For the Record the Verdict Is In
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Special Advertising Feature For the Record The verdict is in. America’s top companies list their favorite Go-To Law Firms®. In partnership with Special Advertising Feature n 1992 chemical com- has shown slight drops each Ipany DuPont embarked on a of the last three years. Effi- radical new approach to cient legal management even managing its outside law enabled DuPont to reduce its firms. Faced with a com- in-house litigation staff from pany-wide challenge to cut 25 lawyers to 19. By all ap- operating costs by $1 bil- pearances big business and lion, it offered its law firms its outside firms had found a deal—more to the point, a the path to mutual harmony. partnership. It would pare Or had they? Polls present its outside firms to a select conflicting evidence. Two re- few and funnel them more cent surveys found that more work. In return the chosen than half of companies firms would agree to a fee polled had terminated or de- structure in which they moted at least one of their shared risks as well as re- the primary law firms last year— wards. Together, DuPont sometimes without telling and its primary firms would the firm. The two surveys— reorient legal strategy from one conducted by the Associ- the courtroom to the board- Practice ation of Corporate Counsel room. Where once the focus (ACC), an 18,000-member was on winning at all costs, professional association of it would now be on early as- More companies are adopting in-house lawyers, and the le- sessment of benefits gal technology company against costs. During the strategic partnerships with their Serengeti Law, of Bellevue, next three years DuPont cut Wash., and the other by BTI its outside firms from 350 to outside law firms to improve Consulting Group, of Welles- 34 and in the process re- ley, Mass.—show that com- duced its outside legal efficiency and keep a tighter rein panies now divert more dol- spending by $13.2 million. on compliance issues. lars than ever to second- and Fast forward to 2006. third-tier firms, in what the DuPont’s “less is more” legal BTI survey described as audi- model, as a former executive called select outside firms more carefully tions for the role of primary firm. it, is now the prototype of law-firm and seek closer working and report- But a third survey of chief legal offi- management. Driven by corporate ing relationships with them. cers, conducted by the manage- mandates to reduce legal budgets, More than preach, the companies ment-consulting firm Altman Weil, general counsel preach its gospel of practice. From 2001 to 2004 the aver- of Newtown Square, Pa., for the law-firm convergence, alternative age number of outside firms was re- ACC, suggests that companies are fee arrangements, and early case as- duced from 75 to 48. One survey pro- less likely to fire a law firm today sessment. With fewer firms, the jects that the number will drop to 31 than they were three years ago. On thinking goes, companies can build within a year. In a dramatic gesture one point the surveys agree: The top closer, more strategic partnerships in 2003, Tyco International cut its reason given for terminating a firm with their outside lawyers, create product-liability firms from 167 to is a lack of responsiveness. more efficient fee and cost struc- one. Last year alone, 40% of large These results are open to various tures, and streamline billing and companies were actively trimming interpretations. But Fred Krebs, ACC management. This drive to consoli- firms. More than a decade later, president, suggests they may simply date was further fueled by the Sar- DuPont continues to report success; show that companies are exercising banes-Oxley Act of 2002. Increased its outside legal spending has held tighter control over their outside emphasis on compliance and corpo- steady for most of the last ten years firms. Corporate law departments rate governance led companies to at $115 million to $120 million and saw the need to become more busi- S3 Special Advertising Feature ness-like in their management of From the boardroom come man- Beyond the Marquee law firms, he says, in order to con- dates to control legal costs and keep Surveys and common sense alike trol costs better. “General counsel pace with changing corporate priori- suggest that the most important are under pressure to reduce costs, ties. From outside come unforeseen factors in selecting an outside firm and that pressure is continuing to in- legal and regulatory challenges and are its competence and reputation. crease.” In response, general coun- the unpredictability of law firm But the glow of a law firm’s mar- sel are more likely to require