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

(January/February 2012)

In the past, I’ve been asked to serve on panels to discuss upcoming trends in the publishing industry for the following year. I always turn them down. Why? Because I dislike it when people try to predict the future. The audience wants facts, and I cannot provide them since I honestly don’t know what tomorrow will bring. I can tell you what I see now. However, I cannot tell you, in concrete terms, what it will mean a year from now. I can only provide a guess based on my knowledge.

The Dec. 21, 2012, Mayan doomsday scenario has a lot of people talking — especially my children. I remind them to focus on the present; do not obsess over the unknown. Plan and prepare for your future like you have one. It’s good advice, especially coming from someone whose job it is to know what the production schedule will be 18 months out.

Since few of us have the time to ponder whether the world will end as the Mayans predicted, we all have to continue to focus on our 2012 work. The January/February 2012 issue of ACC Docket has a few interesting articles to help in-house counsel do just that: Focus on the facts.

• Mining for Conflict: Sourcing Raw Materials from the Congo
   
• All the King’s Horses … Putting the Value Back into Legal
   
• Public Company Disclosure as a Vehicle for Improving Nonprofit Management
   
• What You Need to Know about the Attorney-Client Privilege
   
• So You Want to Be a General Counsel? How to Maximize Your Chances

It’s now 2012; with a new year, you can expect change. The statement itself suggests change: It’s no longer 2011; it’s 2012. Many people will make New Year’s Resolutions in an effort to change their personal lives. Gyms are crowded with people determined to shed those extra pounds. Don’t be too hard on them … I was in the exact same position last January. That’s the type of change that we can influence, because we work to make the change. However, new publishing trends or the Mayan apocalypse are beyond our control. So, instead of worrying about it, you might as well get back to work.

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By Emily Jelich

Emily Jelich is Vice President and Associate General Counsel with the Royal Bank of Canada in Toronto, Canada. Ms. Jelich heads both the Global Capital Markets Legal Team and the Global Dispute Management Legal Team, which include team members in Canada, the US, UK and Hong Kong. Ms. Jelich is a member of the ACC Value Challenge Steering Committee and champions several initiatives within the RBC General Counsel Team aimed at working more efficiently with business partners and external counsel.

The voice, views and stories expressed in this posting are of the author and do not necessarily reflect the positions, strategies or opinions of the author’s employer or ACC.

While there has been a great deal of discussion in the legal community on the topic of value-based fee arrangements (VBFs), I find it surprising that the vast majority of law firms still seem to try to avoid these arrangements in hopes that they will disappear. I do not mean to disparage those law firms that are trying, but I am continuously bewildered by the fact that they are the minority. I’m not here to define VBFs— the Value Challenge material does that much better than I could — but I will say that VBFs are not discounts. They are not even discounts of annual fees.

As part of their reticence, I am struck by some law firms’ responses to requests for VBFs. Particularly, when I ask a firm for a VBF in litigation or regular transactional work, the firm will often respond that it can only propose a VBF if I “promise” the firm all of our work in that specific area for a period of time. Why are firms not sufficiently interested in developing and marketing skills to provide cost certainty and case management through VBFs unless there is a promised stream of work? Why is this promise so useful to the firm? Work in these areas can always end.  

In my mind, the process should be the exact opposite of what I am experiencing. Firms should actively enhance their understanding of cost structure, and then develop and market VBF models. This way, the firm would create an expertise across clients, and would create a valuable differentiator for itself in the market. The few firms that are doing this are gaining the fame they deserve, but the vast majority continue to resist and ignore this trend.

I don’t pretend that VBF capability is easy — presumably, that’s one reason that firms have struggled with, or avoided, it. However, it does surprise me that firms don’t seem to realize the power behind this opportunity. As a client, the firm that understands what may increase or decrease overall costs in a matter, and provides a VBF by assessing which of those factors are within its control, will be a firm I want to retain. This firm would further assist me by identifying which factors I control as the client, and what actions I may take to change the assumptions behind the VBF. This knowledge is very valuable because it helps me to consider where to spend my money and time. 

VBFs are most often discussed in terms of cost management, but they also address a long-heard request from both clients and law firms: they necessitate a conversation about goals and expectations at the beginning of a matter. They also continue discussions, which become based on actual experience instead of assumptions. VBFs may emerge as a simple way to ensure that important communications occur throughout a matter, in addition to their function as a cost management tool.

I believe that the firm that pursues the goal of becoming systemically better at VBFs for its own sake will at the same time become more attractive to clients and will be more likely to develop strong, on-going relationships as a result.

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ACC’s 2011 Chief Legal Officer Survey was unveiled at this year’s Annual Meeting in Denver. The annual survey and the resulting AM CLO session offered important insights for in-house counsel. I can’t tell you, though, that I was surprised by the results or discussions that followed. They included:

• CLOs are concerned with regulatory issues that put them on the front line for potential liability, but are more concerned with protecting the company by knowing all activities that could have legal implications;
• While they are typically happy with their chosen profession, they are affected by having to do more with less; and
• They want to see the value in their outside counsel relationships and improve communication there, as well as within their own legal departments.

These issues are at the core of what in-house counsel grapple with on a day-to-day basis. The findings of the survey make perfect sense to me, and here’s why:  

The increasingly important ­and changing role of the CLO

As in-housel counsel, one of our main goals (if not the goal) is to protect the company we work for from harm. Risk management is a crucial part of our day-to-day activities, and CLOs are on the front line — expected to offer solutions as problems arise, and ensure solutions are easily accessible and compliant with ever-changing regulations and laws. We can also be held personally responsible when something goes legally amiss. There was a time when the attorneys in the company didn’t have to worry about being prosecuted for the “crimes” of their employer. All you have to do is turn on the television to know those days are over.  As I said during our CLO panel at the Annual Meeting, general counsel are considered key players in government investigations, and are therefore prime targets. While not programmed to shrink from a challenge, almost a third (31 percent) of the respondents said that this increased scrutiny is actually affecting their next career move.

Up to the challenge and satisfied

Yes, CLOs are expected to do more with less, while under more scrutiny from the SEC than ever. And yes, these facts can be challenging, but in-house counsel are entrusted with finding solutions. In fact, we thrive in this role. The survey shows that 92 percent of CLOs generally like their jobs. Well, I didn’t need a survey to tell me that, having met and reconnected with many of you in October at the ACC Annual Meeting. I overwhelmingly heard your testimonials that you are engaged and enjoy what you do..  

The economy and staffing

The survey found that fewer CLOs are feeling the effects of the economic downturn (54 percent) in 2010 than in 2009, when 74 percent reported the same. Those who are feeling this crunch are decreasing staff and increasing their work for outside firms at a higher percentage than in 2009. However, despite a challenging economy, many CLOs are planning to increase staff. According to the survey, 37 percent plan to bring on new hires in the coming year. While some organizations and firms, for that matter, are cutting staff, in-house counsel are adding to their own. This, of course, has something to do with the increasing responsibility of the legal department: Three-quarters of your departments have experienced an increased workload.

Fee structures and working with outside counsel

Working with outside counsel, and getting value from those relationships, is always a key concern for CLOs. Most CLOs are currently using hourly-based fees, and 45 percent of them experienced an “increase in hourly rates charged in 2010.” However, a growing number of CLOs (63 percent, according to the survey) have implemented a form of value-based fee arrangements, with 77 percent seeing an “increase in value of work performed by outside counsel.” This is encouraging news, but there is always room for improvement, as 59 percent of those surveyed would like to see more focus on improving matter and budget management. Again, it all comes back to value.

I could go on and on about other tidbits from the survey of ACC members. For example, CLOs in the United States have increased by 5 percent in the past three years, but the growth of those located in other countries has increased by 20 percent. Similarly, ACC’s international reach as an organization is growing, as is the presence of the international in-house counsel and law department. Please view the entire CLO survey, as well as those from previous years, at www.acc.com/community/clo/surveys.cfm.

