Corporate Legal Services

Corporate Legal Services

The Language of Value

posted by 10/11/2010

Shakespeare may have been right that a rose will emit the same fragrance whatever you call it, but when it comes to concepts such as "value," the choice of words can matter.  In order to discuss the concept with any chance of reaching a mutual understanding, in-house and outside counsel must take steps to assure that they "speak the same language."

The related terms "productive" and "productivity" can lead to confusion, for example.  When I heard the managing partner of a national law firm refer to the associates of that as "productive" associates during a presentation as part of a panel discussion of "partnering," I realized that the speaker meant that those associates who bill more hours to clients were more "productive."  They produced more revenue for the firm.

In all likelihood, though, an in-house attorney listening to that presentation would have applied a different sense of the term.  In corporate America, greater productivity suggests accomplishing more work in the same time and, probably, with less effort.  Were "productive" or "productivity" used by that managing partner during a conversation with an in-house attorney, the two might very well have failed to "connect" without realizing it.  Such a disconnect has considerable potential negative implications.

When retaining a law firm for representation in a dispute or litigation, an in-house lawyer speaking for his or her corporate employer might state that the company needs to "win."  That simple label can cover a broad range of hoped-for outcomes, though, so without clarification or explanatory material, the outside attorney might act on "instructions" that the in-house attorney did not intend to convey.  While the company might wish to delay action by a court until the parties have explored possible non-judicial resolutions to their impasse, having outside counsel pursue a "win" could deepen the gap between the parties' positions of cause either or both of them to adopt a more-aggressive approach, leading to hardened positions.  The odds that the efforts by the lawyer in such a situation being viewed as providing value to that client will be very low.

The language that lawyers use when discussing the value of the legal service to the corporate client can matter a great deal.  Taking care to ensure that they all apply the same connotations to the same words will serve them both well.  Imprecise or diverging uses of the same terms or phrases can lead to unplanned and unwanted confusion and negative value.

 

Listening to Internal Clients About What Constitutes the "Value" of Legal Services

posted 8/31/2010

If a law department wants to raise with its internal clients the issue of the "value" of the legal service in order to prepare to discuss that subject with the company's outside counsel as recommended by ACC, what should it do?  How should it commence that dialogue?

First, remember that the most important step is to open that subject up for discussion.  Too often, lawyers (both in-house and outside) fail to take into account their clients' views on the service.  As in-house attorneys, many of us have experienced the frustration of an outside lawyer not listening to us or thinking that he or she knew better than we did what the company wanted or needed.  We should recognize that our internal clients may feel a similar frustration, so listening to their views can serve as a very salutary client-relations effort (in addition to surfacing issues regarding the service that might otherwise have escaped us).

Second, explore with your clients which aspects of the legal service matter the most to them and how well the law department has managed to keep those aspects at the top of the service list.  (I think that it's fair to say that quality will trump all else, at least in these discussions, but that still leaves a great deal of room to consider other elements of the service.)  If, for example, cost control overrides all other considerations, be sure to inculcate that in discussions within the law department and between that department and outside counsel.  If speed of service matters more than constant communication stream with the client, knowing that allows the company's lawyers to meet the clients' expectations more specifically and fully.

What are some of those elements of value that you might consider addressing?  Consider these:

Speed of response

Speed of completing transaction/disputed matter

Cost control/budgeting

Safety of course of action/risk tolerance

Those factors, of course, relate to the legal service across the board.  Keep in mind, though, that the value of the legal service must also be viewed contextually.  For a particular matter, the risk tolerance of the company might be lower than normal and its interest in cost control lessened.  An example of such a situation would be where the CEO has been named individually (not just in a representative capacity) a defendant.  In such a case, securing dismissal of that officer from the case (even if the case against the company proceeds) might be worth, for internal political reasons, whatever it costs.

Engaging its internal clients in a conversation about the legal service and its value to the business will benefit the law department in a variety of ways.  First, it might learn how it has failed to meet their expectations previously and how, so that it can rectify that failure going forward rather than allow the frustration to fester into dissatisfaction.  Second, the clients should become more discerning in their use of and relationships with the company's attorneys (to quote the tagline of a retail clothing chain, "an educated consumer is the best customer").  Over time, the department should have more satisfied clients and a more solid foundation of trust with them.

 

Reconnecting Value to the Cost of Legal Service

posted 7/20/2010

The Association of Corporate Counsel (ACC) has flown the flag of "value" for a couple of years now since launching its Value Challenge "to help reconnect value to cost of legal service."  One of the first suggestions that ACC made in that effort was that its members follow "three simple steps: 'Meet.  Talk.  Act.' "  The purpose of such an effort would be engage a company's outside counsel in discussions about how to increase the value of the legal service provided the client by outside lawyers.

