Sending Signals to Outside Counsel: Fee Priorities
By James J. Stapleton, Managing Principal of Client Sciences
It is easy for outside counsel to lose sight of a client's fee sensitivity because the focus is often on the legal complexities of the matter at hand, rather than the client’s broader financial priorities. Lawyers may become immersed in delivering high-quality legal work and providing strategic advice, sometimes overlooking the fact that clients are under increasing pressure to manage costs. Additionally, the client’s budget constraints may not always be explicitly discussed, leading counsel to underestimate the importance of fee considerations. This disconnect can result in misalignment with the client’s expectations regarding cost efficiency.
It is incumbent upon the client to signal fee sensitivity to your outside counsel. Fortunately, there are myriad ways to accomplish that goal:
New priorities regularly arise at the client. While times are constantly evolving, some things remain constant. As circumstances shift, senior in-house counsel continuously reassess and adjust their priorities. Managing expenses is almost always a key focus, often reflecting some form of expecting increased value. It's essential for both you and your external counsel to stay aligned by keeping them informed of your evolving priorities.
New legal management at the client. It is within the discretion of in-house counsel to reassess and update priorities, particularly when a new General Counsel or Chief Legal Officer is appointed. Cost containment remains a top priority. While success in legal, compliance, and risk management is valued, cost savings are especially prominent and recognized by senior management.
New senior management at the client. When new senior management arrives on the scene, they rarely convey a "don't spare the horses" message with respect to expenses -- in any department, much less the legal department. Moderate to severe cost control is a much more typical priority of newly emplaced senior management.
This doesn't always find its way to external counsel, however. Be prepared to convey to outside counsel that your headache is their headache. Almost always, it is in their best interest to keep you both happy and in place to serve your common interests. They should make an effort to make you look good in pursuit of those goals.
Convene Your Law Firms. Let's say you're the general counsel. Give your external counsel an open-ended assignment with one task: In 60 days, be prepared to spend between one and two hours presenting to our legal department (and possibly senior management) on three topics:
- What You Should Know About the Current Legal, Compliance and Risk Environments as They Affect Your Company and What Will Happen in the Next 5-10 - Years that You Need to Know
- Strategies That We Recommend to Address Those Concerns, and
- Brilliant and Innovative Ideas to Transform Your Legal Department.
Ask them to answer two questions somewhere along the way: What makes your firm the best firm for us? What makes your firm the best firm in general? I had a conversation some years ago with a member of senior management of a large regional law firm in which he stated to me in no uncertain terms that his firm was the best in the country...and he was absolutely adamant about it.
Allow them to ask you or your staff any questions, clear the idea with your senior management, give the law firms a list of issues that you'd like to concentrate their focus, and up to 60 days to prepare.
Client Service Plan. Does your outside law firm actively involve you in planning for the legal, compliance and risk management issues likely to face your company? Many lawyers view planning as an activity to be avoided. I talked to one very excited partner many years ago who had an opportunity with a Fortune 500 client, and he came to me looking for ideas. I said, "It's October. You might suggest a year-end planning session." "Interesting," he replied. "Now how would that work?" He hadn't done a year end planning session for a client in 30+ years of practicing law.
Whether or not you actively convene your law firms as suggested above, they should prepare a client service plan with your active participation. When I was in the Big Four, we always involved our clients in our planning sessions. That way, both parties understood which opportunities were likely to arise, what services they would need, what the decision makers were like and who they were, and it provided a facility for both formal dialogue and independent review of the account.
Proper identification, assessment and remedy of legal issues are part of their job description. But will your law firm's culture support your need to control legal fees?
Education and Training. A close second to planning, most clients have some degree of interest in continuing education for their in-house attorneys and training sessions for non-lawyers, particularly in labor & employment and elements of contracts.
Insourcing and Secondments. If you anticipate a bubble or wave of upcoming work, consider a secondment, a contract lawyer, or a temporary lawyer. You may even ask your outside counsel to do the legwork to find that counsel. My first firm created an outsourcing firm in 2007, and it is still going strong.
Avoid unnecessary work. A few years ago, I had a dispute over a residential real estate agreement. We came to the end of arbitration, and we had a fresh outline of an agreement in hand. My lawyer was very happy and proposed that his first-year associate draft a new residential real estate contract. I suggested that we simply use the standard residential real estate contract that had been revised and in place in our state for decades. He replied "Oh, sure, well if you want to do that. But maybe our associate could improve on that contract." Right. A first-year associate will improve on a contract that has under gone hundreds of revisions and stood up to legal challenges over the past century.
Points for chutzpah, but...no thank you. We don't need that work.
Instead, turn it around on your attorney. Are they doing everything they can to prevent unnecessary work? What are they doing to avoid unnecessary work? I would ask any attorney who works with me on an ongoing basis to provide a regular summary of efficiencies that they have employed or developed in executing their work.
Value Added Services. What will a firm provide you for free? The Association of Corporate Counsel has a document titled “Unless You Ask.” You may be surprised at what firms will offer you if you only ask. The Table of Contents alone presents an interesting read. It is a very substantial document at 83 pages and is well worth a review.
Conclusion
Fee sensitivity can be communicated directly or indirectly, through explicit conversations about rates, budgets, and billing models, or through more subtle actions like changes in work scope, billing inquiries, and behavior. Lawyers who are attuned to these signals can better adjust their billing practices to maintain a good working relationship with their clients and meet their financial expectations.
James J. Stapleton is the Managing Principal of Client Sciences. Mr. Stapleton spent several decades building multiple AmLaw 100 law firms and large accounting firms including PwC and Arthur Andersen, during which time he managed over 7,500 transitions between law firms on behalf of clients.
“Sending Signals to Outside Counsel: Fee Priorities” is adapted from “Sixty-Three Strategies to Reduce Your Legal Fees” by James J. Stapleton.
Client Sciences works with clients to reduce legal fees, optimize relationships with your law firms and streamline your internal legal processes. Mr. Stapleton can be reached at 408.440.7660 or via e-mail at james.stapleton@clientsciences.com.
