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

Fred Krebs, in his President’s message, in the January/February 2010 issue of the Docket, encouraged measurement of law department performance. The central themes of his comments are:

The more we measure our successes, our challenges and even our failures, the more we will learn how to carry these experiences forward in a meaningful way into a new year.

Allow me to express some reservations, but first I should tell you my bias—I am Mr. Measurement. So what is my problem?

When ADR was touted as the certain means to reducing litigation costs and study after study appeared supporting that fact, I complained we should measure these claims in a “scientifically valid manner.” The key is scientifically valid. There was little in the deluge of materials from such notable organizations as the ABA and others that was scientifically valid. There were explanations as to why ADR just had to be more cost efficient and numerous opinion surveys claiming it clearly saved money.

In the context of the Civil Justice Reform Act, I had the opportunity to persuade the Federal District Court for the Northern District of Ohio to let me study these claims. Unknown to me, the Administrative Offices of Federal Courts had engaged Rand to do a similar study. Using two different methodologies, but both looking at actual costs with controls we reached the same result—ADR had no impact on costs.

Measuring is not a simple task and my experience is that much of the measuring done by legal consulting firms is irrelevant at best and misleading at worse, since it involves questionable comparisons and often is not measuring the right thing.

I am in the process now of conducting an enhanced study of ADR with my co-chair a law professor at Case Law School, with the assistance of a professor in social science methodology. We find ourselves continually challenged to insure we are measuring the right thing, the right way and for the right reason.

So before you charge off, inspired by Fred’s challenge to measure, let me suggest you think through three issues. First, why am I measuring? Second, what am I measuring? And third, how am I measuring it? I will explain the importance of each issue in future blogs.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Bob Banks wrote in the Harvard Business Review a number of years ago that Xerox had a legal budget and it was always exceeded. For sure there are numerous legal expenses, but the culprit for breaking the budget was typically litigation.

Many ACC (formerly ACCA) members convened at the Brookings Institution to seek a remedy. They had tried the usual attempts to manage billings. These remedies get dusted off, renamed and revived to manage legal fees. Those of us who have been around long enough have seen them in their various reincarnations. Increase the number of law firms serving you to increase competition and loosen the dominance of any one firm. Then came “shrink the number” of the law firms serving you, so you negotiate a better price. Alcoa took this idea to extreme by reducing the number of firms serving it to one. It did not survive because it had its own price distortions built in.

These fee management schemes, flat billing, value billing, all come and go, and it is a bit amusing watching them rediscovered by new in-house attorneys who are convinced they have found the fountain of youth. But this is not about billing schemes; it is about lawsuits. Frustrated by the inability of these fee management schemes to control costs, many ACC senior counsel joined other members of the legal community and convened at the Brookings Institution in the mid 1990’s to fix the problem once and for all, at least in the federal court system, their forum of choice.

The newest version of cost control was based on the assumption it was a systemic problem. That is code for “none of our other solutions worked and it is not our fault”; it is therefore an endemic problem with system. The result was the Civil Justice Reform Act which had both its supporters and detractors. Then there were skeptics like me who believed that this too would pass.

The Civil Justice Reform Act had two fundamental premises at its heart. First, since no one else seems to be able to control costs, it was decided to give the courts the power to do it; and even better, they would design a process that encourages Alternative Dispute Resolution (“ADR”) and avoid the courts altogether. As ACC’s value challenge Version 9.2 illustrates, these rather dramatic efforts failed. ADR, upon solid scientific analysis, did not prove to have an impact on litigation costs, nor did the other attempts at case management.

However, in recent conversations with various court staff, a new concern is arising that is very troubling to the courts (we are talking jobs here) yet promises to dramatically reduce litigation expenses. Traditional commercial litigation is disappearing from the federal courts, perhaps the state courts as well.

In the next couple of blogs we speculate on causes of the phenomenon, and anyone with ideas please feel free to contribute.

• Email This
• Print
• Comments (1)
• Trackbacks
• Share Link

Money of Course, ADR Now Threatens The Legal Profession.

Not too long ago ADR was wildly supported by the profession. It was largely touted as a means to save costs, and included in its supporters were even the most costly law firms who assured their clients they were not at fault for the large legal fees; it was the judicial system. Slowly, but steadily, study after study came out demonstrating that ADR did not lower costs, but the notion that ADR was somehow a preferential way to resolve disputes persisted.

Law schools jumped on the bandwagon. They were never that good at teaching you how to practice law, so it is not surprising they would launch into this area without any real clear objective, and no reliable data, that ADR provided the parties with a preferable outcome, or society with a preferable process. ADR however seemed to grow in reputation, and perhaps application, but I have not seen convincing data on that issue.

There seems to be a growing consensus that arbitration as a solution in business disputes between companies is disappearing, although attempts to enforce its application between companies and their employees and retail customers is growing. There also appears to be a growing consensus that arbitration is taking on all the procedural characteristics of a lawsuit—being destroyed as one commentator put it by “lawyers.”

So what is the problem? ADR has allowed, perhaps unintentionally, non lawyers into the dispute resolution process. The judicial process had locked out competition, but ADR opened the door and lawyers did not foresee this result, nor do they appear to like it. So what is their response—raise ethical issues—express concern about the clients. Use this to start imposing costs upon non-lawyer competitors.

At a recent Law School symposium on ADR, one lawyer presenter expressed concern about mediators requiring clients to sign a waiver of liability agreement. He pointed out that lawyers were precluded from doing this with their clients, so why should mediators be immune. The answer of course is obvious; laymen hire lawyers, but lawyers hire mediators. In fact, at least two lawyers hire a mediator and if they can not make a reasonable judgment about the skill and ability of the mediator they are hiring, they should be sued not the mediator.

This is simply the first step in trying to raise the costs of non lawyer competitors or perhaps regulate out the competition.
 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

What is the connection? In The Future of an Illusion, Freud defined faith as a belief the validity of which is not subject to be proven or disproven. When Henry Paulson appeared before Congress to defend his actions in injecting liquidity into the banks rather than buying toxic assets from the banks, a position that he originally used to justify passage of the TARP, he faced stiff criticism of his credibility, not merely because he did not buy any toxic assets, having claimed that if the government did not we were all doomed, but because even the liquidity injection did not result in any significant increase in loans.

Paulson’s problem is he lacks common sense—banks will not lend money they think will never be paid back, no matter how well the bank is capitalized. However, unwilling to acknowledge this shortcoming he defended his action by claiming that things would have been much worse if he had not acted. Paulson has read Freud. He gave a reason which was beyond rebuke because like faith it could neither be proven nor disproven.

So you are in a settlement conference with your very prestigious outside firm. As the session progresses you notice that your attorney’s demeanor is changing. The enthusiasm with which he appeared to hold your position in the case is not the same as earlier in the lawsuit or even just before the conference, and he is now advocating that you pay a sizable amount. Finally, you agree.

As you walk out of the conference, the weight of your decision is pressing upon you. There were sizable legal fees and the settlement amount was much more than you expected. You glance over at your outside attorney who appears rather light hearted. You voice your concerns—you have managers that are going to question the investment in this case. He responds: “We saved a lot because the result would have been much worse if we tried the case.”
 

• Email This
• Print
• Comments (1)
• Trackbacks
• Share Link