In-house ACCess : In-house ACCess: Association of Corporate Counsel : ACC : The In-house Counsel Bar Association

We are pleased with the interest in the ACC Value Index (AVI) since its release last month at the ACC Annual Meeting in Boston. The attention from the media and law firms at this early stage of development reflects the potential value of the AVI to our members. Recent Blog posts and articles, especially those that show “purported ACC law firm rankings,” require clarification:

• The ACC Value Index is in the early data-gathering stage and it will take time to develop a robust database.
•  It is premature and inappropriate at this time to cite "rankings" of law firms given the limited number of evaluations submitted thus far.
• The AVI is a service for ACC members that will enable them to share information and communicate with each other about the selection and retention of law firms.
• ACC will share with each law firm the evaluations it receives about that firm as soon as we finalize the appropriate formats and procedures.

We welcome the continued input, feedback and engagement of the legal community in the ACC Value Challenge.

ACC President Fred Krebs on the ACC Value Index

Friday, November 13, 2009

 

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The recent launch of the ACC Value Index at ACC's 2009 Annual Meeting generated significant interest and commentary, including both praise and criticism. 

We welcome these comments because they not only further the attention and discussion about value in the delivery of legal services (a primary goal of the ACC Value Challenge), but they will also help us to improve the ACC Value Index (AVI).

            A few additional thoughts on the AVI:

 

1.           We created the AVI as a member service, so by definition, it is available only to ACC members.  Stated simply, it provides two specific benefits to our members:  a) the compilation of individual ACC member views on the value received from specific law firms; and b) the ability to find other members who have used a firm in order to communicate with them and engage in a dialog about their experience.  The AVI is a specific tool meant to inform decisions as part of a larger process of selecting and retaining a law firm.

 

2.           Members may post an evaluation anonymously or with identification at their option.  We believe the anonymity option to be important - particularly at the outset of this initiative.  Over time, as the AVI gains acceptance among our members, I anticipate that the percentage of anonymous postings may decline.    Evaluations can be posted with attribution - or anonymously -  as we seek useful and candid information to build acceptance of the evaluation concept generally.

 

3.           We will make the evaluation summaries available to the law firms. When and how best to do that remains under consideration by our Advisory Committee.  A corollary benefit of the AVI will be the ability to recognize those law firms that provide value in the collective judgment of our members.  Coinciding with the overarching goal of the ACC Value Index – information gleaned from the AVI will help to foster a greater dialog between clients and their outside counsel.

 

4.           The AVI is a work in progress and we are pleased with the interest and input it has generated to date.  Nevertheless, it will take time to populate the database with sufficient evaluations to reach a meaningful threshold.  The AVI database has been populated with over 1,500 evaluations, reviewing over 400 firms, and we will continue with our member outreach for additional evaluations.

 

5.           The AVI is only one part of the ACC Value Challenge, which encompasses a larger effort to reconnect value to the cost of legal services.  Other aspects include a) “Meet. Talk. Act.” which encourages clients and law firms to engage in discussions about value and their relationship; b) a law firm economic model; and c) specific resources with examples of value practices and ideas on ‘how to’ implement practices focused on value.  Resources, success stories and updates are continually added to the ACC Value Challenge community pages and we encourage law firms to get involved and help to provide additional information/resources.

 

6.           One important observation on the evaluations received to date: law firms generally do good legal work, but all too often, do not have costs and matter management under control. Effective cost and project management should be a key objective -- for both clients and firms to effectively work together. By managing legal matters in a business-focused, client-centric way, as opposed to basing solely on “hours worked,” the agreed upon business objectives will drive greater efficiency, and ultimately, value.   Law firms must learn to reduce their costs while improving quality.  Our members’ companies operate under this imperative, and their outside law firms should, as well.

