S urvey
By Melissa Maleske and Yesenia Salcedo
It turns out that managing the relationship between in-house
counsel and law firm attorneys is a lot like dating: Responsiveness and
understanding are key to long-term success, and there are always a few trouble areas where things could be better. For the respondents to InsideCounsel’s
19th Annual Survey of General Counsel, that source of tension stems mainly
from budget issues in the face of mounting law firm rates.
But with the majority of in-house respondents reporting they are
generally happy with their law firm relationships, clearly there are ways
to cope.
“There’s always pressure on [law firm] partners for business development, and part of my job is to get what I need from them while allowing
them to meet some—but certainly not all—of their economic interests,”
says Martha McCabe, general counsel of the Alamo Community College
District. “It’s a dance.”
With the results on the following pages, InsideCounsel aims to inform the choreography of that dance with a peek into the minds of both
in-house counsel and law firms, as well as a look into one company’s approach to law firm management.
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july 2008 n I nside Cou nsel
47
S urvey
Making the Grade
insidecounsel
19
th
While law firms believe they are meeting
clients’ expectations, in-house counsel still
see room for improvement.
Up for Review
This year slightly more respondents gave their outside counsel
Meanwhile, the A grade is steadily dropping each year.
D
B marks.
2006
2007
2008
A
21%
19%
16.8%
B
70%
70.5%
72.2%
C
8%
10%
10.5%
F
1%
0.5%
*
0.5%
* Outside counsel think they’re doing a better job than their clients ranked
them. This year, 42.9% of law firm respondents to this survey gave themselves an A, 55.1% gave themselves a B and 2% gave themselves a C.
Improving Relationships
annual
survey of
general
counsel
Relationship Fixes
67.7
%
Percentage of in-house respondents
who say they are happy with their
law firm relationships in general.
46.3
%
Percentage of in-house counsel
who said reducing costs was the
most important thing law firms
could do to improve their relationships. That’s down from 30%
in 2007, but still tops the list of
desired improvements.
8
%
27.7
of in-house counsel reported
10
of in-house counsel
improvement they could make.
that firms can improve their
reported that firms could
That’s down from 9% last year.
relationships with them by
be more responsive to
40% of law firm respondents men-
understanding their business
improve relationships.
tioned “understand clients’ needs
%
%
Percentage of law firm lawyers
who say reducing costs is the key
and pressures better” as the most
needs and pressures better.
Outside counsel responded that relationships would be improved if
needed improvement.
in-house counsel explained their goals upfront and if outside counsel were
involved in a case earlier.
“We establish our expectations at the front end with our
‘Covenant with Counsel.’”
48 I nside Cou nsel n july 2008
—Jeffrey Carr, vice president, general counsel and secretary, FMC Technologies Inc.
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S urvey
Working Relationships
insidecounsel
19
th
Outside counsel seem to be on the same page with legal
departments regarding their needs, but there is still
something each side can learn from the other.
annual
survey of
general
counsel
Criteria Checklist
When asked what are the most important hiring criteria in selecting outside
counsel, in-house counsel ranked them as follows:
1. Responsiveness*
5. Reputation
2.Industry experience
6.Preventive counseling
3. Creative solutions
7. Multiple practice areas
4.Billing rates
8.Alternative fee arrangements
* Law firms agreed that responsiveness and industry experience
were high on the lists of in-house
counsel’s selection criteria, but they
also rated reputation higher (No. 1)
than in-house respondents did. Both
agree billing rates are an important
factor and that national reach and
international reach are the least
important factors when general
counsel are selecting a firm.
Commodity Counsel 33.5% of in-house
counsel reported that law firm services are a
commodity while 50.8% disagreed—15.7% were
neutral on the issue.
Consolidation Nation 53.4% of in-house
counsel reported they do not believe the law firm
market has become too consolidated, but 17.6%
say they do—29% were neutral on the issue.
61.2% of in-house respondents anticipate
handling more legal work in-house. 41.5% have
fired (or plan to fire) law firms in 2008—up 8.5%
from last year.
548 in-house counsel
responded to the survey.
Of those, 41.3% were
general counsel. The
median law department
size among respondents
was 7 attorneys, with an
average of 41 attorneys.
96 law firm attorneys
responded to the survey.
Of those, 70% were
partners.
“Law firms spend too much time on their marketing materials,
which frankly I don’t spend a lot of time looking at. Reputation is
important, but responsiveness makes a huge difference.”
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—Sterling Miller, senior vice president and general counsel, Travelocity.com
july 2008 n I nside Cou nsel
49
S urvey
Dollar Discrepancies
insidecounsel
19
th
Law firms say the No. 1 source of friction with clients
is cost (35.4%), followed by billing (27.1%). Survey
responses show this isn’t surprising: in-house and law
firm views on money matters are out of touch.
annual
survey of
general
counsel
We asked in-house counsel and law firms whether they agree or disagree with the
following statements:
16%
14.9%
in-house
11.6%
agree
73.5%
8%
Disagree
neutral
neutral
law firm
VS 76%
agree
16%
Disagree
Disagree
26.8%
neutral
neutral
in-house
24.9%
48.3%
Disagree
One thing law firms and their corporate clients agree on: Law firms
pay associates too much. 74.3% of
in-house respondents agree with
the statement, and so do 54% of
law firm respondents.