You’ve made it clear that CLOs want to add value to their organizations and legal departments by managing the risks and supporting the business objectives. CLOs are seeking value from the outside counsel they employ. And they are seeking personal value in their career choices.  

It’s all about value.

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A former ACC Chair once defined a successful conference as one that provided a good idea that you could take home and use immediately to improve your department, business or yourself. The recent ACC Annual Meeting in Denver clearly met and far-surpassed that standard. Below, you will find some ideas and observations that I gleaned from the meeting. I credit the speaker or the session where I am able. If no credit is listed, it is because the observation is from an off-the-record meeting, a comment from an audience member, or an amalgamation of my own thoughts and comments from several individuals, and thus, not so readily identifiable.

I hope you find them useful or at least thought provoking.

On your career:

1. Comfort and growth are incompatible. – Michele Mayes

2. Get comfortable outside your comfort zone. – Susan R. Lichtenstein

3. You cannot be so focused on what you think you want, that you miss what you get.  – Michele Mayes

4. If your values get crossed, you must be willing to walk [away from your job], even though you do not know your next step. Fortunately, there are few times when your advice is non-negotiable. – Michele Mayes

5. To be good, you must talk the language of the business; to do that, you must learn to listen. When you understand how the money is made, you are halfway there. – Michele Banks

6. Nobody cares about a legal problem except as a business problem. If you couple that with an understanding about how the money is made, you will be successful. – Susan R. Lichtenstein

On value and value-based fees:

7. For my company, the billable hour is a cost of production. We make money by reducing our costs. Why don’t law firms think that way? For most of them, the billable hour is a unit of production, and they want the number to go up! – GC of a manufacturing company.

8. We have made great progress in the movement toward value — today, nearly everyone acknowledges its importance and is talking about it. However, the enemy remains us. I estimate that 40 percent of the in-house community is actively seeking to achieve value-based arrangements with their law firms, but the remaining 60 percent are too busy, find it too hard or simply like their existing firms. – GC of a technology company.

9. Do not underestimate the importance of the lessons-learned process — a post-mortem analysis is a key part of knowledge management. – Comment from audience in session on Value Fees in Litigation

When crisis strikes

10. Identify those who can derail the situation and develop relationships with them. This could include regulators, clients and major bankers. Make sure your stakeholders are fully informed and part of the process. – Judge Sven Holmes

11. A crisis is a defining event that can take you to the next level. – Ed O’Keefe

12. Planning and preparation are crucial; even though no plan survives the first engagement, planning does. – Ed O’Keefe

13. Your first obligation: Breathe and stay calm. Your first question: Do we actually have a crisis?

14. You begin by collecting the facts. You must be able to gather, protect, analyze and report on the information you collect. Avoid “ready, shoot, aim” and jumping to conclusions without facts. – Brad Lermer

15. You should have a team in place prior to the crisis, and know who will collect the information, where it will be kept and how you will communicate information. Identify the other professionals that you will work with both internally and externally (finance, accounting, law firm, etc). – Ed O’Keefe

16. Know your legal team and identify whom you would go to on your own staff. It should be someone who has an enterprise focus, is fact-based and has the guts to say when you are wrong. Character matters. – Ed O’Keefe

17. Get your message straight. Determine who talks with the media on background and on the record. Be ready to deal with information and misinformation that comes out. Companies have changed how they deal with the press. They are much more willing to engage press even when there is no big story or crisis. This raises credibility and allows for a long-term relationship strategy.

18. Make certain everyone understands his or her role and responsibility. At the close of a meeting or phone call, specify decisions made, who does what and next steps.

19. My biggest mistake — not giving the full picture to the CEO about how bad things are when they are worked up and do not want to hear about it. You must have confidence in the maturity of your business leaders.

20. My biggest mistake — not listening to that little voice inside you when something looks funny. It is probably worth looking into. – Stasia Kelly

21. Decide in advance how to handle difficult sets of facts involving senior management, and have protocols in place that determine what and when to report to the board and audit committee. Have a relationship with the board and audit committee before problems arise. Never forget that you are the lawyer for the organization, not senior management. – Judge Sven Holmes

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 Part IV. Follow along in this four-part blog series featuring a timely and provocative look inside Hewlett-Packard Company’s innovative new legal talent development program. This blog takes a look at the training program from the perspective of a participant, HP new hire, Gail Su. Gail is a graduate of Harvard Law School and is currently Counsel on the Intellectual Property Transactions Team. Prior to joining HP, Gail attended Harvard Law where she served as the President of the Harvard Asia Law Society, as Conference Chair for both the Asia and Pacific American Law Students Association and the Journal of Law & Technology. The voice, views and stories expressed by the authors below are their own and not ACC’s. To read the first installment of this series, click here.

Part IV: Who Says Attorneys Can’t Be Trained In-house?

When I first started at HP, I was excited but nervous. I wasn’t sure what to expect, but much to my relief, HP had it all sorted out.

My training has come primarily from two sources: a set curriculum that all new attorneys are asked to complete and my on-the-job experiences. The set curriculum is composed of classes (that I attend both online and in person) and practical experiences. The training was designed to give me broad exposure to the workings of a large company and to help me develop certain skills. It has given me the opportunity to attend classes on core legal topics such as antitrust and contract law; I have had the chance to present a legal recommendation to a company executive; and later this year, I will spend a week at a legal outsourcing site negotiating sales agreements. In addition, I’ve attended a customer meeting with an HP executive as well as a negotiation workshop, and participated in a business simulation where I helped a fictitious company evaluate business options.          

In my day-to-day training, I am fortunate to be under the instruction of managers who are committed to my development as an attorney. I am also fortunate that the entire IP Transactions team has joined together to mentor me. I have been exposed to a wide range of matters and have learned from lawyers with different styles of practice. Sometimes I work on projects by myself. Other times, I work on projects with other attorneys. In all cases, I am encouraged to take on as much responsibility as I believe I am ready for. There are no rules as to what I am capable of, and there are no rules as to which projects are too complicated for me. 

Additionally, my manager encourages me to take ownership of my career, including choosing experiences that will benefit me professionally. One of my professional aspirations is to work on cross-border transactions, especially in Asia. Upon hearing that I would be interested in spending time in HP’s Shanghai office, my manager’s words to me were, “Let’s try to make that happen.” I am pleased that it worked out and I will leave for Shanghai in October.  

Finally, I am encouraged to participate in pro bono activities. In fact, each HP attorney is asked to complete 20 hours of pro bono service a year. In the short time that I have been at HP, I have worked on a VAWA immigration self-petition, advised non-English speaking clients at a legal clinic for small businesses, and instructed middle school students on the law.  

Ten months ago, I couldn’t have imagined that my career would be off to such a fast-paced and exciting start. Thank you, HP, and I look forward to experiencing all that you have to offer.

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By John DeGroote and Alan Dabdoub 

John DeGroote is the President and Chief Legal Officer at BearingPoint, Inc. and member of the ACC Dallas-Fort Worth chapter. Alan Dabdoub is Special Counsel at Lynn Tillotson Pinker and Cox, LLP in Dallas, Texas and former Chief Litigation Counsel of a large subsidiary of a Fortune 100 Company. 

As we all know, high-stakes litigation can be time consuming and disruptive, and one of outside counsel’s jobs is to make the process as predictable as possible. It’s easy to assume outside counsel will provide excellent service in every case, but it’s safer to articulate what you want from them early on so you can avoid surprises and communication breakdowns. While a great process can’t guarantee the desired result, it will make managing your stakeholders’ expectations much easier. The following five tips are sure to get you off to a great start.

