Tag: Clients

To Maximize Appeal to Clients, Lawyers Should Develop Basic Knowledge of Business and Business Practice

To Manage or Not To Manage
Legal organizations often suffer from a lack of knowledge of and focus on the business and management issues of their clients and of their own firms. That should come as no surprise. Lawyers are not taught business or management principles in law school. They are generally not encouraged to develop business knowledge or management skills until well-into their careers, if ever. Indeed, any exposure to true and effective business management most lawyers have (especially those in private firms) is most often accidental.

This lack of exposure has definite consequences. While the price paid may differ somewhat depending on whether one is considering a private firm or an in-house corporate law department, it is a cost which can mount over time and which can result in lost opportunities. In the worst cases it can lead to serious problems. These are prices that need not be paid.

The Private Law Firm – Missed Opportunities
Law firms often miss or forego opportunities to build and maintain their client base by failing to fully understand and appreciate business processes in general as well as the specific business of their clients. Too often, firms fail to invest the time and effort necessary to develop their base of business/management knowledge. As a result, they are unnecessarily limited in their ability to appreciate their clients’ business objectives and how the firm might best help in achieving those objectives. These points are echoed by James Sander, General Counsel, GNC who observed:

Firms that gain our repeat business are those who have a basic understanding of our business and our business goals and a business practical legal strategy. These are the firms we believe will be able to provide practical advice, help us quickly and most effectively, and manage to do so within an established budget.

Law firms need not learn, in great detail, the business of every single client or prospective client. But in order to maximize their appeal to clients – especially corporate and other business clients – they would do well to develop within their ranks a basic knowledge of business and business processes and a more intimate knowledge of their most important clients and those with whom they hope to develop a broader relationship. They should demonstrate an appreciation that the matter(s) assigned to them must be addressed within the context of a set of business objectives and, even if the business plan is not fully shared with the firm, those within the firm should understand the business context within which they must operate.

Private firms will also enhance their appeal to business clients by managing themselves as a business. Generally, associate turnover rates are relatively high (especially in a strong economy), morale is low, and there are often internal struggles which partners mistakenly believe are not seen by those outside the firm. These problems all affect the firm, its performance, its appeal to business clients and ultimately its bottom line. They can also be attributed, at least in part, to management issues.

Law firms may effectively manage discrete legal issues, legal projects and litigation, but overlook the opportunities presented by having a reasonably well-developed business plan, and promoting meaningful internal leadership which seeks to develop, coordinate, and carry out some discernable overall “firm” strategy. The fact is that clients — especially corporate clients – are much more likely to develop broader and longer-lasting relationships with firms that are well-managed and well-led. These firms are, most often, those that, among other things:

Develop and maintain an internal leadership and compensation structure that encourages, even demands, the development and execution of an overall plan/strategy and a culture (yes, culture matters) that facilitates the plan’s execution.

Tend to work well among themselves, using the entire pool of resources available to the firm to most effectively represent their clients’ interests. These firms will almost always have more than a single point of contact with its significant clients versus a contact point consisting of a single partner and maybe his/her secretary.

Seek to develop internal leadership (as well as legal) talent at all levels and thus have relatively low turnover rates among associates and support staff.

Understand the client’s business objectives and develop and maintain well-thought out systems to monitor client relationships and satisfaction and to react to the results.

Most business and corporate clients understand that, with few exceptions, low cost lower service legal services are widely available. In order to obtain the kind of broad and practical service they need, these clients will increasingly engage firms who understand business processes, who understand or have the demonstrated capacity to understand the client’s business and who treat their firms as business enterprises that require the same level and kind of attention as other businesses. Those firms can often provide high quality results at cost effective prices. This results in repeat business to the firm. Firms that miss this point and opportunity run the risk of losing business from existing clients (or gaining new clients referred from their existing clients), sometimes without even knowing why.

Corporate Law Depts.