8%
Most law firms pad their bills.
agree
law firm
VS 20%
agree
72%
Disagree
Only 26.2% of in-house respondents
85.1% of in-house respondents say eco-
say their law firms understand their
nomic conditions are increasing pressure
budget constraints.
to spend less on outside counsel.
15%
neutral
58.8%
disagree
To view more
results from
the survey,
visit
InsideCounsel
.com.
6.6%
disagree
8.3%
neutral
26.2%
agree
85.1%
agree
68.7% of in-house
responde nt s say
they require firms
to submit a budget
for the matters they
work on. 43.4% say
law firms generally adhere to those
budgets. This falls
well short of law firm
claims: 94.1% say
they stick to their
clients’ budget.
“We try to make sure there aren’t surprises. You should never open
a bill and be surprised by it—that’s when you have a breakdown of
communication.”
—Doug Brossman, general counsel, Burnham Holdings Inc.
50 I nside Cou nsel n july 2008
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fin d mor e on lin e
Law firms are actively seeking ways to reduce the costs of the legal services they provide.
S urvey
Case Study:
Attorneys in eBay Inc.’s law department, like many around the country in
companies large and small, recognize
that active and effective management
of outside counsel can be key to cost
efficiency. “Our North Star is to reduce
spend without sacrificing quality,” says
Brian Levey, the online auction house’s
deputy general counsel. With that
in mind, the department—led by an
outside counsel management committee—
constantly brainstorms new ways to
improve relationships with and cut costs
of outside counsel.
insidecounsel
th
eting rates at traditional firms—driven by
growing demand and increasingly high
legal stakes for businesses—costs at these
emerging firms are much lower. New model
firms have little overhead—there is no partner structure or profit-sharing, and the
lawyers typically work on site with clients.
eBay employs new model firm Axiom,
using its attorneys to fill holes where the
company has a need but not the budget
to meet it—specific tasks and projects,
temporary personnel gaps or maternity
leaves. Levey recommends these firms for
larger legal departments that can manage
88.5% of law firms say they offer alternatives to the
hourly bill, but only 51.9% say clients ask for these
alternatives. 50.4% of in-house respondents said law
firms should move away from the hourly rate.
One of the company’s central strategies is to move away from a traditional,
one-size-fits-all outside counsel philosophy and direct some of its work to
less costly service providers. “There is
increasingly a place for new model firms
in segments of the market where more
important, ‘run the company’ work and
more commoditized work has historically
been performed by large law firms in a
one-size-fits-all manner,” Levey says.
At eBay, so-called “bet the company” work that is vitally important and
inherently risky stays with traditional
law firms, while the most commoditized
work is generally offshored or handled by
temps or contract attorneys. “I think it’s
the goal of corporate counsel to distinguish more across these tasks, because
not every matter requires a top-flight law
firm,” Levey says.
New model firms have emerged as a
solution for work that falls between the
two extremes, which Levey dubs “run the
company” work. Responding to skyrock-
52 I nside Cou nsel n july 2008
19
and supervise the lawyers.
“With regard to specific legal questions or strategy, I wouldn’t say new
model firms have a competitive advantage
to a good law firm associate or partner
who we’re asking a similar question,”
Levey says. “The point is that we can get
quality advice less expensively on many
of the same matters.”
open” to alternative fee strucannual
survey of
tures. For firms more reluctant
general
than open, Levey suggests limitcounsel
ing their uncertainty by setting
specific goals at different points
throughout a litigation process. And, he
points out, the alternative fee structures
eBay uses actually allow the law firms to
earn more for a positive outcome than it
could have under an hourly rate.
Consolidation is another way eBay
has attempted to get around traditional
law firm economics. “I definitely think
consolidation is where things are continuing to head for work in which law firm
expertise is needed,” Levey says. “My best
opportunity, because I’m not going to be
able to change the economics too much,
is to become a customer of choice, either
by consolidating work with them or by
becoming a higher-profile client who provides more cutting-edge work for them.”
Besides saving a few bucks, this
allows eBay to develop its law firm relationships—to drill deeper, as Levey says.
This means placing a premium on
communication—keeping lines open
through tools such as annual two-way
evaluations, which let both sides know
28.9% of in-house respondents plan to decrease the
number of firms they use in 2008—up from 24% last
year. 9.8% plan an increase—down from 12% last year.
Of course, traditional firms still rule,
and eBay continues to rely on them for its
top tier of work. That doesn’t mean law
departments can’t get cost-savings out
of a traditional law firm, too. Like many,
eBay’s legal team is trying to move away
from the hourly rate. “Ultimately, value-based billing is where we want to get,
whether it’s a fixed fee or outcome-based
arrangement,” Levey says.
He finds most firms to be “reluctantly
what is expected. When expectations are
made clear, the possibility for disappointment is diminished.
“We are transparent with observations and suggestions for how to enhance
our relationships,” Levey says. “All of our
big law firms knew what they should be
expecting from us and what we should be
expecting from them. Ultimately I think
it’s incumbent on us to help prioritize our
risk for our law firms.”
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