1.     Avoid Fire Drills

Let outside counsel know as soon as possible how to minimize disruptions to the business. This may vary case by case, but in all scenarios, communicating a plan will enhance responsiveness and service. Tell your outside counsel:

• How often you’re required to update internal stakeholders during the litigation, the type of information you need, and the format in which you need it;
• The expected dates to report probabilities of a loss so the company can accrue for contingent liabilities in a timely manner;
• Protocol for contacting company witnesses and the times during the fiscal year to avoid scheduling important company depositions or undertaking large discovery projects that will consume company resources;
• The minimum amount of time needed (i.e., one month, two weeks, etc.) to respond to document requests, begin preparing for a deposition, or to review drafts of briefs.

Knowing these details allows outside counsel to better understand how to minimize business disruptions, while reducing internal stress and creating a tailored, professional service that surpasses clients’ expectations.

2. Get Rid of Bad Problems Quickly

Great problem solvers use early case assessments and alternative dispute resolution techniques, and motivate their adversaries to resolve the case. Exploring various alternative dispute resolution strategies demonstrates sophistication, not weakness. If possible, lead rather than manage the process. Suggest a call to opposing counsel to objectively present weaknesses in your adversary’s case, suggest that outside counsel send an offer of judgment early in a case to shift the risk, suggest a summary trial immediately after discovery, or suggest a non-binding arbitration.

The benefit of exploring creative dispute mechanisms is twofold: Earlier resolution allows you to focus on preventing litigation, and if the case isn’t resolved, you’ll be in a much stronger position to marshal support for a trial from your internal stakeholders. Exhausting creative problem-solving techniques will help prevent second-guessing in the event of an adverse verdict.

3.     Help Me Do More with Less

You’re charged with enabling the business in a legal and ethical way. The less time spent on outside counsel tasks, the more time spent on enabling the business. Outside counsel will increase productivity and value by doing the following: 

• Return all emails and calls within a few hours after they are received if possible.
• Conduct an early case assessment before filing suit if the company will be the plaintiff, and within 90 days of being served if the company is a defendant. This early case assessment will serve as the playbook during the litigation;

Outside counsel should also provide you with several things including:

• Electronic or hard copies of all substantive pleadings, emails and correspondence;
• Short and practical litigation reports;
• Briefs ready for filing.
• A liability and damages analysis every quarter;
• A scheduling order of the case allowing you to inform internal stakeholders of important events happening in the case; and
• A robust decision tree analysis of the value of the case, updated as appropriate, so you can recommend to stakeholders the best final resolution for the company.

This type of service will ensure that you’re updated often on the substantive, strategic and budgetary aspects of the case. You’ll be able to answer tough questions about the case anytime and will be free to take on other challenges within the company.

4. Help Me Pitch Your Value

The most overlooked attorney work product is the invoice. Outside counsel should not send invoices containing charges for an administrative service, associate training, or duplicate time entries. Each time entry should reflect an effort to drive the case toward a resolution. Ask outside counsel to set forth in their invoices: 1) what the fees are to date over the life of the case, and 2) a general description of how the activities on that invoice have moved the case closer to a resolution. This will help you better judge the value received in the case and allow you to communicate that value to internal stakeholders.

5. Explain the Settlement Value

A decision tree can help in-house counsel quantify the settlement value of a case depending on the likelihood of certain outcomes at different stages in the litigation (i.e., whether summary judgment will be granted, whether important evidence will be excluded, whether punitive damages will be awarded, etc.). You’ll then be able to better determine optimal settlement, pre-trial, trial and appeal strategies.

To create a decision tree,  ask outside counsel for the odds of winning a summary judgment, winning at trial, and of obtaining a low, medium and high verdict. Then, ask what the low, medium and high range of a verdict can be. You can then create the decision tree based on these percentages. While a decision tree is based to a certain extent on subjective data, your internal stakeholders will understand the settlement value much better as you walk them through it. This reduces the chances of the company overpaying on a case or foregoing a propitious settlement opportunity. And your stakeholders will be grateful for that analysis.       

For in-house counsel with many internal stakeholders, the litigation process should be just as important as the case result. Create a list of service expectations in every case and communicate that to outside counsel. This will maximize the value of the legal services received, strengthen your working relationship with outside counsel and enable you to most effectively manage internal expectations from start to finish.

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By J. Alberto Gonzalez-Pita the Executive Vice-President & General Counsel of HCP, Inc., headquartered in Long Beach, CA. Mr. Gonzalez-Pita is the Chair of the Board of Directors of the Association of Corporate Counsel. 

I recently had the great pleasure of attending the ACC Europe Annual Conference in Berlin. For three days, I attended practical and timely sessions that spoke to the increasing responsibilities of in-house counsel and the effective management of this role. The 300+ delegates came from some 29 countries.

The opening session featured Richard Susskind, author of “The End of Lawyers?” who talked about the future of the legal profession, which was quite entertaining. Thomas Werlen, general counsel, Novartis, joined him and focused on building the forward-thinking legal department. They reminded me of how far our profession has come and highlighted the challenges that remain, including those facing us now and those we will face in the foreseeable future:

• Pressure on head count and external spend;
• More legal work as a result of increasing regulation worldwide; and
• The delivery of more legal service at less cost — "more for less."  

Susskind envisages a future of fast-paced technological change that will continue to have a profound impact on how lawyers work, and on those choosing to pursue a career in law. As knowledge systems and greater computer processing power reduce the need for pure legal experts — placing the emphasis firmly on legal process, project management and the standardization of legal products — law firms and legal departments need to work hard to keep up. This will ensure the survival of the role of the trusted advisor, running strategy, tactics and advocacy.

Sessions ran the gamut for the diverse attendees; they covered data privacy, anti-corruption, managing a small legal department, policies for dealing with social media, cloud computing and the effective use of technology. The main solution offered to the problem of not enough counsel to go around was to make better use of technology.

And throughout the conference was the thread of value: how the law department adds value, how to do more with less, and the complicated but important need for in-house lawyers and outside counsel to find ways to better work together.

The closing session featured a stellar cast of corporate counsel including Michael Wu, general counsel, Rossetta Stone; Leanne Geale, global legal services, Royal Dutch Shell; Bertrand Alexis, senior director, Qtel International; and Andrea Goodrich, associate general counsel, Tyco International. The esteemed counsel shared their best practices in managing their legal department and outside counsel relationships. And representing Norton Rose was Andrew Fleming, who inspired a frank and welcome discussion on how best to achieve a value-based relationship with your outside counsel.

Aside from the substantive sessions, highlights of the conference included the cocktail reception and gala dinner at the beautiful Orangerie at Schloss Charlottenburg. Standing on the terrace in the early evening –– glass in hand –– will live long in my memory.

It was great to meet our very engaged European members and to have the opportunity to restate ACC’s commitment to in-house counsel across Europe and beyond. I’m looking forward to the next opportunity to cross the pond.

See you next year in Amsterdam!

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 Post 4

Adaptable Fees to go along with the Legal Work Flow

Week 4. Each week via the In-house ACCess blog, follow the promise and pitfalls of forming a new value-based client-firm relationship. This blog pairing explores how to improve the value returned using a different approach to managing litigation work.  As General Counsel of Kayak, Karen Klein provides legal counsel to senior management and oversight of all legal matters. Karen’s co-blogger is Nicole Nehama Auerbach, a co-founder the Valorem Law Group, The voice, views and stories expressed by the authors below are their own and not ACC’s. To catch up on the story so far, click here.

The client view

From Karen:  

Last post, we talked about the structure of some of the alternative fee arrangements we have been using for our litigation. As I noted, sometimes things do not go exactly as planned, through no fault of ours, or the firm's, initial assessment of the case. In those situations, we think it is important to work with our firm to assess whether changes to the arrangement should be made.

