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July 29, 2010 |
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| December 07, 2009 |
By: Amy Miller |
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all it a perfect storm for the billable hour.
After seeing years of skyrocketing legal fees, the legal marketplace has been hit hard by the faltering economy and shrinking in-house legal budgets, turning both general counsel and outside counsel into advocates for change.
And the change many are calling for loudly these days is the death of the billable hour. So it's no surprise that dozens of in-house lawyers and outside counsel gathered at the Harvard Club of New York City Tuesday and Wednesday to talk about the challenges and rewards of alternative billing arrangements.
Several outspoken advocates of alternative billing were in attendance, such as Thomas Sager, general counsel of E. I. du Pont de Nemours and Co.; Chester Paul Beach, associate general counsel of United Technologies Corp.; and Jeffrey Carr, general counsel of FMC Technologies Inc.
They led the by-now-routine discussions about how to create successful alternative billing arrangements. Building trust between clients and law firms is essential, they said. Expectations have to be defined clearly from the start. And gathering and analyzing years of data is the key to figuring out fees.
Brian Lee, senior director of the General Counsel Roundtable, got in-house lawyers particularly excited when he presented a range of statistics about which alternative fee structures are most efficient and effective. For example, in-house lawyers might think volume discounts are the best way to reduce costs, but the Roundtable found that fixed fees actually cut costs more.
One of the most fervent supporters of paying firms off the clock is Susan Hackett, general counsel of the Association of Corporate Counsel. She worked the conference room like a talk-show host, helping convince in-house lawyers that change is here to stay. Law firms have a lot of work to do to make alternative arrangements more popular. But in-house legal departments have to start pushing harder, too, she says. They have the power. They just aren't using it.
"We are wealthy, powerful people," Hackett says of corporate legal departments. "Why don't we exercise the purse? Because change is hard."
Meanwhile, the relationship between clients and law firms has to change too, she says. Companies shouldn't rely on requests for proposals anymore to get the most value for their money. They have to invest in long-term relationships with law firms. "Clients are going to have to get married to firms again," Hackett says.
Still, not everyone was convinced that alternative fees really are a panacea for cutting legal costs. Richard Baer, general counsel and chief administrative officer of Qwest Communications International Inc., says he's tried using alternative fees, and it was a disaster. So he asked his colleagues to explain how they can bring more value to clients.
It all comes down to measuring performance, FMC Technologies' Carr says. Having performance measurements in place forces his attorneys to have meaningful, albeit sometimes difficult, conversations with their outside counsel about how they're doing.
And performance should be tied to cash rewards, or penalties, too. FMC Technologies holds back a portion of their legal fees, for example. Once a matter is successfully completed, it pays the firm the amount that was held, plus a bonus. If the matter isn't completed successfully, the company keeps what was retained.
"I've got to give people meaningful feedback," Carr says. "And meaningful feedback comes in the form of cash."
Amy Miller reports for Corporate Counsel, an affiliate of the Daily Business Review.
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