Are General Counsel Too Risk Averse?

Author: Lori Brazier - Lexpert (Vol 10, No 5) March 2009

A recent Montreal Gazette article announced that "one of the burning issues sure to be discussed when the head lawyers of many of Canada's biggest corporations gather for a special international legal summit in Vancouver (Jan 26 - 27) is the high cost of work they mandate to […] law firms".

Quoting from Daniel Desjardins, Senior Vice-President and General Counsel at Bombardier Inc., the reporter suggests that the global financial crisis and the resulting cost reductions imposed by numerous organizations heighten the importance of finding alternatives hourly-based billing and annual rate increases. "The legal profession and the large law firms have got to realize that they cannot increase rates year after year as if nothing was happening out there. It is important for all of us to get together and share experiences and best practices." Desjardins is a proponent of a comprehensive approach. Pricing should no longer be determined on a matter-by-matter basis.

As predicted, the issue of legal costs and the need for new ways of doing business was a recurring theme at the conference, beginning with Desjardins in his opening remarks as co-chair. He insisted that law firms need to get a clear message that they must now take the clients' concerns about costs to heart.

"So what else is new!", say the sceptics. One conference delegate remarked "haven't we heard it all before?" It is indeed a recurrent theme, but one that continues to be relevant. A recent survey of corporate counsel conducted by Canadian Lawyer and Catalyst Consulting in September confirms the findings of several surveys conducted in the past 18 months in Canada, the USA and Australia. Reducing legal costs is a top priority for the heads of law departments and others responsible for managing legal spend.

The Flash Survey on Law Department Cost Control conducted by US consulting firm Altman Weil reported that 75% of law departments are facing budget cuts averaging 11.5% for 2009. Law departments anticipating budget increases stated that these will be much more modest than in the past. Some internal law department cuts are forecasted, but in the main "external counsel will be targeted". 53% of General Counsel surveyed plan to move some work to lower-priced firms, and 50.5% "will require more alternative fee arrangements".

However, not everyone is ready to initiate the conversations with external counsel. "I don't want to squeeze my firms", said a prominent General Counsel and panellist at the Vancouver conference. Nothing new about that comment either. There is a perception that "talking money" will necessarily be negative and unproductive. "Focusing on financial issues takes us away from providing good service", opined a partner from one of the national firms. Some fear that the conversation will not be win-win, or perhaps do not want to make the time.

As with any successful business negotiations, the approach is important. "It is not a time to declare war on the firms", stresses Desjardins, echoing dialogue heard in the town hall meetings held last fall in various cities in the USA as part of the ACC's Value Challenge initiative. Solutions must flow from a meaningful dialogue resulting in a business model that benefits both parties. The same message is contained in the CitiPrivateBank/Hildebrandt International client advisory circulated in January 2009.

Law firms must acquire a number of project management and other business management skills common to other professional service firms. And law departments need to learn how to sustain a conversation with their law firms. Howard Kaufman, counsel to Fasken Martineau, says that firms should welcome the dialogue. They tend to wait for the clients to set the expectations - for better or for worse. Absent a conversation, too many firms continue to do business as usual.

Economists suggest that "business as usual" is no longer be an option. And this holds true for retaining the services of a law firm. The CitiPrivateBank/Hildebrandt client advisory states the unprecedented growth and prosperity experienced by law firms over the last 17 years is over. It goes on to predict that among the firms that survive the economic crisis will be those "with structures and practices that are more flexible, more efficient, and more responsive to the needs of clients". The legal profession is urged to view the downturn as an opportunity to make fundamental changes to ways of doing business. Among the recommended measures are changes to compensation systems and to staffing structures - and new pricing models. Firms will be "squeezed" if they and their clients stick to the current models.

Perhaps a future gathering of corporate counsel will highlight progress toward the development of a new model. Fortune favours (and rewards) the brave. And the most focused CEO's and General Counsel may no longer accept business as usual.