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Remember the Nineties? For general counsel it was the decade that “Big, Hairy, Audacious Goals,” “Total Quality Management,” and “core competencies” infiltrated Fortune 500 law departments, which were then coming under intense pressure to reduce costs after the eighties’ rapid growth. A cacophony of consultants, trade publications, and industry insiders trumpeted the impending death of the billable hour and the rise of general counsel as savvy, thrifty consumers of legal services. We’ve been writing about � and often hyping � these and other grand experiments for years. But like the headline-grabbing verdicts that barely get mentioned when they’re overturned on appeal, the follow-up on these ballyhooed ideas is long overdue. With a mixture of nostalgia and skepticism, we decided to reexamine Five Big Ideas that made headlines just a few short years ago: law firm “convergence,” legal auditing, task-based billing, research outsourcing, and online auctions. We interviewed veteran general counsel, consultants, and law firm partners, as well as some of the original proponents of the Next Big Thing. Let’s revisit our Five Big Ideas to see what went right, what went wrong, and where they are now. Thinning The Ranks: Convergence E.I. du Pont de Nemours and Company was the first major corporation to apply the “less is more” mantra to its law firm roster. Starting in 1992, the Wilmington-based chemical colossus launched an ambitious program to whittle its defense firms from about 350 to 38 and to demand fee discounts. Soon after, “convergence” � the clunky term for consolidating work with fewer suppliers � quickly became one of the hottest trends of 1990s law department management. Chrysler Corporation, Marriott International, Inc., Mobil Corporation, and The Prudential Insurance Company of America instituted similar programs. So, does it work? Absolutely, say veteran law department consultants like Daniel DiLucchio, Jr., a principal at Altman Weil, Inc. The more firms a company uses, the greater the expense of managing them. “If I’m serious about costs, the first thing I do is narrow the number of firms I’m working with,” says DiLucchio, who’s based in Altman Weil’s Newtown Square, Pennsylvania, headquarters. Putting outside firms on notice that they’re either about to lose a client or land even more business empowers general counsel and placates senior management. Among the major corporations now paring outside counsel lists are MCI Communications Corporation, Merrill Lynch & Co., Inc., and Tyco International Ltd. The problem, consultants say, is that some general counsel don’t take convergence far enough. Law department managers simply fire a bunch of law firms, or take their efforts just one step further by demanding discounted hourly rates from the survivors. Corporate bean counters are happy, but, at the end of the day, it’s a limited victory. Law firms easily recoup their losses from lower fees with annual rate hikes and longer hours. What’s more, discounts miss the real problem with runaway costs, says Peter Zeughauser, a Newport Beach, California, law firm consultant. “Rates don’t drive costs,” he explains, “[inefficient] staffing does.” DiLucchio says general counsel with the most successful convergence plans have relied on alternative fee deals. And they’ve made their outside counsel more efficient, by making law firms work together through intranets and regular meetings about company needs. That’s the blueprint followed by GCs like James Buda, general counsel of Caterpillar Inc. ["Innovative GCs," March], and Kenneth Gluckman, associate general counsel at what is now DaimlerChrysler Corporation. Gluckman oversees a convergence program for the automaker’s product liability litigation, now in its ninth year, that pays 22 firms flat fees ranging from about $100,000 to $2 million a year. The fees cover everything � including expenses and the lawyers’ time at mandatory semiannual meetings of in-house and outside counsel � except for trial work (which is billed hourly). Gluckman declined to estimate how much his company has saved from the program. But convergence still has its drawbacks. When John Liftin became general counsel of Prudential Insurance (now Prudential Financial, Inc.) in 1998, he inherited an ambitious program that had pared the financial services company’s outside counsel from some 800 to 200 law firms, embraced outside vendors, and awarded 143 fixed-fee contracts. Liftin liked the idea of a slimmed-down roster of firms but soon put an end to the more radical initiatives, including the mandatory request-for-proposal process that consolidated work among 60 out of the 200 firms. He says his deputies didn’t like limits placed on the selection of outside firms and that he wanted his in-house lawyers to be accountable for their hiring decisions. “When [corporate counsel] are required to use a firm because it won a bid,” explains Liftin, “it’s too easy when there’s a bad result for them to say, ‘What do you expect? This isn’t the firm I would have used.’ “ DuPont’s mammoth program, on the other hand, continues to get even bigger. DuPont has embraced the use of contract lawyers, early case assessments, and yearly performance reviews. The company sponsors conferences, operates a Web site, sells a $39.50 book plugging its model, and pays for advertisements touting its favored firms. Last year, according to assistant general counsel Thomas Sager, DuPont law firms even helped account for a tiny bit of the chemical company’s $27.7 billion revenues. How? Sager says outside counsel referred $2 million worth of business to DuPont, mostly for purchases of Stainmaster carpet. Even with all the hype, Sager insists that the savings are real. By his estimate, DuPont has shaved a total of $120 million, or 12-18 percent a year, off its legal tab, mostly by getting discount hourly rates from its outside firms. Verdict: Saving $120 million � or even half that amount � is hard to ignore. Convergence works, even without the DuPont-style lovefest. Packaging discrete, specialized work and demanding flat or other alternative fee deals provides the biggest payoff. Nickel-And-Diming: Legal Auditing When The Wall Street Journal ran a series of articles last year about accounting