 

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Today, February 19th Susan Hackett, the Senior Vice President and General Counsel for the Association of Corporate Counsel (ACC), is conducting a half-day Ethics Training course for members of Marriott’s legal department.  While Susan guides attendees through an interactive session designed for the professional, ethical and compliance related challenges facing in-house counsel, live reports will be posted on the ACC’s Event Blog.  The program will be complimented by an interactive DVD, which ACC developed specifically for in-house counsel, with their needs and interests in mind.  The scenarios are intended to engage participants in a discussion about “what happens next” and to help gauge responses to difficult, real-life situations, such as:

• investigating employee wrongdoing and tactics that push ethical limits for lawyers; 
• how to detect and respond to financial decisions that may push the envelope when you are the non-business person on the enterprise risk management team; and
• determining when the government should be notified if an internal investigation is at its behest (“Corporate Internal Investigations”)

 
The vignettes presented will serve as a great platform for discussing legal ethics and the minefields that corporate counsel encounter in their day-to-day practices.  Follow @accevents via Twitter or check out the updates on Event ACCess and watch how attendees determine how our corporate counsel hero should handle the situations presented.
 

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Listening to NPR on the way home last night, I heard a rather depressing story about folks affected by the financial meltdown who were planning to release some of their anger and frustration by dressing up as zombie bankers, lynched financial investment strategists, or donning themselves with copies of plunging 401K account statements. These happy bands plan to join Halloween fetes, from the Greenwich Village parades to burst-bubble parties Missoula, Montana, where they can publicly vent their anger and frustration.

So my question is: What's Joe the Lawyer wearing tonight for Halloween?

Is Outside Counsel Joe wearing something terribly basic and girdled in an effort to minimize the obvious fat at his firm and appear as if he's cutting back on unnecessary expenses? Is In-house Counsel Joe donning something transparent” in the effort to join the accountability culture?  Perhaps Joe In-House might be better off wearing something non-descript in an effort avoid attracting any attention from management as a cost center in a time of fiscal crisis?

Here's my advice to both Joes: don't focus on the costume, focus on the trick or treat. Folks who don't take the downturn seriously are in for the trick; but those who are actually looking at the downturn as a great opportunity to re-assess the way they work and how they can do it better are likely to get the treats.

Fortunately, guidance is right here at your fingertips. There's all the material we are posting on ACC's Value Challenge (ACC's effort to help the legal profession re-align the cost of legal services to the value of the service provided).

But there's a great new tool for you to consider, too, whether you're in-house or outside and looking into the financial crystal ball: we've just released the 2008 version of the ACC/Serengeti Managing Outside Counsel Survey (PDF).

More than 2,000 law departments have completed the ACC/Serengeti survey since its inception in 2000, vividly and practically drilling down deep to describe their experiences working with outside counsel. While the comparatives from year to year make this survey the best of its kind since it tracks more than snapshots of activity (allowing you to discern trends in the profession), I think we can all agree that this year may not be as easily informed by past years activities: instead, we have to see what the trends tell us about how eclipsing change in the next year might be platformed and shaped based on where we've been going and what we're geared up to leverage.

The current survey details increases in in-house cost control activities such as convergence, RFPs or competitive bidding for new work, requiring minimum levels of experience for associates working on their projects (as well as bans on first and sometimes second year associates billing entirely), discounts for early bill payment and increased evaluation of outside counsel performance. In my next post, I will tell you my predictions on the 2009 survey.

In the meantime, tell me: What do you think Joe the Lawyer is going to be wearing next year?

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"Answers to Questions You Wish Your Outside Auditor Hadn't Asked" at the ACC Annual Meeting raised lots of questions, but provided lots of solutions, too.  When it comes to privilege protection and erosion, many in-house lawyers are  terribly afraid of the threat from within: the likelihood that their auditors, newly empowered and intimidated by the PCAOB, will not be satisfied with anything less than everything you've got when assessing the fiscal health and adequacy of internal controls in their yearly, quarterly, even daily work in auditing the company's finances. 

