Choice, oversight of outside lawyers in-house counsel job

This is the final installment in a Succeeding In-House series, in which the author explains why basic legal skills are not enough for long-term success as an in-house attorney.

This column explores some of the techniques to use when wielding your most important tool: outside counsel.

Outside counsel are typically the single biggest expense line-item incurred by most legal departments. Used correctly, outside counsel have the power to markedly increase your effectiveness and expand your capabilities. They also have the power to cause you terrible embarrassment, nasty fee surprises and a significant loss of credibility. As with any tool of such power, it is well worth a little time and thought to make sure you wield it safely and with maximum effectiveness.

Before engaging a new firm, go beyond cursory, non-specific references. Find someone who has used the same individual lawyers for the same type of work. Having someone tell you they have had good luck with a firm in the past is close to useless. You need to look at the office, the practice area, the specific people and the type of project.

When assigning work or forging new relationships, be very specific about what you want.

There is no greater law firm cliché than the expensive, excessive research memo delivered after it’s too late. Have the conversations, and develop the common vocabulary necessary to be clear about what is needed. Outside counsel are not mind readers, and they have more incentive to be slow and thorough than they do to be brief and responsive.

No one enjoys talking about fees, prices and budgets, but it has to be done. It does not have to be an overly involved conversation; you just need to understand the billing rates, staffing and general approach before it’s too late.
Insist on prior approval before any rate increases can take effect. Request estimated timeline and budgets. Track weekly postings against budget, and discuss important variances in real time.

And in structuring fee arrangements, keep abreast of emerging trends and take advantage of alternative value-based billing arrangements that may save you money and frustration compared to the traditional hourly billing approach.

Rather than repeating yourself with each new firm, consider documenting key expectations in written guidelines. They can be as simple as an informal memo about your preferences or as involved as an appendix to an engagement letter.

Rather than procrastinating, start small with a few bullet points. You can always add to the document over time.

With large international firms it is crucial to find someone you can trust to steer you to the best resources in their system. All large firms vary in quality from practice to practice and region to region. Don’t assume past performance in one area is a reliable predictor of future performance in another. Develop a relationship with someone who will stake his reputation on his inter-office referrals.

By tradition and habit, a majority of a company’s legal work gets sent to the general corporate firm (or firms). But complacency and fear of change can cost you money and drive sub-par results. Selecting and managing outside counsel should be a core skill of any general counsel.

Be detached and objective about the performance and efficiency of the work being done by your main firm. Don’t let relationships and comfort make you lazy. Seek opportunities to experiment with boutique practices and sole practitioners specializing in one type of matter or transaction. The solo specialist can be a bargain on routine matters and a godsend in overflow situations.

Issues to consider during engagement

Trust and comfort are the bedrock of an advisory relationship. Take the time to meet and grow comfortable with your advisers. Attend a conference call in person at their office, or invite them to yours. Make sure they get to know the lawyers in your group and the members of your senior management team.

If they are attending a board meeting, consider including them in the board dinner the night before. Invite them to speak at your departmental off-site meeting, or include them in a departmental outing. A good relationship will lead to better calibrated advice and more trust, comfort and understanding.

And do not ignore the non-lawyers on the team. When you are in a crisis, the secretary has a lot of influence over how quickly you are rescued. Take the time to get to know him, and build a relationship of friendliness and respect.

Also take a little time to understand your partner’s practice, fiscal year, work style and other major client commitments. The same goes for senior associates, especially those who are approaching partnership; careless words or unfair criticisms can do incalculable damage.

Keep track of the associates on the team and, when possible, insist on meeting new ones before they are allowed to work on your matters. Firms will resist an effort to impinge on their freedom to assign associates, but with the important or recurring matters, hold your ground and make sure you get a chance to look someone in the eye before you rely on his advice.

Your partner should be clear that you will not pay the bill of anyone whom the partner has not at least discussed with you in advance.

If a matter requires branching into new areas of law, double-check the competency of the lawyers involved. Diversions into new areas can go unnoticed until after someone has spun some wheels, given bad advice, or caused a delay. Be watchful, and insist on proper staffing for the new areas of law.

For important meetings, don’t leave things up to chance. Review the goals and approach with outside counsel in advance. Go over likely scenarios, discuss likely atmospherics and personalities, anticipate likely questions or objections, and review answers.

If meeting in a mutually convenient location is not feasible, try text-messaging or e-mailing each other (being mindful of privilege and discovery issues). If such private sidebars are not possible, pre-meeting preparation is all the more important.

Allowing outside counsel to interface directly with non-lawyers in your company can be efficient, but it can very easily get out of hand. Controlling cost, quality and consistency requires having a very clear policy on access to outside counsel. A good starting point is a clear understanding that you will not pay for advice not given directly to you or one of your legal staff. This can be waived on a case-by-case basis, but if you don’t start with a strict baseline, costs can spiral out of control and confusion and misdirection can ensue.

