvered.
And remember that preparing a competitive legal budget is easy, but sticking to it is an entirely different matter. If you haven’t taken the process seriously, don’t be too surprised when you find yourself over-budget.
9. Stay in control of the motion strategy. When engaged in litigation, carefully consider motion practice before authorizing your attorneys to file anything. There may be reasons you want to pursue an aggressive early motion strategy, but make sure you understand both the risks and benefits of that strategy. Said another way, make certain that your outside counsel keeps the big picture in mind.
If your goal is to get to the merits quickly, that strategy should inform your decisions about motion practice. Communicate your goals clearly to outside counsel and learn to recognize the difference between a scorched-earth approach and a thought-out approach that protects your interests without burning through your budget.
10. Keep track of firm and attorney performance. After a matter is closed, take the time to record and file your impression of the firm’s performance and what you liked and disliked about the individual attorneys involved with the matter. You may not be around the next time your company is making a decision about outside counsel, and it would be nice if your successor knows more than just the fact that a firm was used in the past. This information may likewise be useful to you if you find your next employer needs outside counsel.
Give serious consideration to using one of the billing management software programs available today, but do not underestimate the importance of creating some “institutional memory” with respect to the effectiveness of firms and individual attorneys.
In these uncertain economic times, every bill is subject to scrutiny and every budget is being trimmed. But a smaller legal budget is no guarantee of fewer or more simplistic legal issues.
Careful selection and supervision of outside counsel can help you continue to receive the outside help you need at a cost you can afford.
Erik P. Bodenhofer is corporate counsel for Reebok International Ltd. in Canton, Mass. Christopher M. Morrison practices at Hanify & King in Boston where he focuses on business and intellectual property litigation.
