1. Corporate Counsel University ® 201 - Outside Counsel Management Presented in cooperation with Thomson Reuters May 18, 2015 Dallas, TX Bernadette Bulacan Director, Corporate Counsel Segment Thomson Reuters Patricia Gage Senior Principal & Principal Deputy General Counsel Promontory Financial Group, LLC Robert Lavet Chief Legal Officer Social Finance, Inc.

2. Session 201: Managing Outside Counsel May 18, 2015 Patricia Gage, Senior Principal & Principal Deputy Counsel, Promontory Financial Group LLC Robert Lavet, Chief Legal Officer, Social Finance, Inc. Bernadette Bulacan, Director, Thomson Reuters

3. Emerging Trends in Managing Outside Counsel Make vs. Buy: Retaining Outside Counsel o Retention guidelines o International Legal Project Management o Budgeting o Value Based Fees o Evaluation and Outside Counsel Scorecards Case study: The Preferred Panel Q&A Overview

4. EMERGING TRENDS IN MANAGING OUTSIDE COUNSEL

5. 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

6. An Oxford University study groups legal departments by their “make vs. buy” decisions. Depend on outside counsel for 90% of legal resource needs Does not have active in-house legal department CEO and business partners bypass legal department and go to outside resources directly. EXTERNALIZER I Depend on outside counsel for 90% of legal resource needs Pro-actively managing law firms Balance collaboration and competition; induce firms to work effectively for corporate client EXTERNALIZER II Proportionate and balanced reliance on external to internal lawyers Exception: big ticket items (large litigation, significant transaction) Internal vs. external work is fungible MID-RANGER Rely on 20% or less on external resources Highly developed in-house legal function; very close to business clients; tight control over outside counsel expenses Eliminated expense of “keeping outside counsel up to speed” INTERNALIZER

7. MAKE VS. BUY: RETAINING OUTSIDE COUNSEL

9. Set consistent rules of engagement. Use of billing guidelines sets tone for relationships between in-house & outside counsel. Require discounts from standard rates74.7% Project budgets required64.6% No change of assigned attorneys without client consent 63.5% Travel expense rules60.1% Early case assessments59.6% Client ownership of work product46.6% Policies encouraging alternative dispute resolution29.8% Technology requirements24.7% Policies regarding diversity of service providers18.5%

10. Law firms submit electronic bills online to legal department Invoice processed against billing guidelines Automated routing to approvers Approved bill is sent to AP system for payment Invoice is archived in matter mgmt. system; AVAILABLE FOR QUERY AND REPORT CREATION Use of e-billing can streamline the bill review process and build a treasure trove of data concerning your outside counsel and legal work.

11. 11 Systematically enforce billing guidelines to reduce spend and change outside counsel behavior.

12. Referrals from outside counsel—US and international Referrals from Company Management Referrals from ACC International Law Group or other companies Seminars, conferences and other events RFP Process Retaining International Outside Counsel

13. Pros: Relationship Manager—US or foreign jurisdiction Leverage – Priority – Fees Better understanding of your business Multi-jurisdictional expertise Cons: Quality may be inconsistent May not be in all jurisdictions Selecting lead counsel to select and manage local counsel may be an alternative to multi-jurisdictional expertise International: Does a global law firm make sense?

14. Meet in person, if possible, or by video conference Take the time to educate counsel about your business and its culture Secondments Set expectations – Cultural differences – Touch base regularly – Billing Request time records May be open to discounts and alternative fee arrangements Set protocols for interface with local management Use shared portals to exchange information International: Establishing the Relationship

15. Conflicts of interest – Approach may be more liberal, for example in the EU – “Go-to” firms may be conflicted Attorney mobility Limitations on Liability Time Zones – Flexibility – Impacts response time Language – Require that legal advice be provided in English. – Do I just have a bad translation? – Use in-house or local translation services, if more cost effective. – All documents may not need to be translated. Don’t be afraid to move your business International: Challenges To the Relationship

16. LEGAL PROJECT MANAGEMENT A FRAMEWORK

17. The “Old Normal”…

18. Must I be a Six-Sigma Black Belt to be part of the “New Normal”?

19. PLAN Early case assessments Use of RFPs Establish appropriate staffing Establish budget MONITOR Track spending against budget Receive periodic status reports ASSESS Review outcomes Analyze management reports Apply lessons learned High-level project management techniques can be used to better manage outside counsel.

