The Value of Developing Relationships with Outside Counsel
When David Cohen went in-house at Nokia in 2007 to oversee litigation, he was also tasked with taming the chaotic tangle of the companys outside legal representation. The cell phone maker used some 900 legal vendors around the world, had unclear relationships with firms, and didnt keep track of who was doing what.
Five years later, Cohen had whittled the number of legal vendors down to 230, gotten firms to file budget forecasts every month, and had reduced the law departments spend by 15 to 20 percent
How did he do it? It was a constant process, said Cohen, now head of litigation, licensing, and intellectual property at Vringo, speaking at Corporate Counsels Controlling Legal Costs event on Thursday in New York.
To be sure, a big part of that process was putting systems in place. In order to consolidate the vendor list, Cohen eliminated practice area and geographic overlap among multiple firms. He implemented an e-billing system, and drafted invoicing and billing guidelines.
But guidelines can be easy to work around. Most lawyers are pretty smart, and pretty tricky, too, Cohen said.
So just as important, Cohen told his in-house peers in the audience for a panel discussion entitled Maximizing Value with Outside Counsel: Fees, were the hours he dedicated to understanding what motivates and incentivizes the law firms.
If you cant align your interests, he said, there are going to be bad situations down the road.
Cohen recommended putting in the time to personally get to know whos doing your legal workvisiting their offices, going to dinner, picking up the phone to chat. Thats all part of knowing how the law firm works, and what motivates them, he said, adding later in the session: Ive spent a crazy amount of time traveling to different law firms around the world.
Monthly budget predictions served as a springboard for discussion with outside counsel. But holding firms to a given budget required a firm hand, tooif they didnt stick to the budget process, they didnt get the companys work. Its challenging, because you have to be the bad cop, Cohen said.
At Target, a scorecard provides direct feedback to outside counsel and helps keep firms in line with company expectations. Its essentially like giving a performance review, said Greg Petouvis, senior group manager and senior counsel for the retailers employee and labor relations department.
The scorecard gives weight to a firms billing practices, such as whether bills are submitted in a timely manner; how well outside counsel collaborate with Target managers; how well the firm understands the business (aka, its Target IQ); and how strong the firms commitment to diversity is.
To arrive at the score, Target solicits feedback from the firms themselves, in addition to company managers, in-house attorneys, paralegals, and administrative staff. Id say its a three-month process from start-to-finish, Petouvis said.
Petouviss department has also been flexible in arriving at alternative billing arrangements with firmsan RFP process that began several years ago. The most important thing was not dictating to the firms what we wanted to see out of this process, he said.
The only suggestion Petouviss department gave to firms was to divide the employment litigation into five phases:
- Initial investigation before the filing of a dispositive motion
- Answer to initial dispositive motion
- Summary judgment
- Trial preparation and trial
Beyond that, Target told outside counsel to come up with their own creative solutions, according to Petouvis. And the solution had to be a billing model the firm could live with, lest it impact the quality of the work. We didnt want firms to lowball themselves, Petouvis said.
Another effective incentive: deeming a firm a preferred provider. When firms know they can rely on the companys business, theyre far more willing to play ball and be aggressive on costs, Petouvis said.
The alternative billing arrangements last for two-year cycles, Petouvis explained. Firms have to submit budgets for their matters. If they dont, they dont get their invoices paid, he said.
The pay-off for Target so far: More than dramatic savings, the system has brought predictability to the companys legal spend. He said their system has unequivocally strengthened the companys relationships with its outside firms.