It helps when the original fee proposal spells out the scope of the matter, including what is and is not included in the fee arrangement. That way, if something occurs that is outside of the original scope, it is easy to determine whether the scope (and/or the fee) needs to be expanded. In one of the examples of litigation I gave in last week's post-- the one involving expedited litigation, we originally priced the matter based on the number of months the matter would last before trial. For various reasons, the matter was delayed for several months. In addition, the other side brought in a number of experts -- something not contemplated at the beginning. As with most litigation, the longer things drag out, the more work that tends to be done. As that was the case here, we were willing to entertain an expansion of the fee arrangement since the addition of the extra months caused additional work. Because one of the extra months involved was much slower than the others, we did not do an exact month-to-month expansion.

In the end, the negotiation on the revised arrangement was very similar to the original discussion regarding fees. It was a give and take that allowed us to come to a mutual agreement on the changes. I suspect that because I had a better handle of the scope of the litigation due to the front-end attention we gave it, coming up to speed on the need for a revision was fairly easy.

I think it is important for client's to understand that changes occasionally do occur when it comes to fixed fee matters, and it's important to understand them and be open-minded to them. It is not a natural reaction. It is similar in some respects to a case budget that was exceeded by a firm billing by the hour, but it is different in that budgets tend to be considered “guesstimates” while fixed fees are perceived as more certain. While in the billable hour scenario, although no one likes budgets to go south, you tend to be accepting of changes because so much information is not provided or available at the outset. So long as you believe the firm is not being inefficient, changes to the budgets are accepted. The notion of a changed scope in a fixed fee agreement is generally clearer and should, therefore, be easier to understand. If something is not in the original scope, the additional work is akin to a change order, and most businesses are comfortable with that concept. The changed scope concept is a two way street though: I would expect a similar adjustment if we had based the original arrangement on six months of expedited work but for some reason the matter was set for trial in three.

As I have said before, the trust aspect is key. While I don't want to be taken advantage of, I also don't want to put my law firms, who I consider valuable partners to our business, in a difficult financial position when circumstances of a particular case are outside of their control.

The firm view

From Nicole:

Clients who utilize alternative fee arrangements sometimes have difficulty coming to terms with the fact that occasionally, the fee structure should change. This may be because of the notion that a fee that is fixed should remain fixed. The truth is that firms working on alternative fee arrangements tend to bear most additional unanticipated costs without asking for a revision to the fee arrangement. This is because the firms recognize that certain things that were not expected -- i.e., a motion to compel filed by the opposing side or a larger volume of documents produced by the other side than anticipated -- should have been factored into the overall fee proposal. Firms also are loathe to keep going back to clients to make adjustments. It makes the concept of fixed fees appear illusory.

Still, it is impossible for the firms to bear the burden of substantial change that was unanticipated in every situation and still stay in business. In the scenario Karen mentioned, there was a date by which trial was to occur by virtue of a contractual clause. It was safe, therefore, to assume that the term would be adhered to. However, certain external factors caused the date to get delayed. Accordingly, it simply was not a matter of not estimating the proper scope of the matter. It was the type of contingency that would not have made sense to include in the original fee proposal. And because the time to trial is one of the most important factors in determining a fixed fee, adjustments were warranted.

We are finding an analogous situation when clients want us to price a matter entirely, rather than in phases. If you include trial in the price, the fee increases disproportionately because less than three percent of all civil cases go trial www.northwestern.edu/newscenter, and if they do, the cost of trial is far higher than the cost of other aspects of the litigation. When we priced matters entirely with one fee that included trial, we noticed that there was a fair amount of sticker-shock involved on the client's part. Now, we always break out charges for trial separately from the rest of the case. So, it is x for the matter, and an additional y if it goes to trial. Psychologically, this was easier for clients to get their arms around. (I'll address the psychological issues inherent with alternative fee models in another post).

Like the disproportionately skewed fees when pricing a matter with trial included, if firms included in the original fee additional amounts for all of the potential contingencies that could occur, the price would be too high for any client to want to go forward. But since many contingencies don't come to fruition, it makes more sense to price based on the mutual and reasonable expectations of the firm and client and then adjust for the outliers. That is the normal course, but as with every aspect of alternative fee pricing, it is subject to discussion. If mid-course corrections are difficult to deal with, say for budget reasons, it is possible to build in certain amounts for the unlikely but possible contingencies. The decision on what to include and how to approach change orders is the client’s call, but it is something to be addressed upfront.

My Kayak selection of the week is from Chicago to China. I've always wanted to visit, and as I am quite busy at work and can't quite fathom when I might have time for such a trip, I will go there via my imagination instead.

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 Post 3

When the Fees Align 

Week 3. Each week via the In-house ACCess blog, follow the promise and pitfalls of forming a new value-based client-firm relationship. This blog pairing explores how to improve the value returned using a different approach to managing litigation work.  As General Counsel of Kayak, Karen Klein provides legal counsel to senior management and oversight of all legal matters. Karen’s co-blogger is Nicole Nehama Auerbach, a co-founder the Valorem Law Group, The voice, views and stories expressed by the authors below are their own and not ACC’s. To catch up on the story so far, click here.

The client view

From Karen:

When the stars we have been discussing aligned and there were some pieces of litigation that lent themselves to alternative fee structures, I wanted to consider structures that would provide budget certainty. But it was very important to agree on a structure that provided me comfort that Nicole and her firm would continue to give it their highest attention if the litigation dragged on. I didn’t want to experiment with a structure that created a risk of a short attention span by the firm. We accomplished both objectives.

The first matter that we priced on an alternative fee basis was a copyright infringement matter where we were plaintiff. I was concerned that if the opposing side did not want to resolve the matter early, we would be in for a long fight -- i.e., high fees. Knowing the goals we had, Nicole priced the matter in phases, with a bonus incentive if a favorable settlement or judgment occurred. The bonus demonstrated that she and her firm were putting themselves at risk on the matter, and therefore, it eliminated the concern that our interests might not always be aligned. (The fact that her firm includes a "value line adjustment" on every invoice so clients can adjust the amount up or down to match the value they think they received also helps). This approach allowed us to have the budget certainty we wanted, and to link the bonus to a specific result. The matter settled early and we avoided paying for the additional phases, but Nicole and her firm were rewarded for the work they put in on the front end via the bonus that they achieved. It was a win for Valorem relative to the amount of time invested, and it was definitely a win for Kayak.

The second matter provided for a different fee structure, and is probably the more typical type of arrangement for most companies our size. In that case, we are defendants in expedited litigation. Although the parameters of what will be done in the case are similar to most substantial pieces of litigation in that there is written discovery, a bunch of depositions, the likelihood of experts and then a trial, the expedited nature makes it necessary to do a lot more work in a shorter than usual time frame. Again, because we wanted the budget certainty, we structured the fee by using a fixed fee for the entire case, but we pay in equal monthly installments for the duration of the matter. There is also a bonus component based on the outcome.

Another type of arrangement we have entered into allows us to bundle a bunch of similar issues or smaller matters together into a monthly portfolio fee. While the volume of work that falls into this category will fluctuate every month, we have the budget certainty we want, and previous data that Nicole shared with us when she was handling this on an hourly basis leads us to believe that over the course of the year, amount of work done will even out. The budget certainty works in Valorem’s favor as well.

As with all fee arrangements (and cases, regardless of what arrangement) sometimes things arise that are unexpected. More on that in next week’s post.

The firm view

From Nicole:

The beauty of being able to look at each case individually is that we can structure the fee arrangement as necessary to accomplish the goals of the client for each particular case. While the most popular type of fee arrangement for litigation involves a fixed fee, almost always with a bonus element, we have entertained fee arrangements that run the gamut of pure contingency to a modified hourly rate with a bonus. 

