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
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
Listening to Internal
Clients About What Constitutes the "Value" of Legal Services
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
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
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.
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
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
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
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 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
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
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?
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
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
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.
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 email@example.com and his phone
Steve LauerLauer & AssociatesMatthews, NC 28105
Assisting corporate law departments and law firms to
manage efficiently and to maximize the value of corporate legal service
Your Relationship With External Counsel (Ark Group 2009)
Value-Able Law Department (Ark Group 2010)
Conditional, Contingent and Other Alternative Fee
Arrangements (Monitor Press 1999)
interview of Tom Sager and Steve Lauer about value