While that suggestion is an excellent one and likely to lead to improvement, I think that it skips (or at least fails to identify) a very important predicate step.  "Value" varies from client to client; what one client views as the most important element of legal service (e.g., certainty of resolution of a dispute), another client might rank below a different element, such as cost certainty.  Moreover, value varies from law firm to law firm as well.  A firm might be the best, and in fact only, choice for a bet-the-company case, in which situation it would deliver maximum value to the company far in excess of what another firm might be able to provide.  That same firm, though, might be an absolutely dreadful choice to handle a slip-and-fall case for that same client.  Its approach to the dispute might incorporate too much of the approach it would apply in the more-significant (from a risk perspective) matter and the cost of defense might overwhelm the potential benefit of a successful conclusion (i.e., the proverbial $100,000 defense of a $5,000 claim).

Before commencing a dialogue with its outside counsel about the value of their legal service for the company, then, a law department should have in mind how it and its company values legal service.  What aspects of representation by outside attorneys contribute to achieving the company's goals in a cost-effective manner?  What elements of legal service do the corporate executives rank most highly?  Obviously, since value of legal service must be measured in the eyes of the business client, the views of that client as expressed by its managers should occupy center stage.  The law department must secure the consensus of the executives before turning to discussions with its outside counterparts.

Having paid appropriate attention to establishing that foundation, a law department can commence its conversations with the company's outside legal advisors.  Those conversations will be most productive when the in-house attorneys have established for the law department and for themselves how that value will be measured by the client and they will be able, collaboratively with the outside attorneys, to devise ways to maximize that value as perceived by their mutual client: the business.

 

Can “Value” As Applied to Legal Service Be Measured?

posted 02/04/10

Is "value" as applied to legal service really "beyond human ken" as recently posited?  Obviously, to the extent that legal service constitutes an intangible thing, it represents something difficult to measure.  Also, the market for most legal service is not as transparent as the prices on the New York Stock Exchange, the results of which appear in innumerable periodicals daily.  (Whether those published tables actually represent the value of the securities that they purport to represent, though, is a different question.)  Even with the exposure of law firms' hourly rates by various publishers, the ultimate cost of legal service and its constituent elements remains clouded.

The problem, of course, relates to the fact that most of that legal service is "sold" on the basis of the amount of time that the lawyers devote to the effort on behalf of the client.  Thus, the "value" of the legal service is measured - when the hourly rate serves as the foundation for the fee - by the value to the provider of that service.  When corporate clients engage more directly in discussions with their outside counsel about the value that the service offers to them, the calculation of value will change dramatically.  This engagement has begun, with efforts such as those by FMC Technologies, Pfizer and other law departments that have applied their analytical capabilities to define what they need and how they will pay for it.

Defining "value" of legal service does come with challenges.  The biggest challenge for a law department, however, may be to start an informed discussion with its outside legal service providers about what they "bring to the table" when they represent the company and how they assist the company in achieving its business objectives.

 

Corporate Legal Services Clients Identify Four Aspects of Value

posted 01/04/10

Global Leaders in Law, based in London, recently reported the results of a survey that it conducted regarding value for corporate clients in respect of the legal services that they require.  Those results, as summarized in the executive summary issued by that group, reflect four related aspects of value expressed by the in-house respondents to the survey: service value; expertise value; commercial value; and leadership value.  As to each element of value that they identified, the group provided some more-specific aspects of that element.  In this and my following posts, I'll explore those elements and the subsidiary or more-specific aspects and their relationships to value as important to corporate law departments.

"Service value" constitutes the benefit that the client realizes "when the in-house lawyer is performing his or her duties to the letter or when external advisers are meeting all the stipulations of their service contracts."  When expressed in that way, this element seems to represent the standard (not a very high one) of satisfying contractual obligations (whether contractual in the sense of employment-related requirements or expectations or in the sense of the terms of a retention agreement).  Speaking of the client's relationship with outside counsel (the usual context for discussion of value in this country, as in the Value Challenge of the Association of Corporate Counsel, for example), this should be the absolute minimum level of service delivery.  This view highlights, though, the importance of clear expression of expectations on the part of the client (as enunciated by the in-house lawyers).  Unfortunately and all too often, in the rush to retain counsel for an urgent matter or in the context of a longstanding relationship where the expectations may have developed over a long period of time through the interactions and statements of multiple individuals on both sides of the table (frequently without documenting those expectations well enough for others to understand or apply them later), the in-house lawyers may use shorthand or overly simplistic expressions of what they want or expect outside counsel to do.

