How To Woo In-House Counsel In 2012
Law360
Date: January 2, 2012
By Sindhu Sundar, Law360
Law360, New York (January 01, 2012, 12:00 AM ET) -- As U.S. companies gingerly emerge from the throes of a battered economy, there is hope for law firms vying for the attention of corporate legal departments cautiously loosening their purse strings, as long as they make their costs predictable, adopt robust business management tools and cultivate strong business relationships, experts said.
Legal consulting firm Altman Weil Inc.’s 2011 survey, released Nov. 29, revealed that 14.5 percent of the 176 corporate legal departments that responded would increase their use of outside counsel in the next year, with 45 percent saying they would maintain their current levels.
But changes in economic winds alone cannot propel law firms around the trend of corporate legal departments keeping more work in house as in-house legal departments grow and regulatory scrutiny demands better internal compliance strategies. Increasingly sophisticated business management tools are also helping businesses monitor and curtail their legal department costs, experts said.
“This is not the first economic crisis, and companies have been moving toward consolidating work within their legal departments for a while now,” said Arthur J. Molins, North America general counsel for Deutsche Lufthansa AG. “In-house counsel have proved their value as proactive lawyers, making sure there are active compliance programs in the company, that its employment practices are in line with local regulations and transactional matters are handled smoothly. They’re here to stay.”
Roughly 38 percent of companies in the Altman Weil survey said they planned to increase their number of in-house attorneys in the next year, only a slight dip from the 41.4 percent who planned to hire more lawyers to their legal teams in 2011. Molins said Lufthansa’s own legal forces have grown dramatically in the last two decades, declining to provide exact figures.
With corporate legal departments continuing to keep a watchful eye on their budgets in 2012, law firms angling for the corporate legal dollar should focus on offering sound budget proposals and offering value-for-the-money services that are more than just marketing gimmicks, experts said.
Don't Just Cut Rates
Corporate counsel routinely report that the potential runaway costs of hiring billable-hour law firms can often make them a prohibitively unattractive choice next to salaried in-house attorneys. And although many law firms try to offer budget estimates for their services, costs can sometimes be as unpredictable as the course of certain types of litigation, such as class actions, general counsels said.
“Class actions can take so many turns, with multiple defendants and multiple plaintiffs,” Molins said. “Nailing down the costs of something like that is like having a thousand feathers in the air during a hurricane and then trying to collect them.”
The way to address such uncertainties is to be diligent about providing regular updates on the costs, Molins said.
Lufthansa has had a list of guidelines administered by an external regulator, which monitors where the company's external dollars go, Molins said, adding that they get their bills on a monthly basis so that they can keep track of progress regularly.
But GCs also urge law firms to take the counterintuitive approach of fighting the instinct to slash their rates, and to focus instead on offering more overall cost-effective strategies.
“Value is not a question of lowest cost, but achieving our objectives effectively,” said Jeffrey Carr, general counsel for FMC Technologies Inc., a Houston-based oil and gas equipment and service company. “$1,000 an hour could be the most effective sometimes. We look at total cost, project management skills and business focus."
Holland & Knight LLP took just that approach when it bid for a real estate project this year, beating out at least two competing bids by consciously choosing not to do a rate reduction but to focus instead on explaining to the client how the budget would work.
“The rate isn’t necessarily a deal-breaker,” said Janis Schiff, client service and development partner at Holland & Knight, which made BTI Consulting Group’s Client Service A-Team in 2011 for understanding clients’ businesses and needs. “A firm could bill a lot of time at lower rates."
In its proposal, the firm laid out ranges of expenses and budgets for each aspect of the project, drawing out proposals for contingencies in which the costs could exceed the budget, Schiff said.
“For example, if the project ran over through no fault of ours, the client would have to pay a certain percentage of those costs,” Schiff said. “In the end, you need to focus on concepts, not dollar amounts.”
Know Your Audience
Marketing euphemisms are some of GCs’ greatest pet peeves, legal industry professionals said, cautioning law firms to think carefully before making glittery offers of value-added services and alternative fee arrangements.
“When I hear that phrase I feel like I’m at a back alley somewhere with someone opening up a trench coat going, 'Hey, buddy, you want to buy a watch? You want an alternative fee arrangement?'” said Carr of FMC Technologies.