20. SCOPE: PROJECT CHARTERS, EARLY CASE ASSESSMENTS & STAFFING

21. Early Case Assessments and Staffing Spend resources at outset of case to scope potential liability – Avoid protracted discovery and then having your counsel say you need to settle – Recognize some cases may require a decision If your company has repetitive type litigation and precedent needed to deter future claims Employment litigation which may lead to other employee claims Suits involving competitors But generally understand that when CEO says “win at all costs” he doesn’t mean it

22. Early Case Assessments and Staffing cont’d Set rules on staffing at beginning of matters – Too many cases involve creep in number of timekeepers – Chance to control staffing is usually at outset of matter and requires clear communication to outside firm – Limit entry level associates – Partner efficiency may trump very high hourly rate Focus on nature of matter in selecting counsel – Bet the company case vs. routine repetitive litigation – For a case with $50,000 of exposure don’t spend $50,000 on legal fees – Develop a roster of regional firms for the repetitive type litigation Save costs by providing standard pleading forms and past precedent Have a form of letter with precedent to respond to threatened litigation Use big firms in significant class action matters not routine single plaintiff cases

23. Early Case Assessments and Staffing cont’d Saving costs on Discovery – Discovery, particularly document discovery, is major reason for explosive rise in cost of litigation – Considering disassembling the case and hiring temporary help directly for document reviews – Be wary of firms hiring temporary attorneys and billing at full freight – Understand and get control of your documents before lawsuits – Make sure someone on your in-house team is proficient in electronic discovery

24. What are the elements of a project charter?

25.  This problem is important to our business because ___________.  The best possible solution is __________.  The most likely solution is _________.  We expect this matter to be resolved by __________(time frame).  In similar matters, the results were __________.  How much would we benefit from a win _______  Key stakeholders in the company: __________  Primary phases, including tasks/deliverables: __________

26. Was the matter appropriately staffed based on experience and value?

27. SCOPE: ALTERNATIVE/VALUE-BASED FEES

28. 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

29. 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

30. 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

31. 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

32. 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

33. 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

34. 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.

35. 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

36. 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.

37. MONITOR: USE OF BUDGETS

38. Low EstimateHigh Estimate Outside Counsel$750,000$1,250,000 Discovery Costs300,000550,000 Experts125,000150,000 Filing Fees25,00030,000 Expenses75,000125,000 Other25,00050,000 Total$1,300,000$2,155,000 “Experienced-based” budget

39. “Project Plan-based” budget Transaction Process TasksStart Date End Date LD GC LD AGC LF Hours Total LF Partner LF Assoc. LF Para … 1 Draft and finalize NDA6/36/4040000 2 Draft and confirm Charter6/36/10282200 3 Build Project Team & Project Plan 6/56/1012182160 4 Create due diligence checklist6/56/101214284 a. Draft transaction documents …02182124 5 Review due diligence materials 26044016 6 Due diligence report… a. Finalize documents b. Negotiate documents c. … Total Hours962403,3006801860760 Rates$332$450$375$125 Total Fees$1,098,500$306,000$697,500$95,000

40. EVALUATE: POST-PROJECT REVIEWS & OUTSIDE COUNSEL SCORECARDS

41. Conduct Post-Project Review

42. Capture Feedback about Outside Counsel

43. Drive Work to Highest Performers

44. CASE STUDY & DISCUSSION CREATING A PREFERRED PANEL

45. SUMMARY AND Q&A