This is counterproductive for several reasons.  First, in-house and outside counsel sometimes use the same words but meaning different things ("productivity" for a law firm may refer to the number of hours billed by associates, for example, while for an in-house lawyer that word suggests the completion of work more quickly, as an example).  Without taking steps to assure a common understanding or interpretation of the words and expressions that they use, in-house and outside counsel may not reach a common position and the latter's ability to satisfy the former's expectations will suffer.  Second, in-house and outside counsel often think about or approach things in very different ways (outside lawyers, especially litigators and trial lawyers, tend to think tactically, while in-house lawyers are expected to approach issues from a strategic vantage point), expectations should be much more explicit and much more detailed.  Without understanding or acknowledging those divergent approaches, the lawyers may find themselves going in different directions without realizing it before it's too late.

Finally, clear expectations serve another, very important purpose.  They should serve as the basis for later evaluation of outside counsel's performance (much as the expectations set in an employee's annual review will serve the following year as standards against which to measure that employee's performance).

According to the summary of Global Leaders in Law's survey, "expertise value" consists of the lawyer "delivering ... technical know-how to the business."  That value is different for in-house than in respect of outside lawyers.  In-house lawyers possess expertise value when they capably handle risk management.  Outside lawyers must deliver "specialist knowledge or legal expertise that has significant or transformative impact on the business." 

The dichotomy between inside and outside counsel is not as distinct as those statements suggest.  Many in-house lawyers are specialists; indeed, I believe that a major dynamic in the profession over the past several decades has been the increasing sophistication and maturity of corporate law departments, a significant aspect of which has been the development of the type of specialists and specialty practices in departments.  I've met in-house lawyers whose command of pension law, environmental law, tax law and other areas rival that of most if not all outside lawyers in those fields.

Nonetheless, the survey is accurate in identifying expertise as a major component of value.  The ongoing debate over the value of junior associates for the work needed by corporations (how many law departments have prohibited the inclusion of time billed by first- or second-year associates on their bills?) reflects the realization that a short time devoted by a senior lawyer in a law firm represents far more value to the client in many cases than several times that block of hours billed by a lawyer much less familiar with the area of law or the practice. 

The challenge for in-house lawyers comes down to identifying (1) what expertise they need, (2) how much of that expertise they need and (3) when they need that expertise.  Having the wrong expertise obviously represents wasted effort and could lead to greater loss than just the amount of time billed and paid.  Too much of the expertise (i.e., too many hours by that senior lawyer) would be wasted.  Having that expertise available at the wrong time would be inefficient. 

Identifying what you need, who can provide it and when they should provide will deliver the most value for the company.

The third link in the value chain that Global Leaders in Law identified in their survey was "commercial value," which they define as the stage in which outside lawyers understand the client's business and deliver commercially useful advice.  In-house lawyers provide commercial value when they actively enable the business to achieve its goals.

This is where many outside counsel fall short, according to my experience and many surveys of in-house lawyers that I've seen.  The tendency of outside lawyers to research an issue to death or to deliver a "law review article"-like memorandum when the company needs a short, actionable bit of advice on a timely basis fails to assist the client to do its business.  In-house lawyers can also fall into this trap and fail to provide "commercial" value, focusing instead on legal value.

I think that in-house lawyers fall short on this basis less frequently than do outside lawyers, perhaps because, as one in-house lawyer put it to me many years ago when I was researching communication between the two groups, "in-house lawyers tend to think strategically, while outside lawyers tend to think tactically."  Tactical thinking does not correspond with how business leaders expect lawyers to act or think.  If the lawyers' product does not meet the needs of the business, it might as well not have been done at all in many cases (as those business people see it).  Tactical approaches come into play in a subsidiary fashion, but only once the strategy is set and the players know their respective roles.

While the executive summary of Global Leaders in Law's survey posits the various aspects of value in a "value chain" with this aspect third in the graphic, I think it may be the most important of the four identified.  Without the ability to look at the business' needs and to formulate the legal strategy in that context, everything else may fall by the wayside.

The fourth, and last, link in Global Leaders in Law's value chain is "business leader," which "applies to lawyers operating at the level where they have transcended the usual parameters of their roles to provide leadership and strategic direction."  This sounds like what one would once have called a "counselor."

At one time, some lawyers in law firms served as their clients' "general counsel" even though not on staff.  Those clients might have had no in-house lawyers.  With the development and maturation of corporate law departments, however, such representation has become less and less common.

More recent developments have made it more difficult for outside lawyers to fill this role.  Law departments have not only become more capable by hiring lawyers with specific expertise in various legal specialties (examples being pension law, environmental law, employment law and data protection law), but even assembling teams of in-house lawyers to handle more work entirely in-house, including litigation in some cases.  Thus, outside lawyers see their retention becoming more situation-specific and thereby having less opportunity, by virtue of that representation, to gain the broad understanding of their clients' business necessary to serve in that "counselor" role.  Whether they can acquire that broad understanding on their own initiative (and not on billed time!) may determine whether they can yet aspire to serving in that capacity.

In-house lawyers find more and more opportunity to become the "business leader" described by Global Leaders in Law in its survey results.  They must understand their companies' businesses in order to succeed.  The more capable among them likely will take on that "counselor" role more and more naturally.