Carr said his firm was much less likely to be swayed by gimmicky cost-savings proposals and more likely to award projects to firms most attuned to the priorities of the company.
“We look for law firms who understand what we’re looking for and what our business objectives are,” Carr said. “For example, we’re not in the business of answering interesting questions of law — we need practical advice on our business in oil and gas.”
The CLOs surveyed by Altman Weil echoed that sentiment, giving the highest effectiveness rating to law firms that spent time understanding their business.
“We’ve heard of all these value-added services, but my advice is listen to your client,” said Nicky Mukerji, chief information officer of legal spending management consulting firm Legal Bill. “Your marketing message should be, we will understand your financial needs.”
Some of the ways law firms can establish themselves as partners, and not just vendors, is to be up front about their strategies on the cases they're handling, explaining their choice of lawyers for a particular assignment and being more predictable in terms of how much it will cost, Mukerji said.
Mine The Data
The best way of increasing the predictability of costs for a certain project is to offer better business management services, recognizing that corporate law departments are no longer the enigmatic black boxes of cost uncertainty they used to be, Mukerji said.
“The practice of law was considered mysterious and known only to lawyers, and then executives began to realize that just like any other part of their business, the law can be analyzed and managed,” Altman Weil principal Daniel J. DiLucchio said.
Seyfarth Shaw LLP, another law firm that made it onto the BTI Client Service A-Team 2011 for its high quality of client services, has developed management strategies to gather and categorize data about their corporate legal assignments.
The firm's project management office works with its attorneys to track projects in terms of their overall progress, according to Kim Craig, the director of Seyfarth Shaw's project management office.
In April 2011, the firm began using team sites, that allow the entire team working on a case or assignment a way to track projects in real time, Craig said. Attorneys can upload project plans to the sites, as well as post to-do lists, assignments, and due dates, monitoring each task from inception to conclusion, she said.
The collaboration platform is an addition to one that the firm has had in place for several years that allows clients to view project plans uploaded on the company's extranet.
“The idea is to operate as a collaborative unit between in-house counsel and team members in our firm,” said Stephen Poor, chair and managing partner for Seyfarth Shaw.
Poor said the firm’s focus on process improvement methodology has been evolving over the last five to six years.
“We thought there had to be a better way to deliver legal services, and the market would increasingly value efficiency coupled with excellence, which would drive changes to the model going forward," he said.
Share The Training Burden
Skadden Arps Slate Meagher & Flom LLP, which also made the BTI Client Service A-Team in 2011, this year took the relatively untrodden path of putting its new associates through a two-month mini-MBA program, to train them to become proficient in business management areas including discounted cash flows, income statements and company balance sheets.
The training, part of the firm's Associates Comprehensive Education Program set up in January 2011, is conducted by the firm's partners and senior lawyers and is run on the company's dime, said Charles Smith, attorney development partner at Skadden Arps' Chicago office.
"When I was an associate 20 years ago, I ended up taking night classes in accounting, which can be very difficult to do when you're working at a law firm," Smith said. "Companies have had the concern about how law schools are preparing young lawyers for the practical aspects of this work, and our clients have expressed satisfaction that we have taken on some of that burden."
Make It Personal
In 2012, chief legal officers will still be prioritizing budget control measures, but one of the most reliable ways to win business from corporate legal officers will still be by cultivating relationships through good old-fashioned personal contact, experts said.
“We make sure to try to be very attentive — meaning, having the relationship partner on particular matters being available for clients, whenever they need it,” said John Crowe, partner at Pryor Cashman. “I try to make sure I’m the one in touch with the client and not the junior associate, even if they may have the ability."
One of the costliest mistakes that law firms can make is to lack foresight in the business relationship, experts said.
“You have to look at the bigger picture with your client,” Molins said. “Are you looking at a long-term relationship or are you just looking to cash in on this particular relationship?”
Holland & Knight LLP said one way the firm builds relationships with its clients is by having them double up as vendors for certain services. The firm’s lawyers, for instance, often stay at the hotels of one of their hospitality clients while on business travel, and the firm uses its courier service client for a majority of its own fast-delivery service needs.
“It’s a way to show our commitment to their business,” said Schiff of Holland & Knight. “For example, if you’re trying to win business from Continental Airlines, you should probably fly them instead of going to meet them and saying, ‘Oh gee, we flew Delta.’”
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