Performance Managing Your External Legal Counsel
15 minutes • 15 Jan 20
In-house legal teams (IHL) have for years universally agreed that law firms must drastically change the way they operate if they are to be a sustainable and valued support construct for IHLs – but little has changed.
Despite the deafening roar of IHL demands for “value”, law firms have proved intractable – conceding only tokens of “renovation” (e.g. contract lawyers), and not real “innovation” – a sharp focus on value building.
While customers drive change, including in the legal industry, IHLs must accept that merely demanding “value” is not enough – they must define value, communicate it, insist on it, and performance manage it.
While it is all well to criticise external counsel about their inefficient performance, if IHLs have not set the bar in terms of what they expect, then they too are part of the problem. Most IHLs do not do this.
Going into 2020, all IHL teams using external counsel regularly must look for ways to move their relationships with law firms onto a performance managed basis for the fuller “value” expression to emerge.
This article explores the problems caused by poorly performing law firm relationships, the benefits of getting it right, and how you can quickly implement a performance managed relationship with law firms.
REWARD FOR EFFORT: NOT SO REWARDING
Most IHLs report that they would like to use law firms more frequently but find that law firms are too slow to mobilise, often miss the mark, and cost too much. This is a poor outcome for all parties.
“Clearly, the traditional construct for law firm engagements is not delivering IHLs what they need.”
The notion that legal procurement is so special that it need not conform with typical “procurement best practices” is rapidly losing traction inside most corporates. Value definition in advance is essential.
A customer seeking upfront clarity on deliverables, price, delivery and usability assurance and strong contract/ relationship management are near widely accepted basic procurement principles.
Regrettably, the “reward for effort” (i.e. hourly rate) models of law firms have inculcated a reluctance to ceding to expectations that these widely accepted procurement principles should be observed by law firms.
To overcome this, IHL’s must themselves take the responsibility for defining clear and succinct rules of engagement for their external law firms, which embody their own procurement and value principles.
Before offering tips on what a “value creating” construct with a law firm looks like, lets quickly revisit the price IHLs pay for not putting in place self-authored Guidelines For External Counsel.
Whilst we cannot cover all of the consequences that flow from the absence of a “performance managed” construct with law firms, we have picked on the major areas of blowback experienced by IHLs.
By not defining your own protocol for cost management (e.g. acceptable and permitted rates / charging / billing / costs) you are likely to face challenges associated with:
- Bill size – not only eye watering, but frequently in excess of the initial quote
- Billing transparency – sparse/opaque work descriptions make bill validation difficult
- Bill reconciliation – extensive time is required to check narratives, rates, disbursements, etc
- Resource depletion – external counsel fees consume available IHL budget at a disproportionate rate
- Outdated practices & inefficiencies – you see little evidence of efficiency tools and practices usage
- AWOL expertise – the “expert” firm you appointed seems to engage in excessive research
- Resource overlap – multiple lawyers spending time on the same matter/task without explanation
- Unique disbursements - lawyers on your matter all seem to eat at Nobu after 6pm with a taxi home
- Cost forecasting – your actual external costs are outstripping the forecasted costs
- Painful conversations – “billings” conversations overshadow what should be a trusted relationship
Engaging any kind of external resource requires precise articulation of the “value” yield in advance.
By not defining your own protocol around “value”, you are likely to face challenges associated with:
- Opaque deliverables – very few objective deliverables are being offered to you
- Reward for effort – you are paying for effort (including a firm fixing its own errors), not outcomes
- Advice usability – you receive “law reviews” instead of the “practical” advice you want
- Unhelpful metrics – the only performance metric you are offered are hours consumed
- Knowledge transfer – few of your assignments result in objective knowledge transfer to your team
- Business knowledge – counsel are not putting much effort in to understanding your business
- Team improvement – few strategies are being offered to help upskill and improve your team
- Performance management – law firms do not typically performance manage client accounts
- Cross pollination – you are not being offered learnings from the law firm’s other clients
- Expert experience – you are not benefitting from firms telling you what has worked best in the past
Most matters that relate to mobilising a law firm can and should be capable of agreement in advance. By not defining your own protocol around engagement matters, you are likely to face challenges with:
- Delaying engagement – due to their burn rate – you are tempted to delay law firm involvement
- Time to engage – even if you want to engage, it takes too much time to mobilise counsel
- Sluggish mobilisation – law firms requiring unnecessary information / detail
- Conflict clearance – conflict clearances generally take far too long
- Partner bottlenecks – law firm remuneration issues often present keyhole access to wider resources
- Reporting – you find yourself chasing law firms for updates, not the other way around
- Reactive advisory – firms only do what you tell them rather than tell you what you need / works best
A true partnership is two or more parties working in unison towards a common goal. How can “reward for effort” ever be aligned with your objective of “achieving more with less, better, faster and cheaper”?
