501 – Outside Counsel Management James Dixon- Senior Vice President & Chief Operating Officer- Con Edison Clean Energy Businesses, Inc. Kelly Livingston- Counsel- Honda North America, Inc. Dorothy Black Franzoni- Partner- Eversheds Sutherland (US) LLP

What do you hope to get out of this session? I am somewhat new to the role of corporate counsel, and hoping to better educate myself on the use of outside counsel I use corporate counsel pretty frequently, feel fairly comfortable using them, and want to brush up on best practices I use outside counsel, but have not had good experience doing so, and hope to gain some insight This was the most interesting session being held at this time .

How frequently do you reach out to outside counsel? 2. Maybe once a month Every couple of months 4. Infrequently

During the 2008 Recession, there was a dramatic divergence between the number of departments decreasing their use of outside counsel and those increasing usage. No more carte blanche Multiple surveys report reducing outside counsel costs top concern Advent of ACC Value Challenge. “Meet. Talk. Act.” Competition for limited work drives introduction of legal project management techniques From 2015 Altman Weil CLO Survey

Critical elements for partnering with outside counsel . Understood our business Understood our needs Demonstrated expertise Knew our industry Chemistry Lisa Hart, Acritas-Georgetown University Law Center’s Center for the Study of the Legal Profession 2011

What is your #1 method for the selection of outside counsel? We select the most reputable firm in the area 2. ACC Conferences and Seminars 3. RFP 4. Cost 5. Word of mouth/ talking to other attorneys .

How to Find Outside Counsel Referrals (Peers, Other Counsel, the Other-Side) Referrals from Company Management Organizations (ACC, Bar Associations) Seminars, conferences and other events Solicitation of Interest Process

Typical Challenges Do more with less, decreasing budgets More complex business and legal environment Business needs more of our time Inability to focus on the strategic and critical issues

Why do we use outside counsel? Lack the staff Specialization required Pressed for time

SUPER ATTORNEY Lack the Staff

Specialization Corporate counsel have areas of expertise Know your own limitations. Know when you can assist, and when it is time to call the experts!

What is an Extraordinary Transaction? Requires expertise not within the legal department Foreign laws Labor laws Bankruptcy Complex intellectual property Overwhelms the resources within the Legal Department

What is an Extraordinary Transaction? Is it mission critical to the client’s business? Is it a large dollar matter? Does it impact a core business? Does it impact the client in another country? Is it a complex outsourcing transaction? Are there significant internal investments of time, strategy, resources, and money?

Time crunch Best made plans go astray Still can add value by helping to formulate a plan Advise of the risk

Some Additional Factors to Consider Reputation Expertise Track Record Potential Conflicts $$$$$$$

In House Counsel Objectives Risk Management Control Costs Protection Priority #1 Can we accomplish this with the budget established? Insulation of the company from liability

What happens when a matter arises for which outside counsel is needed? What is the process? (Do we have a process?) Have I scoped out the work? How do I manage the matter? Do I check in from time to time? Am I actively engaged and involved? Am I making sure my customer is aware of the status? Am I measuring the results? Do I evaluate the performance? Do I have any lessons learned?

What are the expectations of using outside counsel? Guidance Can I do this Legal solution Risk Avoidance Audit Compliance Representation Resolution of a legal suit

Selecting Outside Counsel Quantitative Qualitative Beauty Contests Sole Source Know Who Decides

Annual Outside Counsel Budget/Expense: $0 - $5M $5.1M – $10M $10M - $25M Over $25M

Budget Focus Scope Channeling all outside counsel requests Be prepared to assist

Negotiation Don’t pay sticker price Shop Around Locally and regionally You don’t have to always purchase the luxury model Negotiate! Negotiate! Negotiate!