Trying to force work down the billing-rate scale can be a false economy. Many experienced general counsel will insist that a little undivided attention from a senior partner is worth much more than a lesser expenditure for associate time. Don’t confuse cost, quality and value. Associates can be lower cost, but senior partners are often much better value.

It can be tempting to take the advice of “expert” outside counsel as gospel, but this can be a costly mistake. While you may lack specialized expertise, you don’t lack common sense, and you know your company and its goals. Trust your instincts: use that common sense to challenge advice that doesn’t feel right or doesn’t take you where you need to go.

Ask to review the basis, materials and assumptions being used in formulating the advice. Ask what the real risk is. Challenge any perceived lack of creativity. Sometimes being a little more distant from primary sources of law in your day-to-day practice can actually be very helpful in seeing the big picture.

When requesting written work product, in-house counsel usually review deadline and cost, but they often fail to discuss the real driver of value: precisely what it is they want and in what form they want it. The all-too-common crisis of receiving the wrong work product when it is too late to be redone is totally avoidable. If you don’t explain what you want, outside counsel will guess.

When requesting written work product, specify the approach you want taken in its preparation. Discuss the approach. Insist on status updates along the way. Ask for interim drafts; insist on the use of multiple models; even ask to see the models in advance.
If you have a particularly open and honest relationship with outside counsel, you can even obtain models and do the first draft in house. This has the added benefits of developing skills on your team and flushing out important issues that might otherwise be missed as mere “default” settings in a form.

When making a complex decision — such as deciding to settle a dispute rather than litigate, undertaking a known risk or embarking on a strategic undertaking — ask outside advisers to document their logic. Create a formal decision tree that clearly illustrates the various alternatives, assigns probabilities and risks and documents key assumptions.

While this can be a very advanced science, your process need not be formal or complicated to be effective. A simple white-boarding exercise can explain how counsel arrived at the conclusion in their advice and develop a better understanding of the problem and its potential solutions.

A decision tree can show how a minor tweak to an early assumption can lead to a completely different outcome. Even if you don’t change the ultimate decision, you will understand it far better and be better able to articulate it after the exercise.

Issues to consider after engagement

There has never been a process that could not be improved. And the best time to consider improvements is immediately after completion.

Try to make sure you have your own filing backup of all important work product provided to you and any supporting materials relevant to that work product. And when possible, insist on an electronic copy of any written work product. It allows much easier re-use of models, and it gives you easy access to documents for questions that might otherwise lead to a call to outside counsel.

Get in the habit of doing regular post mortems on major interactions with outside counsel, and do it promptly. If you have feedback for outside counsel, give it while things are still fresh and it is still possible to have a meaningful conversation about it.

If outside counsel’s performance didn’t meet your expectations, speak up. Ask for a discount on the work. Ask the partner to ensure it will never happen again. Over time you will come to realize it is much easier to resolve it in real time.

If there is insufficient billing detail to allow you to tell precisely what work has been done, send the bill back with a request for more detail. If the bill has plenty of narrative but is sloppy or unclear or full of typos or meaningless abbreviations, send it back for more clarity.

The bill is your only means of mapping activity to value; if the bill doesn’t allow you to, obtain one that does.

Once you have a detailed bill in hand, you must take the time to closely read the narrative and make sure there is real value in the work being done at your expense. It is much easier to get a write-off when the matter is fresh and when you have an unblemished record of prompt payment than if you let a billing issue linger into overdue status.
Question something on every law firm’s bill at least once a year. It shows you are paying attention; done constructively, it can lead to a valuable dialog, and it can save you significant money.

If you use internal departmental metrics to track aspects of your department’s performance, consider expanding them to include measurements of outside counsel. It does not take a lot of work or an enormously complex system; even rudimentary data and analysis will allow you to discern patterns and meaningful firm-to-firm comparisons.

Electronic billing is very helpful for extracting this data. Start with a simple system, tracking type of project, cost, hours, effective billing rate, satisfaction level and other observations. Use an intern or an assistant to set up and manage the system. Over time it will provide you with the data you need to properly manage the firms you work with.

Choosing and managing outside counsel is a core skill for senior in-house lawyers. Done well, it can contribute enormously to your success. Done poorly, it can lead to misery. Take the time and put in the effort necessary to learn to properly wield your most important tool.

The payback is enormous.

Christopher Mirabile was formerly general counsel and chief financial officer at IONA Technologies, an integration-software company based in Waltham, Mass., and Dublin, Ireland. He is president-elect of the board of directors of the Northeast chapter of the Association of Corporate Counsel.