Fewer than 30% of companies made their law firms set a budget for tasks assigned to them.
Let alone manage their actual performance to such a budget. 2023 Thompson Hine survey (p. 10 of 16).
What other corporate function or business unit gets away with not having budgets for what it spends? Continue reading
Tis the season to discuss next year’s law firm rate increases.
In the American Lawyer’s entry on this topic two days ago, legal industry experts cited a multitude of factors that could drive 2024’s pricing.
Except one: Clients’ purchasing power. And clients’ willingness to use their purchasing power.
And the fear that constrains almost all general counsel and chief legal officers from robustly leveraging that purchasing power in rate discussions with outside counsel. Continue reading
A judge’s ruling last week* illustrates which of the above two alternatives is better for the client company.
The court, after reviewing a law firm’s bill in a bankruptcy case, found that AmLaw 100 firm Pillsbury Winthrop Shaw Pittman LLP** had overcharged its debtor client by about $1 million. On a $6.3 million bill†.
Lessons for a client company engaging a law firm:
1. Define the task and sub-tasks before work begins, to maximize the likelihood that the lawyers will understand exactly what you want — and that you will be able to make them accountable for following your wishes.
2. Identify by name or by experience-level which attorney will do what part of the task, to assure promised quality of representation, and to avoid paying partners and other senior attorneys for simple tasks.
3. Make your legal costs predictable by agreeing on the total fee in advance rather than agreeing to pay by the hour (perhaps with a bonus formula based on results). Continue reading
My viewpoint comes from firsthand experience.
As a lawyer who accepted a corporate client’s offer to run one of its divisions 10 years into my legal career, I was blind to basic management disciplines until I had to answer to the P&L as a general manager.
Before changing places at the client / lawyer table, I did not appreciate the contrast between the practical skills and commercial instincts it takes to run a successful business, on one hand, and the narrow technical perspective I had acquired from my Ivy League law school and top-rated Wall Street law firm, on the other.
Conventional wisdom has long dictated that general counsels, whose “management” experience consists mainly of handing assignments to other lawyers, should run Legal on their own. But their failure to control spending, their reliance on legal fire-fighting instead of systematic prevention, and their sluggish efforts at efficiency innovations, all call for a proven executive — not an attorney — to run this vital business function. Continue reading
When should your business pay the exorbitant prices of a major law firm?
When you need the full attention of the best attorney available for the task presented.
But something else is happening.
The data say that in 2022 corporate clients were paying proportionately more for the total hours of junior lawyers, and getting less attention from their most proficient, experienced colleagues.
How did that happen? The data indicate that law firms “mitigated individual attorney rate increases by adjusting staff mix.” What does that even mean? Apparently it means the appearance of cost control on law firm charges by making less use of higher capability (higher priced) partners, while making more use of lower capability (lower priced) associates. Continue reading
From the tenth consecutive year of LexisNexis CounselLink® 2023 Trends Report: In-depth Perspective on Rising Outside Counsel Billing Rates:
1. Law firm lawyer and paralegal (“timekeeper”) rates increased in 2022 at the highest levels since CounselLink first produced the Trends Report, in 2013, with the average partner rate increasing 4.5% (relative to 3.4% last year and 3.5% the year before).
2. These record-high average rates of hourly rate increases were higher than in the previous year “in all tiers of law firms and in all practice areas“.
3. Keeping track of the proliferation of lawyers that outside counsel assign to a matter is a big challenge in managing outside counsel — the finding: “High numbers of billers are performing minimal work on matters.”
4. Alternative fee arrangements (AFAs / capped charges with related terms on success fees, etc.), if they were used, would be the chief antidote to the prevailing billable hour: but only an average of 12.4% of matters made use of AFAs last year. No growth from previous years. Continue reading
1. Historically, matters handled by law firms have comprised well over 50% of corporate Legal’s expenditures (Wolters Kluwer LegalVIEW Insights February 2023).
2. Though the vast majority (71%) of corporate clients want their outside law firms to create and manage to budgets on the matters they handle, only a distinct minority (29%) report that their law firms actually do so. (Minding the Gaps: Are You Getting What You Need from Outside Counsel? Thompson Hine 2023.)
3. Despite in-house counsels’ “demands” for budgets on law firm matters, in the form of so-called “outside counsel guidelines“, this disconnect has persisted for years.
4. Therefore, it’s up to CEOs, CFOs, and other P&L-minded executives to fix this problem. By leveraging their companies’ purchasing power, to get the budgetary discipline their law firms mostly refuse to provide, and that their in-house lawyers won’t enforce. Continue reading
1. Legal media, and conversations with my personal contacts, are replete with stories of attorneys in law firms and in-house counsel who are being brutally overworked by hourly billing quotas, and by strained law department budgets with significantly increased workloads (e.g., here and here).
2. This to an extent that substantially jeopardizes those attorneys’ wellbeing. (“Mental health initiatives aren’t curbing lawyer stress and anxiety, new study shows,” May 2023, American Bar Association Journal.)
3. Thereby placing at significant risk the business clients of those lawyers. Continue reading
Though prized by earlier generations of corporate executives for their wide-ranging wisdom, today’s most highly sought-after lawyers tend to be narrowly-focused technicians.
How did that come about? The technician specialties are highly rewarded financially, and they offer stable work. And, with the legal system’s intrusive and unreasonable demands on business enterprise, such specialists’ help is imperative.
But the C-suite, and the frontline for that matter, face a broad category of business decisions that demand mature practical judgment, in addition to mastery of legal technicalities. Continue reading
“It’s nice to meet the newest member of our ‘department of business prevention’.”
The head of marketing greeted me with these words when I joined a Fortune 500 company as an associate general counsel.
That was in 1986. I don’t think much has changed. Continue reading
Managing Legal