Failing to spell out what you expect from your law firm in terms of partnering with you means you are likely to face challenges with:
- Trusted advisory – you want long term trusted advisory, but you only get “rented advisory”
- Pay or pause engagement – unless you are paying, firms do not seem to want to engage
- Narrow shoulders – firms tend only do what you ask them to do and what you will pay for
- Blinkered Delivery - firms are not looking to see how they can also support your broader team agenda
- Unmotivated – firms that are not offered incentives to be holistically engaged are less likely to do so
- Confusion - counsel is likely unclear about what you are actually looking for and act accordingly
- Validation - firms validate their contribution by profits, not how well you realised your goals
- Alignment - you want a good job done efficiently – law firms want scope creep
- Enabled advisory - you to know what you can do and how, you want to know what you cannot do or why you cannot
BENEFITS OF A ROBUST RELATIONSHIP CONSTRUCT
Implementing your own engagement protocol significantly eliminates and/or mitigates most of the above issues together with a whole host of other issues we have not had time to cover in this short article.
With the right relationship scaffolding in place, your relationship with external counsel can deliver positive results in the following areas:
• Trusted advisory - your lawyers can increasingly serve you as trusted advisors and not meter maids
• Better procurement - knowing precisely what you want delivers better procurement choices
• Cost control - eliminate unauthorised costs and improve integrity of cost forecasting/management
• Value - clearer articulation of business enabling support you expect to receive and verification you got it
• Knowledge Transfer - greater knowledge transfer into your team
• Business enabling advice - greater contribution by counsel to “business enablement”
• Agility - faster and more responsive mobilisation – getting you the support when you need it
• Client knowledge - counsel start to advise from a deepening understanding of your business
• Reporting - clearer and more succinct lines of communication across matters & the relationship
• Faster payments - law firms can get paid faster
• Smoother relationship - discussions around dashed expectations diminish
• Performance management - that delivers constant and measurable improvement, not just a lunch
• Motivated counsel - counsel that are incentivised to deliver value across a broad front
In short, an “informed environment is a controlled environment” and unless you inform counsel about how you want your affairs managed, you will continue to be trapped in the sticky “reward for effort” web.
SO, WHY DON’T YOU HAVE ONE?
The new “value building” construct between IHLs and law firms must be defined by IHL teams themselves – and let’s be honest – Law Firms aren’t falling over themselves to move you away from reward for effort.
This “ownership” proposition makes an abundance of sense, as it is the increasingly complex agenda of IHLs that must be supported through prioritised allocations of scare resources.
The most cited reasons for not having external counsel guidelines in place include:
- Time: self-authoring such a policy asset carries a significant internal time cost for busy teams
- Reference Points: an inability to efficiently access reference points as to what should be included
- Reference Models: what should the policy look like?
- Doubt: concerns whether law firms would accept such guidelines given the value of your account
- Overlooked: the idea of performance managing a law firm had simply been overlooked
- History: like most things in the legal industry – lawyers tend to embrace change glacially
- Fear: will it work?
Interestingly around 85% of our client base historically did not have such policies in place and those that did reported that it was produced at huge internal time cost to their teams.
Fortunately, no longer do any of the above reasons represent an obstacle to the efficient implementation of a performance managed construct between you and your law firms. GLS has done the hard work for you!
THE GLS SOLUTION
GLS has developed a world class, fully worked up, “off the shelf” policy asset, that IHLs can take, customise and use as the basis for their law firm relationships – qualitative, quick and cost-effective.
GLS’ Guidelines for External Legal Counsel™ delivers you a comprehensive, world class policy instrument covering a wide range of best practices to help performance manage your external counsel relationships.
Guidelines for External Legal Counsel™ is predicated on a good relationship construct being one that delivers performance and budgetary certainty, with tangible value creation that transfers back to your organisation.
Covering 37 unique policy and/or process considerations, Guidelines for External Legal Counsel™ enables you to build effective relationships which support a wide range of IHL team objectives on optimised terms.
Realistically, unless you can magically find the time to produce this vital policy asset – you are unlikely to implement it. Our solution gives you a complete policy that you can quickly customise, for just USD999.
Indeed, the cost of implementing your own law firm guidelines based on GLS’s Guidelines For External Counsel™ will be recovered multiple times over from the savings secured on your subsequent legal bills.
Improving the quality of your relationship with external counsel is not only about cost control, it is also about ensuring you receive demonstrable, on-point, and ideally recurring, value for your business.
The answer therefore lies in building up a clear understanding around what your IHL considers valuable and then enlisting your law firms in the process of joint goal realisation insofar far as they can contribute.
Expecting law firms to voluntarily offer a new basis for “value building” engagement is naïve. In “Law Firm Land” – widespread rises in PEP levels translates to a poor case for behavioural course correction.
IHLs that continue to resist implementing general procurement norms in their engagements with external counsel increasingly risk losing control of their procurement decisions.
GLS enables the IHL community to rapidly implement a performance managed framework that breathes a fresh air into the traditional law firm relationship while eliminating unacceptable inefficiencies.
In line with all our disruptive offerings, the cost of this solution is almost negligible and the only question an IHL team faces is “why haven’t you got on with it … your law firm certainly isn’t going to draft it for you.”