Friday, March 26, 2010

Law Firm (R)Evolution & Gaps

Earlier this week Georgetown Law School held a symposium on the on-going law firm evolution. Much reporting has been done on this focusing on different issues and components of the presentations (See Lance Godard's collection). Perhaps the most valuable and insightful information coming out of the conference was from the exchanges of dialogue between participants. There were many themes that emerged over the two days but one stood out more than any others - collaboration. There still exists a “gap” between in-house counsel and their outside counsel that is prohibiting robust and meaningful collaboration that would benefit both parties.

This gap can be best said to have three components or flavors. There can be a Knowledge Gap, a Trust Gap, and a Risk Sharing Gap. All of these gaps were touched upon at some point throughout the conference. It was noted time and again that as much as things are changing in the legal marketplace there still is an apparent lack of collaboration occurring that better aligns the interest of outside counsel with their client. Given that the traditional interests of both parties have been stated to be misaligned or in conflict it is easy to see that it may be difficult to readjust and recalibrate accordingly. What was most apparent was that both parties understood and appreciated the other’s position – for instance it is clear that most in-house counsel understand and wish for law firms to be profitable. So the issue in not necessarily in the ends but rather, in the means. In house still needs solid representation along with trusted advice and counsel, but the way in which in-house is getting this is changing and what they look for outside counsel for is changing as well.

Three Gaps.

Knowledge Gap: Lacking of knowledge about the business of the client. This gap can exist as to both outside counsel and in-house counsel. It is obvious to see where outside counsel may have limited exposure and insight into the actual business of its client because it is indeed “outside” counsel. This is not to say that this is acceptable and sustainable perspective. Perhaps more compelling and disconcerting is where in-house lacks the knowledge of their client. Paraphrasing Mark Chandler “as part of the GC office - knowing your way around the business/company and its people/processes is critical.” If in-house is not successful in gaining the knowledge of its client how can it expect outside counsel to do so? Further this knowledge of how the company runs from operations, to sales, to R&D, etc. is critical to providing proactive advice and counsel. Too often both in-house and outside counsel are brought into a matter that has already become critical rather than having been involved earlier perhaps thwarting any major issue. Proactive versus reactive.

Trust Gap: Lacking the insight into incentives and methodologies in how each party is conducting its work. For instance, in-house is reluctant to trust outside counsel in terms of how it is providing its services and what they are charging for it. This goes back to the traditional misalignment of interests – in-house knows that outside bills by the hour in most instances and there is almost no real incentive to dispose of a matter quickly and cheaply. Further, outside counsel is spare with its trust of in-house when in-house selects other firms or suppliers to work with. Leah Cooper provided a great example of this when she stated that too many times outside counsel acted as though the choices she made as part of Rio Tinto’s in-house team in selecting vendors were suspect and came from an ill-advised process. She continued to say that this notion that outside counsel carried regarding working with any other vendors or suppliers often frustrated the purpose of the project and led to too much time wasted in getting outside counsel to work effectively with the other suppliers. This lack of trust of both parties leads to much waste and frustration.

Risk Sharing Gap: Lacking the ability or willingness to properly and fairly allocate risk. Jeff Carr and Tom Yannucci had an animated exchange on the opening evening of the conference. Carr was making the point that outside counsel needs to take a more active role in the risk sharing of the matters they participate in. This was geared towards fees meaning that outside counsel should not look to just bill by the hour in instances they have plenty of experience and knowledge on. They should be willing to devise a system of billing that takes into account their prior experiences and shift some of the risk of success or failure onto their billing schemes. As Carr put it – as a GC representing only one client he does not gain the breadth and depth of experience that law firms do in representing hundreds of clients. A matter that may appear to be unique to Carr may in fact be run of the mill or at least more familiar to his outside counsel. This being the case, outside counsel should have a better handle on what these matters typically cost and what the best manner is to proceed in. Yet not only do outside counsel typically fail to offer any such guidance but more sadly they often fail to even measure or capture any such data that would be useful for such purposes. If outside counsel had a better understanding of costs and strategy they would be better able to provide in-house with a budget. Further, they could then work to devise a billing mechanism that rewards success – success as defined jointly by in-house and outside counsel. Thus sharing both the risks and rewards is more easily achieved.

Filling any portion of the gaps should allow for more effective and collaborative work between in-house and outside counsel. It is clear that as William Perlstein of Wilmer Hale put it, in-house needs to take up the challenge of managing more both in terms of their client and in actual legal matters. It is no longer acceptable to be in the GC’s office and never reach into your own client to learn and always reaching to the phone to have outside counsel take care of everything. Also, outside counsel have to move beyond focusing on their clients in terms of matters and cases. They need to view their client more organically, getting to learn the nuances of their businesses and people. As both Chandler and Perlstein emphasized – both in-house and outside counsel need to “know their client well.” The client is the company and both in-house and outside counsel need to serve it actively and knowledgeably.

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