Many folks prefer to think of privilege erosion in the government investigation context as "someone else's" problem - they believe and hope that they won't have to weather such scrutiny because their company has not been subject to a major investigation.  But auditors today are far more like adversaries or regulators than part of the corporate family of service providers (whether they like that comparison or not), and in-house counsel are well-advised to remember that in today's world of auditor "independence."  Today, privilege waiver is more likely to occur int he context of your ongoing audit relationship than it is in a government investigation: courts are more likely to deem that you've waived the privilege through your communications with auditors about internal investigations, reserves, or other legal processes than ever.  A most disturbing trend for those  interested in assuring that lawyers and auditors collaborate well in assessing the efficacy of internal controls.

Program leaders Tom Sabatino, CLO of Schering Plough, and Steve Cannon, former CLO of Circuit City (and ACC's outside counsel on privilege issues, as well as our lobbyist) are discussing the practical checklists in-house counsel should consider, along with other panelists, ACC board leader Jon Oviatt (CLO of Mayo), Catherin Englebert of Deloitte & Touche and Maryann Clifford (VP and CCO, Motorola).  Especially interesting is the sub-conversation that recent massive failures in the financial services industry will create disclosure mandates and practices that it will be hard to reverse -  will the pressure toward "transparency"  outweigh legitimate protections and rights of corporate clients?

Are lawyers from Mars and auditors from Venus?  Or do they live on some third planet together that is a long way away from what our clients  prefer that we focus our time on doing?  And how do we find our way back home?

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Gee: just when you think it couldn’t get any worse or I couldn't be any more depressing...

The former assistant general counsel of Gen Re (the guy who papered the bogus deal between AIG and Gen Re a few years back that led to the eventual ousting of AIG CEO Hank Greenberg) is coming up for sentencing and faces a request by prosecutors that he get more than 200 years in prison. Otherwise known as a life sentence.  Put aside whether this guy done wrong for a minute (although not for too long since the courts said he did). He’s facing a longer sentence than folks who do multiple murders at public schools with AK47s and malice.  And do let's remember that the most visible CEO in the debacle isn’t facing any time at all, even though everyone on the case (except maybe him) thinks he and leading execs at Gen Re (who are on the perp walk) conceived, implemented, and benefited from the deal.
 
My point is that prosecutors couldn’t get enough together to charge Greenberg any others who they “know” were likely directing the scam.  But it was relatively easier to get the lawyer who papered the deal, especially when all you have to show is not that he profited or schemed, but that he facilitated the fraud and was responsible for stopping it (and didn't).
 
So here's the fear: that in a time when the public is demanding accountability for failures at companies, that this is how “gatekeeper responsibilities” will be defined for a whole bunch of folks whose companies are going south.  You and I might argue with them about whether prosecutors targeting lawyers is the right focus, but let’s go back to story number one above (see, Disgust), and remember how much we’re likely loved for what the public, prosecutors, regulators and our clients see as lawyers' most meaningful contributions in the aftermath of this economic tsunami.

And to further the fear and complicate the frustration, remember:  they’re not likely to target some $1,000/hour outside counsel in a firm with average profits per partner of $3.7 mill for the deals gone wrong; they’re coming straight for the $200,000/year in-house lawyer who has a fiduciary gatekeeper role. And who won’t be able to afford the white collar defense counsel he’ll need because outside counsel fees are way out of reach for regular individuals like us.  (Planning on coverage under the corporate insurance policies?  Most D&O policies won’t cover in-house counsel costs since such policies exclude coverage for licensed professionals, who are deemed responsible for their own conduct and are expected to purchase their own professional liability insurance coverage.)

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I’m fortunate to have worked at ACC for almost 20 years now, and I’ve never seen anything like what’s going on in the in-house bar right now.   The fear, the disgust, and the burden of the workload are almost palpable.
 