In-house corporate law departments can also pay a price for a lack of business and management focus. That price often takes the form of a perception by the rest of the company that the lawyers, (collectively and individually) are detached, unapproachable and even obstructionist and arrogant. The business managers may perceive the lawyers as gate keepers to the “no sales department” who perceive their job as avoiding any and all risk to the company and who thus fail to provide practical and workable business alternatives and solutions. As a result, managers may avoid consulting the in-house lawyers, subjecting the enterprise to unacceptable risk or worse.

True, legal risks should be identified and assessed. Indeed, in-house counsel sometimes must simply draw the line between what can and cannot be done legally. But the vast majority of situations do not require an “all or nothing” approach. In most cases, in-house counsel’s job is to ensure that legal risks are properly assessed AND to work with the business manager to develop and implement a business strategy which allocates, avoids or contains that risk to the extent possible, consistent with the business objectives.

In order to fill this role, in-house counsel must be fully engaged in the business itself. This means at least that in-house counsel must be:

–Intimately knowledgeable about the business itself as well as the competitive and regulatory environment in which it operates so that issues are identified and dealt with timely and effectively. This, after all, is the core value of in-house counsel.

–Available to and approachable by the business managers. It’s not enough to simply be in the building or on the premises. In-house attorneys need to avoid being closed off or separated from their business brethren.

–Involved in the development of business strategies and tactics..

Most importantly, in-house lawyers must win and keep the trust of the business managers that he/she is committed to advancing the commercial enterprise that employs them. That does not mean that counsel escapes any obligation to prevent illegal activities or even activities which represent some acceptable level of risk. It does mean that in-house lawyers have a much more demanding job than simply approving or disapproving all or part of some business plan.

Corporate law departments that miss the opportunity to properly counsel their business managers on business practical legal alternatives risk being by-passed by the business mangers whenever possible.

Effective management of legal service organizations – whether a private firm or a corporate law department – is essential. Providing adequate or even good legal service is simply not enough.

By Jim Jarrell, Esq., Legal Services Consultant with Legal Network and a former General Counsel with 21 years managing sophisticated legal departments and a purchaser of a large volume of legal services from law firms.

Billing Clients For A Contract Attorney’s Time

Contract Attorney use has been estimated in early 1998 to be a $500 Million industry growing 30% annually. “More Law Firms Hiring From the Temporary Pool”, NY Times, Feb. 24, 1998. This growth was corroborated locally by a recent survey of Pennsylvania law firms showing 77% of Pennsylvania’s law firms are using contract attorneys and their numbers are growing. “Managing Partner Survey”, PaLaw 1997. Based on these statistics, if you are an attorney or client of law firms, you have probably already encountered the billing or payment issue surrounding the use of contract attorneys. In addition, if you are a client, you might not even be aware that you have used contract attorneys if the law firm has not told you. Is nondisclosure of contract attorney use legal or appropriate? This article will attempt to answer these two issues.

The majority of guidance governing the use of contract attorneys is found in the American Bar Association’s (“ABA”) Formal Opinions which support law firms profiting from their use of contract attorneys even without client disclosure. As this article will explain, there are also business reasons why this is the correct decision even though it might initially come as a surprise to some attorneys and clients.

ABA Formal Opinion 88-356 (the “ABA Opinion”) provides general guidance on contract attorney use. It advises that law firms need not disclose the use of contract attorneys to the client “where the temporary lawyer is working under the direct supervision of a lawyer associated with the firm”. ABA Opinion, Page 10. The ABA Opinion goes on to add that “the fee paid by the client to the firm ordinarily would include the total paid the [contract] lawyer and the agency, and also may include charges for overhead and profit.” Therefore, it is permissible under the ABA Opinion for clients to pay a law firm for a contract attorney’s services without being informed that a contract attorney is being used. Further support for this position is gained from ABA Formal Opinion 93-379, Billing for Professional Fees, Disbursements and Other Expenses Pgs 9-10, which states:

In the absence of an agreement to the contrary, it is impermissible for a lawyer to create an additional source of profit for the law firm beyond that which is contained in the provision of professional services themselves. The lawyer’s stock in trade is the sale of legal services, not photocopying paper, tuna fish sandwiches, computer time or messenger services.