When we are dealing with a matter with a clause or statute that allows the prevailing party to recover fees, we always track the fees on an hourly basis lest we find ourselves in a not so modern court that won't entertain the non-hourly model in awarding fees.

Of course pricing a portfolio of matters, as Karen describes, is easier for us and better for the client because it allows us to spread the risk inherent with one case across more. This allows us to provide a lower overall fee since the risk of an outlier, a deviation from the norm, is diminished. It also allows us to customize the bonus on either a case-by-case basis or some achievement for the portfolio overall. For example, our bonus can be tied to the overall savings in litigation spend, or simply the amount of savings we achieved across the portfolio in connection with settlement or judgment payouts.

In structuring our bonuses, we take into account that settlements, particularly between parties with an ongoing business relationship, may not always come in the form of a cash payment. For example the parties may agree to extend a contract's term in order to resolve the litigation. If our bonus were to be a percentage of the recovery (an easy scenario when our client is the plaintiff), we would simply ask the client to value the settlement (i.e., in the example I gave, the value of the additional one year term) and pay us based on that. This places a lot of trust in the clients, but that is the nature of these types of arrangements, and we'd rather have a trusting relationship than the opposite.

We have noticed that as clients develop experience with alternative fees, they are developing firm ideas of the type of behavior or results they wish to reward, making the discussions about the alternative fee that much more streamlined and focused.

A brief aside. We have just launched the free Valorem App from the iTunes App store (search "Valorem") The App contains a "Tip of the Day" feature where you will find some tips on fee structures, with more forthcoming. Shameless plug, I know, but I do think it provides value. (If you like the app, review it or tell a colleague).

My Kayak trip of the week is from Chicago to the Bahamas. Given that the wind chill was about -5 F this morning in Chicago, it helps to think of summer.

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Throughout 2010, ACC continued to take the pulse of the legal industry through its annual surveys. From the changing role of the CLO, to the evolving relationship with outside counsel, including the increased use of alternative billing arrangements, our surveys provided data to our members so they could have reliable benchmarks for their own law department management practices and insights into new legal and business trends.  Our surveys shared some themes in terms of takeaways for 2011 – a desire for an increase in value and efficiency in legal work predominated and practical methods for achieving such efficiencies emerged.

With fickle consumer confidence and a sluggish economic recovery this past year, CLOs actually showed signs of optimism indicating increased job satisfaction and plans to hire internally, according to the 10th Annual Chief Legal Officers Survey released in March. Results showed a sharper focus on reducing costs, increasing value and responding to regulatory scrutiny. Specifically:

·91% of CLOs reported that despite expanding duties, they were still satisfied with their chosen career. This is a positive data point indicating that external economic conditions did not heavily impact job satisfaction. One could surmise that internal structures, processes and rapport with management strengthened relationships and solidified job satisfaction and will play a key role in continued career fulfillment in the year ahead.

·29% (more than a quarter) of the respondents planned to hire staff for their in-house legal departments in 2010.  Despite the recession, this was up from the 23% with hiring plans in the previous year’s survey. The uptick in staffing and augmented workload will require an increased focus on efficiency in the coming year as CLOs manage their law departments, budgets and C-suite relations.

·79% of CLO respondents want to increase the percentage of outside counsel spending based on alternative fee arrangements. As CLOs face a myriad of intricate and new challenges, they are turning to business-oriented solutions. Initiatives such as the ACC Value Challenge will play an integral role in 2011 as in-house counsel seek more creative, value-based billing arrangements with outside counsel.

Another important set of benchmarks emerged in October with the release of the 10^th Annual ACC/Serengeti Managing Outside Counsel Survey. For a decade, this survey has assessed key elements of the in-house counsel/outside counsel relationship. This year’s results revealed that in-house counsel are seeking more business-oriented management techniques and more value-based fees from their firms to drive efficiency in legal costs and reduce overall legal spend.

·65% of respondents now require project budgets; 60% require risks/potential resolution strategies. Compared to a decade ago, in-house counsel now require measurable data, metrics, targets, project management tools and rigorous cost-controls to implement getting maximum value from their outside firms. This will continue to be a priority in the year ahead.

·Company resistance to alternative fees has declined by 16%; firms’ resistance to alternative fees has declined 69%. Over the past ten years, results show that law firms are “getting it,” as they are offering alternative fees more often (up 6%). In light of these results – and those from other surveys – we believe the move to alternative billing will continue to increase in 2011, even if the economy strengthens.

·28% sought input from their law firms when evaluating technologies for collaboration. The most common technologies for which law firms provided input were matter management and e-billing systems. Law firms should heed these results and offer clients useful business solutions in 2011.

A third survey in November, the ACC/The American Lawyer Alternative Billing Survey, also showed an increase in the use of alternative fee arrangements in 2010. While still a small percentage of total outside counsel spend, the increase in the number of “value-based” fees demonstrated the determination of law department managers to continue to increase the use of alternative pricing and valuation methods, even as the economy recovers.

·29% of in-house counsel reported an increase in the use of alternative fees in 2010 and 53% of General Counsel said they used flat fee billing for an entire matter. We were interested to see if in-house counsel would continue to experiment with new fee structures once the markets began to rebound and budgets were not under the same level of stress in 2010.  The fact that billing practices did not revert back demonstrated that in-house counsel were continuing the march to drive costs and value away from measuring hours alone. The needle will likely continue to lean toward alternative fees in 2011. 

·52% of GCs indicated that their value-based or alternative fee arrangements were initiated primarily by the law department, not by law firms. With increased pressure to demonstrate value and stand out from competitors, law firms will need to be more proactive, become trusted business advisors to their clients and focus on value in their relationships with outside counsel in 2011. 

·24% of survey respondents not using alternative fee arrangements in 2010, plan to try to implement them in 2011. These results show that the push for value-based fee arrangements is not a fad that will go away. These practices are now not only more acceptable, but becoming more firmly ingrained as an offering at major firms. As value-based billing options become institutionalized, we predict they will increase steadily not just this year, but year over year.

For both law departments and law firms, there is a lot to chew on in these trends and benchmarks as we ready ourselves for a new year with new challenges and we hope, new solutions. We will continue to tap into ACC’s in-house counsel community for feedback and insight to help us prepare for what is yet to come. As Albert Einstein proffered, “Learn from yesterday, live for today, hope for tomorrow. The important thing is not to stop questioning.”

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Post 13

Compensation, Conversation and Collaboration

Week 13. Each week via the In-House ACCess blog, follow the promise and pitfalls of forming a new value-based client-firm relationship. ACC Value Challenge steering committee member Ken Grady, General Counsel and Secretary of Wolverine World Wide, offered to profile his selection and start-up process of launching a trademark portfolio management engagement with law firm Seyfarth Shaw. Ken's co-blogger is Lisa Damon, a member of Seyfarth's Executive Committee and leader of the firm's efforts to incorporate Lean Six Sigma into its business. The voice, views and stories expressed by the authors below are their own and not ACC’s. To catch up on the story so far, click here.

The client side

From Ken:

We structured the value fee for 2011 by borrowing from a common executive compensation arrangement. First, we established the base fee for 2011 (think base salary). Seyfarth used raw data that Wolverine supplied (hours, number and type of matters) to calculate estimates assuming the work was done by (1) a traditional large firm (higher rates), (2) the current firm, and (3) Seyfarth. I also calculated an estimate. My calculation and Seyfarth’s calculation of the Seyfarth fee agreed within about 7%, and we decided to use my number (I had the edge given my insider knowledge).

Next, we set up a bonus structure. The bonus recognizes savings based on systemic changes. This is a key point. We want repeatable changes that reduce the time to do portfolio work. That means we need process improvements, not one time cost avoidance. Reducing the time it takes to process a trademark application is a process improvement, whereas deciding to file a trademark application in fewer countries is a one-time savings. Process improvements give Wolverine savings each time we do an application.

