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Ralph “Buddy” Arnheim III may be making himself obsolete. A few weeks ago, the Perkins Coie partner gave workers at one his clients a lesson or two on how to manage their stock option program. It’s a quasi-legal procedure that can be done in-house — and more importantly for the company, can be done without paying Arnheim a bucketful of fees. “They’re in-sourcing certain things that don’t require a lot of legal oversight,” Arnheim said. “Even if they have a lot of money, they’re worried.” Silicon Valley law firms that cater to startups historically have tried to help clients keep an eye on the legal bills. But with the sour economy, clients are increasingly looking to their lawyers to teach them how to do more tasks in-house. It’s an effort that may seem to have only a downside for lawyers: They give away their expertise and don’t get to reap the billable rewards. But attorneys say it’s a trade-off. They may be giving up some cash now, but in the end they hope their efforts will come back to them in the form of more client loyalty. At the height of the tech boom, Silicon Valley executives didn’t hesitate to have lawyers take on time-consuming tasks. But now, companies are short of cash, and their executives have plenty of time to deal with internal legal issues, said Mark Tanoury, a Cooley Godward partner. “Clients were short on [time] and weren’t interested in taking on any task that they could have their outside counsel do,” he said, adding that now “many of our clients are quite interested in taking on more tasks.” Taking legal work in-house isn’t the only thing companies are doing to try to get a handle on their lawyer bills. Tanoury said they are also pressing for greater predictability. But the bad economy has made deals harder to do. Even venture capital financings, one of the most standardized deals in the Valley, are becoming more difficult to estimate. Arnheim said he has seen typical venture capital financings that three years ago cost $30,000 to $40,000 in legal fees hit $85,000 and in some cases, more than $100,000 in fees. In some cases, Tanoury has seen investors driving up the cost because they don’t want to accept the kinds of terms the current economic environment will allow. But for Arnheim, the primary thing that’s changed is the attitude toward due diligence. Executives are running more cost-benefits analysis as well as peeking into the books for funny accounting. Plus, investors are adding more provisions into their transactions to protect their investments in the event the deal sours. “It just takes longer,” Arnheim said. “Instead of light due diligence, everybody is looking into everything.” Trying to cut costs, company executives are also trying to negotiate deals themselves and call in their lawyers later in the process, he said. That, however, sometimes backfires. “It hasn’t worked well so far,” Arnheim said. “It causes more problems.” Nonetheless, lawyers are facing a very different scenario than during the boom. Arnheim is sure he won’t be made obsolete, but he is trying to give clients a hand without giving away the store. “Lots of clients are asking for a break,” Arnheim said. “They are absolutely itching for us to give them a predictable legal fee arrangement.”

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