Hiring & Using a Lawyer 1

Role of Lawyers in Transactions “Lawyers do a lot of harm, but they also do an immense amount of good. And the good is that they are expert negotiators, and they know what is necessary in the law to enable deals to be made. Their activities are designed, in fact, to lower transaction costs. Some of them, we know, raise transaction costs. But by and large, they are engaged in lowering transaction costs.” – Ronald Coase 2

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US Lawyer Population ( )

Changing Practice of Law: Private Practice, Circa ,600 Lawyers in Private Practice 45.0% w/ college degrees; 74.5% w/ law degrees 1.64 lawyers per firm 1.9 % lawyers in firms of 9+ partners Source: Blaustein, “The 1949 Lawyer Count,” 50 ABA J 370 (1950) 5

Types of Legal Work 6

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Susskind’s Paradigm of the Future Legal Marketplace Bespoke StandardizedSystematized Packaged Commoditized Needed human capital: Information technology Systems engineering Finance Marketing Project Management Law

Managing Law Firm Relationships Lower fees are not an end in themselves. – Are results optimized, performance satisfactory, and fees appropriate given the results, quality, and quantity of performance? Rethink use of lawyers – consider alternatives. 9

Practical Management of Lawyers Pre-identify a set of firms who are approved to work with your firm and require fixed-fee bidding for specific tasks. Review bills and negotiate. – Sorting and re-sorting the bills by tasks, dates, hours, costs, and personnel can yield useful knowledge. – Can raise question: "This particular job is costing a three times what we pay our lawyers for a typical job. Is it worth it?" Refuse to pay for associate training. 11

Managing legal expenses = managing the legal work, including strategy, tactics, staffing, quality, and other non-monetary aspects of legal work that trigger higher bills. In-house attorneys can manage the outside lawyers, replace them by handling litigation in- house – Provides additional competitive leverage. In-house lawyers may anticipate legal risks, before become problems. Preventive law provides the best possible form of legal cost containment. Include ADR (alternative dispute resolution) options in agreements. 12

Selection of firms based on merit, with cost and prior experience being factors in merit. The goal is to select particular lawyers, not an amorphous firm. Biases favoring large firms must be overcome. Smaller, boutique firms are given serious consideration because even the largest matters can be handled by a handful of efficient, experienced attorneys. 13

Hourly fees are but one of many billing alternatives. Alternatives designed to meet client goals, while rewarding efficiency and quality. Client & attorney work as a team, with billing or performance problems anticipated early & corrected, rather than dealt with after the fact. Streamline the legal process by taking acceptable risks, with informed client consent. Bill formats are standardized to facilitate bill review and to allow firm- to-firm comparisons. – Task-based and project-based formats. Out of pocket expenses passed through to the client strictly limited to actual cost. 14

ADR built into relationships to avoid or streamline litigation where possible. When individual matters arise, evaluate promptly for risks, options, and likely outcomes. – A budget is built around the plan, task-by- task, then reconciled with each bill. Work product, bills, and attorney-client communications are exchanged electronically, in part to allow prompter management feedback. Second opinions, through consultants, secondary outside counsel, or in-house counsel, used to verify important decisions, consider options, obtain independent analyses, and assess settlement value. 15

Conduct post-mortems of significant cases to extract lessons & assess performance. Maintain databases of law firm work product from law firms, discovery materials, etc. to be “recycled”. Bill Problems & Audits: Make resolving billing questions part of overall management; integrate audits of performance and fees. Control fees through mix of strong billing guidelines, rational alternative fee arrangements, real-time feedback on performance, streamlining of staffing, strategy, and tactics, early exploration of settlement and ADR. 16