By implication, the use of contract attorneys is providing legal services, and therefore it is appropriate for a law firm to profit from their use.

Allowing a law firm to fully profit from the use of a contract attorney also draws support from a California appellate court in a 1995 case of first impression. Shaffer v. Superior Court, 39 Cal. Rptr. 506 (1995). In this case, the law firm of Gibson, Dunn & Crutcher was sued for legal malpractice for inter alia unconscionable legal fees. The plaintiff sought to determine the rate paid to a contract attorney who had worked in spare offices and the firm’s library and had billed the plaintiff for1800 hours at rates ranging from $215 to $250 an hour. The California Court of Appeals held the profit margin realized by Gibson, Dunn & Crutcher was undiscoverable and would open a “veritable pandora’s box of questions and problems” if it was. Id. at 512-13. The court held the appropriate test is to look to whether the fees paid were worth what the defendant paid as measured in the legal marketplace. Id. at 513.

Even with the permissibility for law firms to make a profit using contract attorneys, does this make sense in all instances? The answer is clearly no. In many instances the client should be informed and the law firm would benefit from increased good will by sharing cost savings to the client. As the Shaffer case illustrates, an uninformed client might be upset if they find out contract attorneys were used and they were billed at the regular associate’s rate. However, in other instances, a law firm unable to bill a contract attorney profitably might elect not to use a contract attorney and inefficiently staff the project with available (or unavailable) internal resources. So what are the solutions?

In major litigation, it often makes sense to bill the client the costs of the use of contract attorneys as a disbursement. Law firms will still profit from the supervision of contract attorneys, and the large fees that occur in complex litigation. However, the opportunity to pass savings to a client which generally reach $100 an hour/$4,000 a week can create substantial good will. In a six-month project, one contract attorney provided at cost will save a client on average over a hundred thousand dollars and teams of attorneys can create hundreds of thousands of dollars in savings. Furthermore, this type of manual intensive work is generally not well received by associates at law firms who often attempt to seek out more interesting projects to work on. This can make staffing the project with a law firm’s attorneys a complicated calculation of how many pieces of several associates available time, which is constantly changing, will it take to complete the project? Therefore, the law firm and client both benefit by having experienced attorneys completely focussed on completing the document review task within set deadlines.

However, some projects require law firms to encounter overhead costs such as secretarial, office space, supplies and additional malpractice insurance expense from using contract attorneys. Law firms should be aware of these additional hidden costs and be entitled to recover them. Therefore in many cases some sort of cost plus an overhead mark-up is preferable for the law firm as opposed to simply passing the full cost through to the client.

Contract attorneys are also used for more specialized projects to fill in for maternity leaves, disabilities, sudden upsurges in workload, or to add a specialized skill to a project which would ordinarily require a law firm’s attorney to get up to speed in. In these situations, not allowing the law firm to fully profit from using a contract attorney creates the incentive to make do with the firm’s current resources. This can slow down the speed in which work is handled and ultimately reduce the quality of the work product. Both of these results are clearly not in a client’s best interest.

As a band aid solution, the law firm could attempt to hire a full-time attorney for a short term need. However, when the peak period ends, there are now extra attorneys at the firm trying to find projects to bill their time on. This can have bad consequences for the firm, clients and the individual attorneys.

Allowing law firms to staff up with appropriately skilled contract attorneys and make a profit, enables law firms to efficiently staff for peak periods or specialized projects with attorneys of appropriate skill and with available time to competently handle a project. Ultimately this is in both a client’s and law firm’s best interest.

This article has highlighted the broad discretion afforded to law firms in determining how to bill their clients for the use of contract attorneys. However, despite this legal discretion, law firms and their clients should realize there is no one correct answer to this business issue. There is nothing wrong with law firms using contract attorneys and clients do benefit from their services even when they do not realize cost savings. However, in some instances it might make sense for the law firm to pass on some of the cost savings to the client.

By Karl Schieneman, Esq., Managing Director and shareholder ofLegal Network Ltd., a Pittsburgh based provider of contract attorneys and paralegals.