The bonus builds on two opportunities: (1) reducing Seyfarth’s work, and (2) reducing foreign agent work. Between Wolverine and Seyfarth, Seyfarth has almost total control over the foreign agent work. So, for each $1 of systemic foreign agent savings, Seyfarth will be paid a $1 bonus. Seyfarth’s work is more closely tied to Wolverine. Since we must work together to reduce Seyfarth’s costs, we split each $1 of systemic Seyfarth savings $.75 to Seyfarth and $.25 to Wolverine. Put differently, for each $1 systemic savings on Seyfarth’s work, Wolverine will pay Seyfarth a $.75 bonus.

To measure Seyfarth’s systemic improvements, we will use two metrics: time to process an application, and time to receive a useable specimen (we have to file specimens in certain countries to show we are still using the mark). We need one score across both metrics to determine Seyfarth’s bonus, so we will combine the results on the two metrics by weighting them 80% on trademark applications and 20% of specimen gathering. We calculate the trademark application improvement metric, multiply it by .8, calculate the process improvement on specimens metric, multiply it by .2, and add the results. For every X% of weighted process improvement, Seyfarth will earn $.75.

Let’s compare this to a common executive compensation bonus system. I earn a base salary (base fee). My long-term bonus depends on the company’s performance on two metrics, earnings per share (think trademark applications) and value added (think specimen gathering). EPS counts for 65% of the final score, and value added counts for 35%. We get the final score by taking the weighted score (.65 times EPS score plus .35 times value added score), and apply that weighted score to the sliding bonus scale. For each X% improvement in the EPS/Value Added score I get a bonus of $Y.

I’m going to emphasize one point – this structure depends on process improvements not one-time savings. That means we need a system (we are using, of course, SeyfarthLean) to document existing processes, improve those processes (reduce work), and ensure that they are repeatable. Since many have successfully used lean process improvement for services where you could claim there is great variability (for example, medical treatment in hospitals), using it for legal services does not present any unique challenges.

Next: Explaining the power of this approach in driving shareholder value for Wolverine, and margin improvement for Seyfarth.

The firm view

From Lisa:

As the provider, we were delighted by Ken’s approach. We believe that it is fair, aligns us with Wolverine and properly reflects our joint expectations for the further development of the trademark service platform. 

More than that, it provides a compelling strategy for recognizing both the “industrial” and “artisanal” components of our work that Ken has described in the past. We receive a fair base fee and the opportunity to do better if we can help to build out the service platform.  We are absolutely committed to working with Ken’s team to identify process efficiencies and other systemic changes, believe we can do it by harnessing the capabilities of SeyfarthLean and agree with Ken that his approach fairly reflects that commitment.

So, what did we need to do from our end to get comfortable with the approach from a business perspective? We clearly wanted an approach that worked off a different calculus than seeking to compare the projected results of Ken’s pricing strategy against a traditional hours times rates model. That approach might have been ok but was clearly inconsistent with the core theme of the Wolverine trademark relationship 

Like Ken, we worked first to develop a scoping model that projected fees under several different scenarios. Working with Ken, we determined that his numbers and our numbers on scope were close and elected to work with Ken’s numbers (that company knowledge thing). From there, we looked at our costs to deliver the scope, ran through a scenario analysis that Ken developed and looked at margins. With that analysis, we concluded that Ken’s strategy should bring us together with Wolverine in a joint mission to handle the daily core services and further develop the trademark platform.

This exercise was similar to our more traditional pricing analysis only in the goal of seeking to understand the financial results of various scenarios. The economic incentives associated with rewarding strategic value (as the client understands it), however, was very different from the more traditional approach to pricing trademark portfolio services and very cool from our perspective.

Next: Working as partners; next steps.

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 Process Mapping Primer 

Week 12. Each week via the In-House ACCess blog, follow the promise and pitfalls of forming a new value-based client-firm relationship. ACC Value Challenge steering committee member Ken Grady, General Counsel and Secretary of Wolverine World Wide, offered to profile his selection and start-up process of launching a trademark portfolio management engagement with law firm Seyfarth Shaw. Ken's co-blogger is Lisa Damon, a member of Seyfarth's Executive Committee and leader of the firm's efforts to incorporate Lean Six Sigma into its business. The voice, views and stories expressed by the authors below are their own and not ACC’s. To catch up on the story so far, click here.

The client side

From Ken:

Lawyers are idiosyncratic workers. We do things differently when you compare one lawyer to another, and we do things differently when you compare how we do the same thing from time to time, such as preparing contracts. We justify much of this idiosyncratic behavior by claiming we do bespoke work – each time we do a case, contract or other matter, it is unique. Our idiosyncrasies, however, make us very inefficient.

We have designed the Wolverine/Seyfarth partnership to reduce process variability, using the SeyfarthLean techniques, so that we each become more efficient in providing legal services to our client. To know what Wolverine does today, we will make process maps. A group of two to eight individuals, drawn from both entities, will brainstorm and capture each step in a current process. In the old days, we did this by taping a long piece of butcher paper on the wall and noting each step in the process sequentially along the length of the paper. With all the mistakes, corrections and additions, it was busy when we finished. Today, Seyfarth does the same thing using computer tools that make the result much cleaner. Using the process map, we then (1) simplify steps, (2) weed out unnecessary steps, (3) re-sequence steps, (4) standardize steps and (5) create tools for steps. Each time we change the process, we update the map. We pull from a variety of metrics to measure our improvement – e.g., overall time to complete the process or number of steps in the process.

An obvious place to start with a trademark portfolio is the application process. The client sends an e-mail asking about the availability of MARK for use with a product. The in-house paralegal does a quick screening search and e-mails back saying that it looks like it is available, and asks whether she should do a full search and how the client will use the MARK. The client emails back saying yes to the full search, and gives a partial answer on use. The paralegal e-mails the outside paralegal requesting a full search. The outside paralegal requests the search and sends the outside IP attorney the results. The outside IP attorney has some follow up questions and sends them to the in-house paralegal, who in turn sends them to the client, who in turn responds to the in-house paralegal, who in turn responds to the attorney. Draw a line on your yellow pad and put each of these steps in sequence. Congratulations, you drew your first process map and already see several ways to improve the process. After each iteration, we want to achieve a steady state. That is, we want a defined process that we will repeat each time we do an application keeping variability to a minimum. One benefit of this technique is that you can apply it endlessly to any given process, always finding room for improvement,

We still can be brilliant lawyers. We just exercise our brilliance at the right time in a defined process that eliminates the unnecessary steps that cost our clients more, but don’t add value.

Next: So what is the status of those fee discussions?

The firm view

From Lisa: 

Ken has delved into the world of process mapping in his post this week. Okay, we love process mapping. We use this Lean tool often at Seyfarth -- we use it in very complex matters and those that are more repetitive. We may do it electronically, on a white board or even in our heads -- the trick is that it is a way to think about a problem.

When we first started working on process mapping, there was some resistance among our lawyers (and from me, as well). "Every matter is different," I kept saying. "This is complex litigation. How can we know what will happen?" We also heard: "My M&A work is highly specialized; a process map won't work." However, as we began to refine what we thought what a map could be and how we put it together, our lawyers began to see the magic of the tool. We think of our maps as "guides." We know that every legal matter is different, but we use maps to think through strategy, to organize our resources, to spot inefficiencies and to refine our strategy. They have become for many of our lawyers a true strategic tool as they think through complex issues for our clients. A quick plug: If you want to see how this works in real life, Ken and I will be doing a session at the ACC Conference, where we will have the audience on its feet, using a number of Lean tools, process mapping included. If you are coming to San Antonio, join us for some fun.

