Amorphous Support Services
January 30, 2008 | Filed Under The Client Speaks, Legal Resources
Sometimes outside counsel ask me why so many GCs seem preoccupied with costs. What about results? What about the best in legal services? What about covering your @ss?
Well, I submit as Exhibit A an opinion piece in the Financial Times by Luke Johnson, chairman of UK’s Channel 4 and founder of Risk Capital Partners, a private equity firm.
Mr. Johnson’s article is entitled “The truth about the HR department,” and at first blush it appears as yet another screed against the intrepid souls in HR:
The brilliant Avis boss Robert Townsend in his book Up the Organisation suggests firing the entire personnel department. Indeed, I have radically downsized HR in several companies I have run, and business has gone all the better for it.
But before in-house counsel can get complacent, Mr. Johnson expands his field of view:
HR is like many parts of modern businesses: a simple expense, and a burden on the backs of the productive workers. Other divisions that can become the enemy include IT, legal and marketing. They don’t sell or produce: they consume. They are the amorphous support services.
Ouch.
To complete the connect-the-dots exercise on operating-related legal services: to someone with Mr. Johnson’s DNA, if you are retained by one of the “amorphous support services,” guess what you are by association?
So if your friendly neighborhood GC seems like a one-note-band on costs (and trying to master another note, demonstrating value), try to be a little understanding. Mr. Johnson may be the CEO in the office down the hall. And he just called that very GC into his office after reading the revised forecast for outside services.
Return on Legal Resources
October 2, 2007 | Filed Under Legal Resources, Managing
The law department as profit center?
Bloomberg reports that this group at DuPont was responsible for $290 million in revenue last year,which included a $92 million asbestos insurance settlement.
According to the article:
The asbestos agreement in December 2006 resulted from a three-year-old DuPont program to find ways to generate revenue by filing lawsuits the company would not otherwise have initiated or by seeking licenses from companies using its patents. The law department has brought in $630 million since 2004, according to DuPont assistant general counsel Thomas Sager.
Dupont is integrating alternative fee arrangements into cost recovery activities:
The firms that handled last year’s insurance settlement, Pittsburgh-based Kirkpatrick & Lockhart Preston Gates Ellis and Beaumont, Texas-based MehaffyWeber, reduced or waived their hourly rates and shared about $15 million of the settlement.
Big settlements can skew results a bit, but it’s an important discipline for a law department. It’s perhaps an even more important signal to send to the CEO and the board.
Profits For You; Fees for Me
May 2, 2007 | Filed Under Law Firm Trends, Legal Resources
Earlier this week the American Lawyer trumpeted the mother lode that certain Am Law 100 firms struck in 2006:
In 2006, for the first time since The American Lawyer started measuring the financial performance of law firms 22 years ago, a majority of America’s 100 top-grossing firms had profits per equity partner of $1 million or more.
Going even higher up the food chain, 15 firms had PPP of over $2 million and 3 firms topped $3 million. Good for them, I hope they are taking some time to enjoy it.
When a GC sees this (or CFOs, for that matter) there’s a bit of shock and awe that gives way to a realization as to who is picking up the tab.
So while some firms celebrate, what are the clients doing? Today’s Wall Street Journal today (temp link) tells part of the tale:
General counsels, in charge of their companies’ legal matters and budgets, are perpetually under pressure to trim and better manage expenses. But it hasn’t been easy to move away from the familiar billable-hour system, in part because neither companies nor law firms typically have a good sense of what a piece of legal work will end up costing. Now, new tools are helping both sides estimate costs up front, giving general counsels more confidence to move ahead with arrangements like fixed fees and “value-based billing,” in which the payment a firm gets depends in part on the results it achieves.
The WSJ goes on to describe what companies like Cisco, FMC, Chevron Phillips Chemical, and Pitney Bowes are doing to slow the clock down a bit.
Profits per equity partner are an important metric for law firms to track. When it starts to appear like the metric, clients take notice. Who is tracking VPHB: value per hour billed?
Any engaged GC is rightly focused on making law firm expenditures more prudent as they are incurred and defensible when they are reviewed.
The Am Law 100 should go ahead and party like it’s 2006; just remember it’s already 2Q07 and your favorite GC may be going into a budget forecast meeting as we speak.
Legal Hiring: Half-and-Half
April 30, 2007 | Filed Under Law Firm Trends, Legal Resources, In the News
Robert Half Legal reports that nearly 50% of “law offices” will add staff; and the other half will “stay the same.” The survey came from 300 attorneys among the 1,000 largest law firms and corporations. Only 2% reported staff reductions.
The leading areas of hiring gains according to the survey:
- Litigation 30%
- Ethics and corporate governance 22%
- Intellectual property 18%
- Real estate 11%
Since litigation is the biggest growth area, it tells me that the survey is skewed towards a law firm sample. Most corporations don’t staff litigation in-house. The executive director of Robert Half Legal, Charles Volkert, seems to acknowledge this:
“Litigation occurs in every industry and is a practice area that continually produces a significant volume of work. Because case demands vary, however, law firms often supplement their full-time staff with project professionals to meet peak workloads.”
This is why combining law firms and corporate legal departments in the same survey sample renders the results less informative for me. In many law firms, for example, the better question is whether you will see a net gain in staff (we know a high percentage of associates eventully leave).
Adding to ethics and corporate governance resources are more a bit more plausible, especially in financial companies with public reporting obligations.
One good bit of news for law firms with a global footprint from Mr. Volkert:
“As companies expand into overseas markets and enter into partnerships on a global scale, they’ll look to outside counsel for advice on operating within a foreign locale’s regulatory framework as well as for guidance on how to minimize risk while making the most of new business opportunities.”
Recent examples of this include Tyco/Eversheds and DLA Piper/Linde. These arrangements are examples of law firms and corporate legal departments working together to deliver services for companies that want to remain competitive globally.
From this perspective, “adding staff” is an attribute of the old economy; “partnering” and “risk-sharing” are tactics of the new economy.
Those are issues a bit harder to survey; this one’s not half bad…
GE Brings Good Firms to Life
March 23, 2007 | Filed Under Legal Resources, Managing
Corporate Counsel details the latest eco-magination from GE on how it selects the roster of outside counsel it will use in its worldwide operations.
Under the so-called “Gen Two” regime, GE has backed away from such decision tools that it has used in Gen One (lilke a 20 page RFP and online auctions) to a shorter online RFP (saves paper!). This resulted in the herd of “preferred provider firms” being thinned from 140 to 108.
Other attributes of the new deal:
In addition to the changing lineup, GE also restructured the actual terms of the working arrangements. Under Gen Two, the firms must now propose alternative fee arrangements for every matter and offer a binding core team of attorneys to work on GE cases. The two-year contracts of Gen One were stretched to four years, and firms must renegotiate discounted rates halfway through the agreement.
Interestingly, one way the reductions apparently started was in the short-list of firms to get a Gen Two RFP. Those firms “that in-house lawyers gave the lowest ratings” to apparently didn’t get a password to the RFP site.
So the first lesson for law firms: don’t just be nice to the GC or managing counsel. That new staff attorney may have a long memory.
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