Alternative/ Value-Based Fees Fixed or Flat Fee Fixed Fee with Collar Contingency/Reverse Contingency Fee Success/Incentive Fees Holdbacks Capped Fee Straight Discounts/Volume Discounts/Blended Rates Combinations or permutations of the foregoing

Establishing the Relationship The First Date (in person or otherwise) Take the time to educate potential counsel about your business and its culture Build Trust Secondments Set expectations Meet Key Players (both sides) Exchange information

Relationship Benefits Relevant Industry Information Best Practices Education Development Opportunities Introductions Contacts [Last Minute Conference Speakers]

Challenges to the Relationship Conflicts of interest Attorney mobility Time Zones Not seeing “eye-to-eye” Too much communication Too little communication “It’s not you, it’s me.” Don’t be afraid to have the hard conversation

Maintaining the Relationship Resource v. Partner Partner/Principal Relationship Communication Keeping the faith Plan the Work … … Work the Plan Peeking at the Short/Long Term Prospective

Case on Point

… And Now a Word from Our Sponsor Choosing the right law firm/attorney for the job Cheap, fast and top-quality Brain surgeon or internist Now you’re the client – tell me what you need What When How Why And what do you want?

Managing Outside Counsel In-house counsel is captain of the ship Be copied on all emails Attend major meetings Review major drafts of the agreements Be the interface between senior management and outside counsel Make sure you understand the agreement

PDCA Plan business process components to improve results Do implement your plan and measure results Check evaluate the processes and objectives against the results Act decide on changes needed and implement -Deming Circle/ Cycle Wheel

Streamline the outside counsel contracting function to make it efficient PDCA of outside counsel management should be continuous Talk to legal colleagues in your company Don’t be afraid to say no

Appendix

Fixed or Flat Fees Fixed or flat fee—agreed upon fee for a deliverable, portfolio or period of time. Benefits Budget and accrual predictability Low administrative burden Efficiency Guaranteed revenue for law firm Risks Little incentive to produce quality work Risk of leaving money on the table Law firms continue to support hourly billing. Best suited for Large portfolio of work Recurring work IP, Immigration, Litigation Debt financings, including payment of underwriter’s counsel. Communication and trust essential

Fixed Fee With Collar Agreement as to fixed fee with further agreement as to “collar” (frequently10%) around the fixed fee. Adjustment where actual hours are above or below the collar with refund or payment at a predetermined percentage (frequently 50%) of the of the overage or underage. Benefits Mitigates fixed fee risks to client/firm for work significantly over or under fixed fee Maintains efficiency Cons Need to maintain shadow billing Complicated and time consuming Best suited for Matters of first impression Transitioning to fixed fee arrangements

Contingency / Reverse-contingency Fees Contingency--based on a percentage of settlement or recovery. Reverse Contingency—based on a percentage of the amount saved for the client. Calculation requires agreement as to potential exposure Benefits Shifts downside risk of litigation Incentive for law firm to maximize recovery or minimize loss Can favor settlement and alternative dispute resolution Cons May be difficult to quantify exposure Greater risks to law firms who may not be interested

Success/Incentive Fees Contingent payment made when goals (monetary or non-monetary) are achieved. Client and firm must establish goals in advance May be combined with reduced fees May Involve forfeiture of percentage of fees for failures Benefits Encourages early case assessment Shifts some of the risk to the law firm Result focused Cons Success may not be attributable to the firm’s efforts

Holdbacks Standard fees are charged with a certain percentage held back. Holdback amount is paid to the firm based on an evaluation of performance. Benefits Accountability Promotes better working relationship where firm is performing Firm shares in the downside Cons Must be prepared to pay full freight Might led to tough conversations

Capped Fees A cap or maximum is set above which the client no longer pays fees. Benefits Control legal fees inside the cap May encourage efficiency if cap set low enough Necessary where you pay counterparty’s legal fees such as in debt financing or asset backed securities issuance. Cons No incentive to bring in fees under cap Law firm likely to want provision to cover complication Give me your best hour.

Discounts (Straight & Volume) and Blended Rates Straight Discounts—firms are generally willing to discount fees 10-15% just by asking. Volume Discounts—firms may offer a tiered approach for significant work Discourages selecting the right firm for the matter Blended Rates—all lawyer time charged at the same rate. Encourages use of lawyers whose rates are below the blended rate May not be the best lawyer for the work

Value Based Fees: Other Considerations Nature of the work Importance of the to the company Relationship with the law firm As you get creative, keep ethical considerations in mind.