 

Value: It's in the Eyes of the Client 

posted 11/17/09

The value of legal service depends on several factors.  The legal profession has approached that issue on a one-dimensional basis, though, for a number of decades, as if it were solely a function of how much time the lawyer has devoted to the work.  The factor most significant by its absence has been what the legal work adds to the business objective of the client or how much that work assists in achieving that objective.

In some cases, that value might be measurable to some degree, either before the fact or after.  Take a transaction as an example.  The closing of a financing or an acquisition of a company represents a finite step in a business plan, quantifiable in dollars or some other currency (the amount financed or the price paid in those two examples).  While the legal work involved in such a transaction represents a small fraction of the overall value of the transaction, the closing of the deal represents a clear marker in the company's plans and payment of the lawyers' fee can be factored into the overall cost of the matter without difficulty.  The work can be better anticipated as well (though the amount of due diligence needed for such a transaction will vary from transaction to transaction, it can be planned with some specificity and even unexpected challenges likely won't upset the entire budget; if they seem so significant as to threaten to do so, the parties can re-calibrate their expectations accordingly without monstrous harm), so a fixed or calculable fee is within reach.

Much legal work takes place, though, in the context of disputes and litigation that, by their nature, involve antagonistic parties with opposing goals.  This means that much of the work for each party is reactive and its extent and nature depends on the actions of others over whom the client has little or no control (other litigants, the court, third parties, etc.).  Depending upon what the parties' goals in the dispute might be (negotiate a business resolution? make the other side cry "uncle"? delay the other's ability to consummate a transaction?), each party's legal work might represent most or little of the value of its goal.  Further, until the matter is concluded, its overall value may remain imprecise and the degree to which the lawyers contribute to achieving the goal will also remain beyond measurement.

The implications of that for the legal profession and, at least as importantly, its clients, can be significant.  Blowing a budget on legal costs pleases no client.  Preventing that outcome can tax the lawyers.  We'll examine ways to do so in future installments of this blog.


Value, Fees and Billing: How do they relate to each other? 

posted 11/2/09

The in-house legal community is abuzz with discussions about "value" as that concept relates to the fees paid by companies to outside counsel. That interest on the part of in-house lawyers naturally excites a responsive interest on the part of their outside counterparts (and the recipients of those fees).

Much of the discussion and debate seems somewhat misdirected, though. Many commentators and members of both communities seem to equate fixed fees, task-based billing and even alternative fee arrangements with value. The underlying approach often seems to be something like this: "if I can negotiate a fixed fee for this case or transaction, my company will thereby receive greater value than it has" or "if I offer my clients task-based billing, they'll perceive that they're getting more 'bang for their buck'."

Does such a view represent reality? Does a fixed fee, for example, mean that the client, without doing anything more, thereby receives greater value than it might have through another fee arrangement?

I think that we need to decouple the discussion of value from that of fees and billing. While we engage in the talk of alternative fee arrangements in the hope (at least most of the time) of the client thereby recognizing greater value than it might have otherwise, I think we need to recognize that the two do not coincide in all cases. A fixed fee certainly represents greater certainty for the client and that certainty can represent at least one element of value for some (perhaps many or most) clients. If, however, that fixed fee creates some incentives for outside counsel that do not by themselves serve the client's interests fully, then perhaps that fixed fee leads to less value for that client in certain situations.

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Steven A. Lauer is Principal of Lauer & Associates, a consultant to corporate law departments and law firms on the value of legal service. He works with law departments and law firms to assist them to better align and synchronize the cost and value of legal service delivered to corporations and other business entities. Steve served as Corporate Counsel for Global Compliance Services in Charlotte, North Carolina for over two years, specializing in data protection and privacy among other areas. Previously, he served for over two years as Director of Integrity Research for Integrity Interactive Corporation, in which capacity he conducted research, wrote white papers and otherwise worked with clients and potential clients of the company on issues related to corporate ethics and compliance programs. He also spent over two years as Executive Vice President, Deputy Editor and Deputy Publisher of The Metropolitan Corporate Counsel, a monthly journal for in-house attorneys. He received a B.A. from the State University of New York at Buffalo and a J.D. from Georgetown University Law Center.  His e-mail address is slauer@carolina.rr.com and his phone is 973-207-3741. 

Steve Lauer
Lauer & Associates
Matthews, NC 28105

(973) 207-3741

Assisting corporate law departments and law firms to manage efficiently and to maximize the value of corporate legal service

Author of:

Managing Your Relationship With External Counsel (Ark Group 2009)

The Value-Able Law Department (Ark Group 2010)

Conditional, Contingent and Other Alternative Fee Arrangements (Monitor Press 1999)

Joint interview of Tom Sager and Steve Lauer about value