Another tool that we love to use to think through an issue is a "root cause analysis" tool. This can really force you to think beyond immediate problem-solving by requiring you to stop, think and ask tough questions. One of the tools, in fact, is called the "5 Whys" because it essentially demands that you probe for the root cause, using a series of "why" questions.

We also use other tools to guide our thinking. We find that other tools -- fishbone diagrams, for instance -- can be useful in working through client and internal issues to help identify the right solutions. I used one in a complex internal investigation last week, and it enabled me to get to an efficient solution that worked at the heart of the matter, not the periphery.

As we have said before, Lean gives us a way to think, a different approach to the practice of law. The tools support the thinking; they allow us to analyze and solve problems more efficiently and effectively. We would love to hear what kinds of tools and disciplines you are using. Let us know.

Next: A fee update and Ken teaches Seyfarth

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 The grocery-strategy connection

 Week 11. Each week, via the In-house ACCess blog, follow the promise and pitfalls of forming a new value-based client-firm relationship. ACC Value Challenge steering committee member Ken Grady, General Counsel and Secretary of Wolverine World Wide, offered to profile his selection and start-up process of launching a trademark portfolio management engagement with law firm Seyfarth Shaw. Ken's co-blogger is Lisa Damon, a member of Seyfarth's Executive Committee and leader of the firm's efforts to incorporate Lean Six Sigma into its business. The voice, views and stories expressed by the authors below are their own and not ACC’s. To catch up on the story so far, click here.

 The client side

 From Ken:

Nutritionists have told us for years that we should develop a strategy before we go grocery shopping. We should plan our meals for the week, deciding what we will have at each meal, and how to do things like sequence the meals to use leftovers. From that plan, we should develop our grocery-shopping list. If you are efficient, you group items on your grocery list according to where the store places those items. When you go shopping, you move efficiently through the store, without backtracking, and you buy only what you need. You don't go shopping when you are hungry, and you don't give in to the temptation to buy those goodies in the checkout aisle.

Lawyers love tasks and checking things off lists, but as much as we advertise our strategy skills to our clients, we often neglect that step ourselves. We don't develop our strategy before we dive into the tasks. Of course, we do use strategies from time-to-time, usually for lawsuits, acquisitions and other transaction events. However, typically, we don't develop strategies for routine work.

For the Wolverine trademark portfolio, Wolverine and Seyfarth are working to develop many strategy tools. These tools will guide our decisions on issues relating to each mark, streamlining pieces of the decision process that today are ad hoc.

We want to make decisions up front about what to do in various situations and know where marks fit into our portfolio before we are confronted with the question. For example, we want to know the relative importance of a mark, and which countries are more important for that mark -- based on factors such as sales levels, related marks and counterfeiting risk. We want to have a strategy for customs surveillance, and a strategy that ties the mark to our domain name strategy. Using these and other strategy tools, we can make decisions quickly. If something pops up on a watch list, we know whether that country is important for that mark, and that guides the decision about what effort to put into a response. We avoid ad hoc decisions that result in our buying things we don't need.

Doesn't it take time to develop these strategy tools? Yes, but not a lot. Once we have the template, the time is in filling out the templates with the assistance of our client. The savings potential is enormous. It can cost thousands of dollars to oppose a proposed registration of a competing mark in one country. If we decided that our mark in that country is not strategically important and we avoid spending the thousands of dollars, then we probably covered the cost of the strategy process for the mark. We avoided the temptation to buy something in the checkout aisle and stuck to our original strategic shopping plan.

Next: Developing a map to the future.

The firm view

 From Lisa:

Ken's entry this week talks about developing a strategy before you act. For us, Lean Six Sigma helps provide the discipline for that step.

When I look at how Lean has changed my life as a lawyer, one of the keys for me has been to develop the discipline to stop and think before returning to business as usual. Ken talks about this step in the trademark area; for us, it is a step we try to use in every matter across the spectrum.

A key feature of Lean is DMAIC, a structured way to look at a matter and plan an approach, a strategy. This discipline asks you to:

·       Define the problem first -- what are you trying to accomplish? What problem are you solving? It mandates talking to your client, standing in his/her shoes and understanding the issue.

·       Next, you Measure. Look at the information/data that you have available (not relying on your "gut" or on the way you have always done something).

·       You then Analyze and Improve -- or implement -- the strategy or the solution.

·       The “C” stands for Control, which is the discipline of not going back to the way you have always done something, not returning to "business as usual."

Using DMAIC as a framework for the way you think about a legal problem can be no more than a quick mental ‘stop and check’ before you begin a project or a longer more involved discussion. The important thing for me is the pause to think, to consider and to plan -- the strategy that Ken talks about.

Lean provides other tools that I find useful in the world of lawyers -- for instance, the concept of looking at the root cause of problems and the tools designed to help you get there are ones that I use frequently -- not just in law, but in my like life as a manager of people. Too often, instead of stopping and analyzing, we jump to a solution -- lawyers are trained to solve problems. Again, Lean gives us the discipline to stop and consider: Are we really solving the root cause, or are we simply putting a bandage on something that won't last or won’t truly solve the issue?

Like effective project management and process design tools, taking time to plan strategy on the front end almost always saves time on the back end. I believe that strategic planning is not a luxury or an option to use only when time permits, but instead, it is a step that should always be integrated in my thinking -- whether I'm planning the trip to the grocery store or planning a much more complex project for one of my clients. I guess that all of those law school professors were right in the first place: Keep your pencil down in an exam until you have planned the answer!

Next: Working with Ken to map out strategy

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 “Automating broken processes won't make us smarter; it can make us stupider faster.” ~ Steven Levy

Participating in a panel discussion at the International Legal Technology Association (ILTA) conference last month was yet another opportunity for me to engage in a discussion about the ACC Value Challenge.  But, instead of speaking to in-house counsel and law firm partners, this time I addressed technologists.  It was an excellent opportunity to discuss IT’s involvement in the initiative to close the gap between the cost of legal services and the perceived value clients received from those services. 

Tim Corcoran (Altman Weil), John Alber (Bryan Cave) and Constance Hoffman (Bryan Cave) provided a number of practical examples culled from their own experiences, explaining how technologists can play an integral role in strengthening the relationship between law firms and their clients. The questions from those in attendance reinforced the significance of this group’s involvement in the ACC Value Challenge.

Steven Levy, principal of Lexicon Steven Levy & Associates and former senior director of Microsoft’s Legal Information Systems Department, addressed this same topic in a recent Law Technology News article by focusing on trust and productivity. Levy discussed 10 ways IT Departments can work together with their law firms to “deliver more value,” and in doing so, he honed in on how an IT department can not only assist its law firm in strengthening the relationship with its clients, but also help it to be more responsive - and proactive - in this effort.

One of Levy’s suggestions resonated with me: Don’t Automate Broken Processes. Improving processes should not be confused with moving things around to just look different.  This does not work.  I often hear, “Sure things are different, but they aren’t better.”  Technologists need to listen to their lawyers to hear what it is the clients want and how they can help the firm change systems to achieve that goal.  By conducting internal reviews, such as document management system assessments, data can be analyzed to actually improve productivity and not just “shuffle things around.” 

Indeed, it’s a two-way street and the weight of this endeavor should not be dropped on the IT Department’s shoulders.  Lawyers must convey the information correctly and provide their technology team with the necessary information to effectively implement these changes.  The IT Director needs to ask the right questions, repeat the issues and concerns and confirm what he/she believes the intended results should be.

An even better solution would be to bring the IT Director into client meetings. As Hoffman noted during the ILTA panel discussion, she has been involved - on the front lines – working with Bryan Cave clients to identify needs and determining the best practical applications to ensure success.  Her intricate knowledge of the technology involved enables the firm to be better prepared to not only respond to client requests, but to also appreciate how working together can strengthen the relationship between clients and firms.