Let's start with the disgust:
 
It didn’t just start when the bottom fell out of the financial services industries and the markets. For some time, general counsel from every conceivable industry and practice setting have been articulating their increasing disgust (not just frustration, as we’ve seen in the past) over their inability to get their firms or their own departments better aligned to provide more cost-effective and efficient services to their clients. GC's channel their disgust from their senior management disgust:  from the
CEO to the guy in procurement, who look at their in-house lawyers and shake their heads and query: "why haven’t you done something to stem the ever-increasing cost of legal services that is bleeding this company of vital revenue and productivity?"

Executives at the company KNOW that the huge cost of legal services is more than frequently completely divorced from any modest value they perceive for the services rendered.  They are spending a significant portion of hard-earned revenue on the company’s legal functions. And they know that the outside counsel they retain are likely very smart and talented, but they don't think of them as more valuable than someone who's actually returning profit to their bottom line, and they are certainly sure that these nice folks with the high rates (higher than rates they pay for other service
providers to the company) operate in businesses that are poster kids for inefficiency and waste.  What well-run business in the service industry hires 50 kids right out of school and invests a fortune in them with the expectation that about 85 percent of them will not make it to their fifth year, and most won't make it to their second?.
 
 We’ve been talking to firms and CLOs who are ready to start what we call the “(r)evolution” in corporate legal service provision: the ACC Value Challenge.  The idea behind this project is for lawyers who manage the client's legal spend to think like revolutionaries about how they do their work and what can change, but attack the problems they identify realistically, recognizing that “evolutionary” changes are most likely to succeed.  The ACC Value Challenge is targeted at outside firms whose business models and thirst for ever-increasing profitability at their senior-most ranks makes their bills increasingly questionable (indeed, sometimes almost laughable), as well as to in-house counsel, who can be really good at identifying the excesses they hate, but often just can’t
figure out how to make the changes or manage their spend to drive greater cost-effectiveness in the firms they retain.  We're all responsible for the change we need to create.  And the confidence of our clients that we need to instill.
 
But because the economy has tanked, and companies are retrenching on all costs that aren’t absolutely mission critical, our timing in rolling out this project [link to the launch] after a year of prep couldn't be better. And clearly, the (r)evolution can't come fast enough for some.

Take, for instance, one of the top stories today personifies the problem.  While the public’s attention is on whether ousted execs from these fallen compaies will be allowed to keep their second homes or will face the music for their failures,  lawyers are reading today about one of the big firms in New York that the one of the highly publicized failedcompanies has hired to help it through bankruptcy (remember, that’s bankruptcy).  According to Bloomberg News, the firm is requesting hourly rates of $650 to $950 for partners and counsel, $355 to $595 for associates, and $155 to $295 for paraprofessionals.  I’m sorry, that’s stunning.  [And I’m not talking about the guy who makes $950 – since what he inserts into this process may be that valuable: I’m talking about the associates “starting” at $355/hour and paraprofessionals billed at $295/hour.]
 
If the public is crying for a re-examination of excessive executive pay and limitations on golden parachutes, just wait til they getta load of this one. And we wonder why clients question the value of lawyers they retain.

However good we think we are, are we really that good?  And when did we fall into the trap of assuming that expensive lawyers are always worth it?  Are the only good lawyers folks who charge these kinds of rates?  I honestly don't think so.  Maybe these nice folks at the noted firm really are that
good.  But it’s kind of tough to convince people who are losing their life savings or their homes that they really should appreciate the pressing need for a young associate billing $500/hour to be in front of them in line to collect a piece of the disappearing pie because her work in sorting through documents and preparing memos for the file is going to contribute something meaningful to the clean up of this mess or help resolve the problem.

We've met the problem.  And when it comes to exhorbitant fees, the problem is us.

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Well, apparently, there really aren't that many things you can pay that much for at an hourly rate. The Fulton County Daily Report's "The Snark" says: "I'd sum it up this way: Scarcity + Boring Specialty = Big Bucks." Read this column, which take a humorous approach to why some in-house counsel go for the big dollar legal talent and what they expect to get for their money. (Blue-crab fritters and truffled macaroni and cheese, anyone?)

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