bud- mergers and lawyers who jump quee can lead a company down the gets, periodic reporting, and greater firms. The right firm today may be wrong path. Like moths on a sum- use of technology. With stricter con- wrong tomorrow. In this environ- mer night, business executives are trols in place, businesses are more ment, says Deborah DeMott, a law drawn to the brightest lights. Rees inclined to terminate firms that fail professor at Duke University School Morrison, director of law depart- to perform and promote ones that of Law who recently completed a ment consulting at Hildebrandt In- exceed expectations. “In-house study of corporate legal depart- ternational, calls it the “cover-your- counsel are becoming more aggres- ments, formal models of law firm ass syndrome.” “Don’t blame us,” sive,” Krebs says. “The best market- management are limited in their the executives can later say. “We ing a law firm can do is to have usefulness. “It’s messier, more dy- hired the best law firm we could.” highly satisfied clients. Some firms namic, and more variable than the There is no question, says Morri- forget that.” models,” she says. son, that sometimes only the best If getting what you pay for is any will do. The fact is, though, that measure, businesses should be satis- bet-the-company matters are rare. fied. As a group, large U.S. compa- By hiring a high-end firm, a com- nies with more than $3 billion in an- Selecting a pany also takes on a similar cost nual revenues, spend $75.6 billion a structure, in which blended hourly year on legal services, with $47.2 bil- rates average $375. “In many situa- lion going to outside counsel, a BTI law firm is tions,” Morrison says, “you can get survey finds. These companies as good legal knowledge, probably spend an average of $25.4 million an- part science, better service, and certainly lower nually on legal affairs. Among the cost by thinking away from those 100 largest companies, that figure top-listed firms.” soars to $91 million. A typical com- part faith, One corporate executive who pany spends $14.6 million, or 57.4% agrees is Barry Nagler, senior vice of its overall legal spending, on out- president and general counsel of side counsel. The ACC/Serengeti sur- and part Hasbro. “If I can find my ideal vey found that among companies of lawyer in a smaller firm with lower all sizes, median spending on outside guesswork. overhead, I will err on that side,” he legal services in 2004 was $1.3 mil- says. For Nagler that means looking lion. That was a drop from the prior not only beyond marquee firms, but year, but corporate spending overall also beyond marquee cities. “Com- on outside lawyers is up 6.8% since Even within the framework of a panies tend to overlook geography 2001. The ACC/Serengeti survey management model, a company as a potential advantage.” Hasbro, showed three years of steady in- can be overly rigid. Thomas L. with headquarters in Pawtucket, R.I., creases between 2001 and 2003, from Sager, DuPont vice president and shopped around and now sends the a $1.1 million median to $1.6 million. assistant general counsel, says that bulk of its real estate work to a San Among larger companies the BTI sur- a common error companies make in Diego law firm. Nagler sees it as veys found that spending on outside applying the DuPont model is fail- similar to outsourcing in the finan- lawyers rose 4.7% from 2004 to 2005, ing to invest in their relationships cial services industry. “We are ag- from $25.4 million to $26.6 million. with outside firms. “One-sided rela- gressively looking for lower-cost, tionships do not work,” says Sager. high-quality firms in less well-known Too Messy for Models “You have to invest in their success, jurisdictions,” he says. No doubt, to the extent that busi- to give them opportunities they did A beneficiary of this approach is nesses express dissatisfaction, law not have before.” General counsel the Chicago law firm Gardner Car- firms are partly at fault. But if there too often make the mistake of view- ton & Douglas. At 230 lawyers, it is is discontent among clients, law ing themselves as the client, when modest by mega-firm standards. firms should not shoulder all the the client should be the business, But it was recently tapped by Wal- blame. Selecting a law firm is part he says. “Look at your network of Mart to be Illinois counsel on mat- science, part faith, and part guess- firms as an extension of your legal ters ranging from litigation to envi- work. Companies—particularly their department. Don’t be overly control- ronmental counseling. Jesse H. general counsel—juggle competing ling; let them complement what you Ruiz, the partner who manages the interests and changing priorities.