A General Counsel’s Cautionary Tale

In 10 years our revenue has grown from $50 million to $5 billion. Not surprisingly, the volume, variety, and complexity of the legal issues we face have grown as well. Ten years ago, I actually knew each of the 4 lawyers in our department. What’s more, I personally knew most of the outside counsel that were representing us. Today, I’ve actually worked with only about 1/3 of our in-house team. Outside counsel? Forget about it. Of the thousands of lawyers representing us worldwide, I’ve met maybe two hundred at one time or another. But I only really know a dozen or so.

Ten years ago, we were a tight-knit group of like-minded lawyers. Because of the small numbers, limited range of issues and limited geographical and time zone scope that we had to deal with, we managed to get by pretty well in spite of an almost complete lack of process. In terms of people, process, and technology, we spent so much time together developing and implementing strategies. That addressed the people part. And there seemed to be little need for or time to consider “process” or “technology.” Times have changed. We no longer know one another like brothers and sisters, but we still lack processes and tools to help focus our work. How much have we budgeted to execute the remainder of our strategy? What is our liability exposure in the case? Have there been any demands? What were they? Has settlement authority been requested and approved? How much have we spent so far? Is the Business Unit P&L owner client aware of and on board with all this? Business units pushed the General Counsel to reduce cost, but without data, General Counsel was unable to make meaningful evaluations and decide how to improve efficiency and effectiveness.

Although lots of other companies our size have bought software packages (ELM) to help manage the law department, over ten years, we’ve come to rely on a homegrown, web-based matter reporting system. Used consistently and properly, it offers an after-the-fact macro view of legal spend. Unfortunately, even if our in-house and outside counsel kept their matter up to date (which is not happening for a number of reasons) the data we can glean from it is not actionable.

What point is a dashboard sensor that tells you when your vehicle has run out of oil? By that point, engine damage has begun. By the time you locate and get to a service station for an oil change, the engine will have suffered real damage. As drivers, wouldn’t we prefer to see real-time actionable data about oil consumption:

• expected versus actual burn rate
• time/miles to engine damage
• cost/extent of likely damage

To be actionable, the data must be available to the decision maker, in time to make decisions that impact the outcome, and with the necessary context to make any necessary decisions.

We’re increasingly under pressure from the Business Units to justify our work and to reduce cost.

Over the years, piecemeal efforts to get this under control have amounted to nothing. We are a cost center. Our operations, our strategies, our outcomes and our budgets are a black box to our clients. This is not because the law is mysterious. It is because we do not understand what is happening and therefore we are unable to communicate that information to our clients.

As long as revenue and profit have continued to increase, we’ve been essentially perceived as a necessary evil. Something like a protection racket.

We are going to change that. We’re going to change the way that we communicate with each other, our vendors, with outside counsel, with regulators, and with our internal clients. We’re going to change the way that we decide what to do. We will implement a system that puts actionable information, in context, in a timely fashion, concisely, efficiently, stylishly in front of the decision maker. When we’re done, we won’t have to worry about scheduling strategy conferences with outside counsel or clients. We won’t need to worry about whether our work is strategically aligned with the needs of the business. We won’t need to worry whether the bills being generated by our outside counsel reflect work done in furtherance of our strategies.  All of that and more will be built into the system.

General Counsel was unable to make meaningful evaluations and decide how to improve efficiency and effectiveness.

Since outside counsel accounted for the majority of legal spend, the General Counsel decided to develop a global, enterprise-wide matter budgeting process. After many interviews and a review of existing spend data, it became clear that a small number of “runaway train” legal matters were disproportionately responsible for the appearance of out of control costs inadequate matter management. Analysis showed that “runaway train” cases were a significant driver of legal spend, without providing a corresponding return on investment. Frequently observed issues in such cases were: (1) uncontrolled staffing; (2) lack of alignment between matter strategy and work completed (time billed); and (3) missed resolution opportunities (the case could have been resolved earlier for less). This (true) cautionary tale illustrates what happens when in-house counsel must pivot on inadequate data, delivered past the “best by” date, and in the absence of context.

Outside counsel called in-house counsel to request “trial” authority for Case “A” which had been pending for 4-years and was scheduled for trial in 3-weeks. Outside counsel advised a “good” chance of a favorable verdict. A week after in-house counsel requested costs to date, outside counsel’s paralegal reported fees of $105,000. 3-days after in-house counsel’s request for costs through trial, outside counsel’s junior partner responded to in-house counsel with an estimate of $28,000. 5 days after in-house counsel asked for an estimate of total costs (fees, experts, local counsel, etc) to date and thru trial, the paralegal reported $136,000 to date and $56,000 more through trial. In-house counsel asked about settlement history and was told plaintiff had made no demand. In-house counsel pressed and, a week later, a junior associate reported plaintiff’s $7,500 demand. In-house counsel asks outside counsel if the case was strategic. Outside counsel responded that it would be a good trial to train a junior partner. In-house counsel gave the outside counsel $5,000 settlement authority. The next day outside counsel reported a $3,200 “favorable” settlement. Fees incurred subsequent to the request for trial authority and thru settlement were $23,859.

With this cautionary tale in mind, we set out to develop a budget process for the client that would provide transparency and financial analytics to avoid this sort of undesirable result.

Most importantly Among other things, we determined that the process should address staffing, planning and invoicing. We determined that the process should support better results, in terms of both efficiency (cost to get the result) and effectiveness (the result itself). To improve outside counsel acceptance we decided to utilize existing ABA standards (Legal Electronic Data Exchange Standard – LEDES) and Uniform Task-Based Management System (UTBMS). Evaluating build versus buy, we benchmarked peer companies, IHC organizations and software vendors. Nothing in the market addressed the client’s core requirements, so we set out to develop a process that would lower relative cost, promote more aligned results, and just as important provide real-time visibility to matter plan, progress and spend. We aimed for an innovation that reliably delivered IHC a single screen containing all information necessary to make litigation decisions:

1.  Outside counsel generated budgets in the standard format including data about plan, budget, exposure, and demand;

2. In-house counsel reviewed budgets (with contextual data – reserves, settlement history, etc) while the data still actionable, and

3. In-house counsel made trial/settlement decisions based on this data

The resulting process effectively eliminated the possibility of results like case “A.” After a year of benchmarking, experimentation and development with spreadsheets, we beta tested a process where outside counsel populated spreadsheets with staffing, strategy, budget and running cost data. These spreadsheets automatically generated a single screen with everything in-house counsel needs to make timely, strategically-aligned, litigation decisions. The beta test included six in-house counsel, a dozen outside counsel and over 50 cases with tens of millions of dollars in fees and settlement authority.

With ready access to approved timekeepers by matter, including role and rate, this data-driven approach provided immediate operational benefits such as improved alignment between business strategy and litigation results, improved ability to evaluate outside counsel and fewer missed resolution opportunities. The next step is the development of a web-based process and incorporation as a module into an existing matter management system. A web-based process would greatly streamline workflow and result in a sustainable process, with improved real-time visibility into spend. Just as critical will be the improvements to in-house counsel efficiency and the opportunity for meaningful collaboration with outside counsel.