The third in a three-part series of articles based on ALM’s 2011 Law Department Compensation Benchmarking Survey and Law Department Metrics Benchmarking Survey.
When it comes to selecting and evaluating outside lawyers, price matters—but cost is not as crucial as how competent those lawyers are.
That’s one finding of a legal department survey of 99 companies that was released in September by CorpCounsel.com sibling ALM Legal Intelligence.
In selecting outside counsel, 36 percent of the companies said the firm’s specialization matters most, followed by cost at 19 percent, and responsiveness at 15 percent. Other factors cited include the law firm’s history with the company, reputation, location, partnering capabilities, and diversity. (See chart here.)
But cost plays a major role when evaluating the job that outside counsel has done, 21 percent of the respondents said. That tied with knowledge/expertise as the number one factor in an evaluation. Good results by the outside lawyer scored high also, at 18 percent. Other factors that affect an evaluation, they said, are how well the lawyer understands the GC’s business, responsiveness, diversity, partnering capabilities, creativity, and technology. (See chart here.)
In these difficult economic times, did those survey results surprise some experts? Not at all.
Susan Hackett, CEO and principal of Legal Executive Leadership in Washington, D.C., said “value” has always been the number one consideration in hiring outside law firms. “They want the right firm, not the cheapest one,” said Hackett, the former longtime GC at the Association of Corporate Counsel. “They want the firm that is likeliest to succeed based on whatever criteria are set for the matter.”
Hackett explained that cost concerns—as in doing more with less—are the number one priority for in-house counsel in most surveys, but not the number one criterion for selecting their law firms. “Sometimes, a few hours of the most expensive hourly-based outside counsel time is less expensive, and provides greater certainty, than a cheaper firm running a bunch of lawyers for several days through a matter, trying to figure it out,” she said.
But Hackett warned it is still likely that in-house leaders will assess cost and will want the law firm to be reasonable, cost effective, and competitive in their fees, “but my experience is that in-house counsel never hire a firm on the merit of low cost alone.”
Legal consultant Rees Morrison, president of Rees Morrison Associates in Princeton, agreed with Hackett. He said most surveys he’s seen show that past results count the most, then experience, “and cost may come in around third or fourth.”
Morrison said, “It would be bizarre for a company to choose external counsel solely on a cost basis, because too much is riding on major transactions or litigation to be penny wise and pound foolish.”
This isn’t to say that law departments shouldn’t manage the costs of counsel they retain and keep efficiency in mind at all times, Morrison added.
For legal department consultant Albert Parker, cost is always a factor for GCs to consider, “but not necessarily the determining factor,” he said. Parker is a former general counsel at Wyeth and now principal at GC Legal Advisors in Radnor, PA.
“Some work is so important to a company, there’s such a downside risk associated with it, that the GC has to have confidence in the outside counsel to protect the company’s interests,” Parker said.
For routine transactional work, Parker said there might be a host of competent firms, and sometimes geography plays a role. For example, he said two law firms might be equally good, but one based in New York could be more costly than one in Philadelphia.
But when the outcome is vital, Parker said the GC wants to have confidence in the firm’s experience and ability. “The primary driver is quality,” he emphasized. “It’s making sure the company is going to be well represented.”
