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MS: Do you use performance metrics?
DB: We do. I’m not pleased with what we’re using to evaluate firms. We have periodic meetings in which we brainstorm ways to measure our performance, but I have to tell you that I don’t have a magic solution for that. Right now, to a large extent, we evaluate the firms based on more subjective considerations. I would like to develop a better scorecard rating system according to which the attorney would rate them after every matter they work on, and then we develop our own internal scorecard for them on a variety of performance metrics. Then, when we have our annual meetings with our outside counsel, we would use that as I do with my subordinates. It’s the time for review.
MS: So this is a work in progress?
DB: It is. This whole area is constantly a work in progress. The one thing we know in business as lawyers, as inside counsel, is that you must always be reinventing every system that you work on. It’s a state of constant improvement.
MS: What is the one piece of advice you would give to a law firm to deliver more value to you?
DB: Communicate more frequently and be creative. Be willing to try things; be flexible. Say, “You know, I had a wild idea. Why don’t we try doing it like this?” Maybe it works, maybe it doesn’t, but it shows your clients that you’re trying to meet their objectives. Communication and creativity are the two biggest things we miss in outside service providers.
MS: This is especially needed in light of today’s economy.
DB: This economy is really hard. Every firm that I know of is looking at their budgets, and if their budgets aren’t shrinking, they’re certainly not growing. Money doesn’t come from the sky. It has to come from somewhere. Either you move the business to a lower-cost firm or you bring it in-house. In either case, the outside counsel that does that is going to lose the business.
MS: We have reached the tipping point.
DB: Yes. And when I talk to my colleagues—for example, in October, the Association of Corporate Counsel is coming up—I discover that they’re facing the same thing. When you do a hard analysis, such as “Here’s what we spent on outside counsel to handle agency cases for employment; I’m just going to hire a labor lawyer to come in and litigate all those cases myself,” it’s cheaper and you have better control because you have their full attention.
MS: Your comments have given much food for thought. Are there any other comments or insights you would like to share with other attorneys who will be reading this discussion?
DB: Be involved with your outside counsel in your cases. That’s the best advice I can give. Make the tactical and strategic decisions because if you don’t, it will cost you more money.
MS: Everyone is in this together.
DB: Yes, it’s got to be a partnership and a collaboration. That concept receives a lot of lip service, but ultimately it starts when the in-house counsel wants to be involved. Make it clear that you will not make those decisions without reading every pleading, without overseeing what they’re doing.
MS: Thank you for your excellent and thoughtful input. It’s been a pleasure talking with you.
DB: You’re welcome.
DB: Certainly when you’re dealing with certain types of fairly common contracts—preparation of RFPs, procurement contracts, employment contracts, much of the HR types of situations. Routine litigation can be very easily converted to a fixed fee arrangement.
MS: What is the greatest advantage, in your opinion, to alternative billing?
DB: The obvious one is reduced costs but I’m not entirely certain, to be honest, that it does in the long run. Practically, effective alternative billing arrangements take a lot of time to set up and monitor, and time is costly. And until you can really nail down a good definition of performance, I’m not sure you know whether it’s a good deal or not.
For example, suppose you tell your counsel that you have a lot of litigation related to wage and hours. You say, “Look, we want you to handle these cases and we agree you’re going to do every one of them from start to finish, through trial, $25,000 a pop—fixed fee—that’s the way it is.” But then you end up settling well before trial. And why is that? Is it because you’re wrong and you have to change your policies or because it’s more economically beneficial to your counsel to settle and collect the $25,000 than to have to go through the trial and zealously advocate your position? I don’t mean to sound cynical, but it’s human nature. And providing outside legal services is in fact a business. I served as outside counsel for 15 years before I came in-house, so I understand the pressures that they are under. And I don’t doubt for one minute that consciously or unconsciously, those kinds of decisions are made on a daily basis. Whether to recommend settlement or to fight is somewhat dependent upon the amount of fees you’re going to generate in that context.
MS: What do you find to be the greatest challenge to implementing any kind of alternative billing at Source Interlink?
DB: One we’ve discussed—it’s difficult to design. The second drawback, which is really frustrating to me, is the lack of support from major law firms for alternative billing arrangements.
MS: You feel that?
DB: Oh, it’s significant. They won’t talk to us. Our focus on cost containment, to a large extent, is more geared to some of the basic issues. We’re very involved with our cases, so that we know them. We don’t turn them over to outside counsel and say, “Whatever you say.” We read every line – two of us read every line – of every bill. Frankly, for 95% of our matters, we don’t use top tier firms. We’ll use regional firms that do good work. In this day and age, I don’t need to use a New York firm billing us at $750 an hour to have our work done by a first-year Associate who’s just out of law school and making $160,000 a year. He doesn’t know anything. It’s not his fault; he just doesn’t know anything. I’d rather use a Senior Associate in St. Louis or Denver at a third of that cost.
MS: With regard to these law firms, do you have any advice for them with respect to alternative billing?
DB: My advice is to seek out your General Counsels. Approach them. They will appreciate it. They don’t really have time to think about it to a large extent, but they will appreciate your coming and being open to creative, partnered solutions. Spending time thinking about how you can do this creates incentives for outside counsel and the companies’ alignment of their interests.
MS: And then have a communicative discussion on it?
DB: Communication is really the key to it. If outside counsel would spend less time selling, and more time being a problem-solving partner, they would be well served.
MS: On the flip side, what advice would you give to your peers, other corporate counsel, regarding how best to approach alternative billing with the firms?
DB: There are two real issues. One, be persistent. They’ll say, “Well, we don’t do that, we don’t do contingency cases, we don’t do fixed fee billings, we only bill by the hour…” Be blunt with them. Tell them to come up with something or they will not get your work. Two, and this takes a bit more effort, search out good regional firms who are much more open to alternative billing arrangements. They will cut their fees to a well-known client simply to be able to use that client’s name when they’re soliciting other business in their region.
MS: Good suggestions. How do you currently assess the value your law firm is delivering?
DB: I don’t have a good answer for that.