By involving IT in the process – from the start – law firms are better equipped to manage client expectations.  As Levy so aptly noted, “Unlike Wine, Bad News Does Not Get Better with Age.”  Law firm attorneys cannot afford to be in the dark, nor can they keep their clients in the dark.  When an open dialog between attorneys and technologists exists, there should be no surprises.  No surprises means keeping clients abreast of the progress – and the delays. For those of us who travel frequently, we know the feeling of sitting on a plane, delayed on the tarmac … wondering what’s causing the holdup.  When the pilot explains that air traffic control has delayed our take-off by 20 minutes due to incoming traffic, our expectations are managed and we can relax.  Without the pilot giving us an update, we’re left to fret and to worry (or get agitated!). Being honest, upfront and providing assessments throughout the process ensures a win-win for all involved.

An underlying principle of the ACC Value Challenge is to “promote a dialog among corporate counsel, law firms, law schools and others who are interested in driving an alignment and focus on value.” The success of the initiative encompasses the participation of everyone within the legal services industry.  The ACC Value Challenge is not a “silo” initiative where everything is compartmentalized. It’s an initiative based on collaboration and sharing, and IT’s role cannot be overemphasized. Value is in the eye of the beholder and without effective communication and sharing, this, too, will fall into the bucket of automating broken processes that yes, “will make us stupider faster.”

Frederick J. Krebs

Next Up: The Chief Marketing Officer’s Role in the ACC Value Challenge

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Enormous effort has gone into attempts to construct billing arrangements that reflect a law firm’s contribution to a case because of the belief that hours spent was not necessarily a relevant indicator of that contribution and may actually create an incentive to distort billings. In-house lawyers have often had to argue about the value of their contribution to a company’s business objectives, often hiring firms like Altman-Weil and others to create some measureable criteria to support the value of their contribution.

Recently, I vicariously experienced that real way value billing should be done, and perhaps was done when the legal community was more closely connected to their clients. Yes, constructs of value billing it appears are necessary when the value of a lawyer’s contribution is not obvious to his or her clients. Hourly billing is a necessary construct when the need to support the law firm predominates over the objective of providing valuable services.

These facts became clear to me when a former colleague, now out on her own, called with a great deal of excitement to tell me about a recent experience with her client. Her client called to say he had not received a bill. She responded that she had just sent one out billing at a certain hourly rate. His response is that it was his intention to pay a larger amount, not based on the hours spent, but on the value she contributed to the business transaction. Both pleased and surprised, she called to share this experience with me.

I am sharing it with you because that is the objective to which we should all strive. Our contribution should be obvious to our clients as our outside counsel’s contribution should be obvious to us. When there is a sense of disparity with our in-house expenses or the bill from our outside counsel and the payers’ sense of the value that it represents, we have to think about why my colleague was able to obtain higher fees without even asking for them. What was she doing that we are not doing or our outside counsel is not doing?

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I must admit that I seldom look at my law school’s magazine. I generally find these self-promotional efforts a little tedious, and given the number of schools that were attended by my wife and kids we are deluged by these periodicals which never focus on the serious issue of how to get costs down and quality up, but seem to promote an underlying premise which is we will tell you how great we are and you will give us money.

However, in the last issue of the Gargoyle, the publication of the University of Wisconsin Law School, there was a note on program involving internships at law firms in Asia. It caught my attention initially because I thought this was a response to the declining access to internships in the US. It was not, although who knows what the future will bring.

The program has apparently been around for a while. When I was there a foreign internship was Denver. Although it was and still is small in size, for someone like myself who worked for a global company, tried cases in international forums, tried cases involving significant international disputes and worked daily with colleagues around the world, this program has a real potential of beginning to change the focus of legal education in this country which has tended to focus on our legal traditions as the only game in town.
 

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The situation:

•    The economy is in recession
•    Businesses of every size are being impacted
•    Internal staff is being asked to do more with less
•    Layoffs are a matter of fact.

It should be no surprise that this slump is impacting the legal industry. Many blog sites, including the Wall Street Journal and Above the Law, have daily posts on staff cuts and other changes in the marketplace. Numerous surveys indicate a gap between in-house counsel and outside counsel. Where is value and how does it relate to annual spend?

On April 13, 2009, I had an opportunity to attend my second ACC Value Challenge event. Unlike nearly everyone else in the room, I’m not an attorney. My background in the legal industry and understanding of law firms gives me an interesting perspective of the two somewhat differing worlds. In attendance were a number of law firm partners and in-house counsel, including a number of general counsel from local corporations.

My twitter stream (@time2simplify) had a few gems:

One attendee recognized that the ACC Value Challenge event is being held at the Ritz-Carlton... many lols. "best place at best price"

Both law firms and in-house departments share a similar problem: Desire to impact the bottom line is shared by both managing partners & CFOs

Take-away items from the event include:

• One definition of value: Good work – and perhaps value - is not over-lawyering (defined as anything that is not needed and appropriate)
• How are attorneys using technology? Extranets, e-billing, and knowledge management were a few examples.
• If the golden gate bridge can be built on a contract, couldn’t a large legal matter?

So legal community, what’s your point of view?

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This is a guest post by ACC Board Chair, Ivan Fong. This was originally published in the December issue of the ACC Docket.

As I write my first ACC Chair message, the headlines are grim, relentless and frankly depressing: major companies announcing layoffs, cutting budgets and some even seeking government rescues. The global economy is interconnected and hence unavoidably in distress. We have a new president faced with unprecedented domestic and foreign policy challenges. I have no doubt that you, too, are worried about how the turmoil will affect your organization.

Despite these difficult times, it is important to remember to maintain perspective, pause, and reflect on our priorities. What should our priorities be? Let me offer three: First, we need to continue to provide the highest quality services to our corporate clients in the most efficient way possible. Second, as “gatekeepers,” we must remain vigilant on compliance matters and be pro-active, preventive, and protective of our clients’ reputations. And third, we must continue to build culture and community within our law departments, companies, broader communities, and family and friends.

The good news is that ACC’s resources can help. As part of this global association, you have unlimited access to best practices. Advice and guidance from other in-house counsel is readily available: MemberToMember, local chapter programs, committee
listserves, and webcasts , are here to connect you. Looking to delve in deeper on an
issue? Save time and money with ACC Docket articles and InfoPAKs^SM for substantial information on the issues you face. ACC’s surveys, and subsequent benchmarking data provides meaningful insight.  For those directly affected by the economy, ACC also has excellent job and career resources, ACC Jobline^SM.

With increased scrutiny on budgets also comes an imperative for in-house counsel to review and evaluate outside counsel spend. The ACC Value Challenge, a new initiative to reconnect costs and value for legal services, will help to drive an alignment of interests with a focus on high value. Toolkits are available for in-house counsel and law firms to help drive change in the performance of value-based legal services. You, too, can become engaged with this community, help enhance awareness, and communicate success stories.

I have had numerous conversations with ACC members and many agree that this economic storm will pass, though it may take some time and cause painful dislocations. An ACC Board Member commented recently that, “How you’ll be judged after the economic storm is over is by how you handled the storm itself.” We cannot, therefore, lose sight of the things that really matter: credibility, integrity, courage, and community.

Einstein said it best with his three rules of work: “Out of clutter, find simplicity. From discord, find harmony. In the middle of difficulty lies opportunity.” Take advantage of all that ACC has to offer, and don’t be dissuaded by the added scrutiny; don’t despair in the face of challenges; confront them, and through it all, look for the opportunities. If you have any thoughts or suggestions for how ACC can help you—and its 25,000 members
worldwide—please send me an email to acc.chair@acc.com.
 

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