firms allegedly bilking corporate clients on travel expenses, legal auditor James Schratz saw a marketing opportunity. He sent letters to the Fortune 1000 general counsel offering free reviews of airline and hotel charges on their legal bills. But no one’s called yet. “Maybe they don’t like me,” quips Schratz, a former vice president of major claims at Fireman’s Fund Insurance Companies and a longtime critic of law firm billing practices. “Or maybe they just don’t want to find out.” Schratz was hardly flogging a new idea. A decade ago, legal audits were the rage, thanks to some bad publicity about seven-or eight-figure outside counsel bills that included big markups on meals and disbursements charged to clients. Insurers had used auditors to render second opinions on legal bills for several years; it seemed only natural that corporate America would embrace the idea too. Throughout the early 1990s a cottage industry materialized full of auditors promising to shave as much as 20 percent off clients’ bills, says Harry Maue, an auditor who has been scouring legal bills for nearly 20 years at St. Louis-based Stuart Maue Mitchell & James, Ltd. By the mid-1990s, according to Maue, there were even a few major outfits � among them Wilton, Connecticut-based Law Audit Services Inc. and Philadelphia-based Legalguard, Inc. � that specialized in law firm bill reviews. But the auditors nitpicked, and outside counsel were doubly annoyed that clients were questioning their fees. Today Maue is one of the few remaining independent shops that still focuses on this type of work. “Talk about an industry that came and went faster than pet rocks,” says James Wilber, an Altman Weil consultant. Bringing in a third party to determine what a law firm’s services are worth “is a relationship killer,” says Altman Weil’s DiLucchio. In the insurance arena, defense lawyers fought back with lawsuits and state bar ethics opinions arguing that third-party audits of legal bills violate attorney-client privilege. After the defense bar won some key victories, many insurers now do their own bill reviews. Legal auditing isn’t completely dead, however. Cash-starved government agencies keep the Glen Ellen, California-based Schratz busy, and he is often brought in to serve as an expert witness when litigants spar over attorney fees. Maue’s firm has seen third-party audits plunge from 80 to 25 percent of its revenues. Fee reviews in bankruptcies and court fee fights now comprise another 25 percent of billings. He estimates that the remaining 50 percent of the firm’s business comes from e-billing software services. Early rivals such as Law Audit Services, now Allegient Systems, Inc., and Legalgard, now owned by Computer Sciences Corporation, have essentially morphed into software billing vendors. Verdict: General counsel quickly figured out that third-party audits were too disruptive to their relationship with outside counsel. Outrage over a bill pointed to a bigger problem than just a blown budget. Instead, GCs are learning to take a more direct approach: spell out, upfront and in writing, what they will and won’t pay for. Comparison Shopping: Task-Based Billing Legal auditors had the right, if ultimately unworkable, idea. General counsel were upset about fat bills, but they didn’t know what specific tasks, such as a summary judgment motion or deposition, were costing them. The confusion stemmed from bills that simply stated “for services rendered” or broke charges down by date. In response, some general counsel latched onto the idea of task-based billing. The logic was obvious: require bills to be submitted with charges categorized by task or activity, not by day of the month. Armed with meaningful data, GCs would be able to analyze bills across matters, demand budgets, and force law firms to compete on price. After all, if Firm A completed that summary judgment motion for $30,000 and Firm B charged $60,000 for similar work � and results � the decision about which firm to hire in the future would be a lot easier. Clearly, the days of the dreaded billable hour were numbered. But there was a hitch. To avoid an administrative nightmare for outside counsel, firms needed a standard way to categorize tasks. Indeed, by the mid-1990s there were more than 50 different task-based billing formats in use. So, in 1994, a consortium of law firms, law departments, and industry associations led by PricewaterhouseCoopers set out to create a standard billing format with six separate code sets � including litigation, “counseling,” bankruptcy, and expenses � broken down into subcategories. The Uniform Task-Based Management System (UTBMS) contains 116 specific codes covering everything from expert witness preparation (code L410) to pensions issues in bankruptcy (code B200). But, according to a study cosponsored by the Association of Corporate Counsel and Serengeti Law, no one uses the system. A mere 4.4 percent of 266 companies surveyed required the use of uniform task-based codes in 2002, a drop from an already low 7.16 percent in 2000. What’s more, one-fourth of those who insist that their outside counsel use the format admit that they don’t do anything with the data. The bills might as well have been chronological. How did such a straightforward idea stumble so badly? The PricewaterhouseCoopers code set was too unwieldy, according to Michael Roster, the general counsel of Golden West Financial Corporation in Oakland, and former chairman of ACC. General counsel wound up with drawers full of CD-ROMs containing useless data. Roster applauds the idea but says, “The mass of information became overwhelming.” Outside counsel didn’t like the idea, either. “Lawyers look at the codification of legal services, and they’re appalled by it,” says David Briscoe, an Altman Weil consultant. “They say, ‘There’s no way I’m going to take the time to learn this, and, besides, what I do does not fit into the list of codes.’ “ Verdict: One size doesn’t fit all. The overwhelming majority of bills are still broken down chronologically. General counsel use their gut, experience, or high-priced consultants to price services and bargain-shop for firms. Taking It Outside: Legal Research Outsourcing The 1995 story carried an ominous headline. “Should You Be Afraid of This Man?” taunted The American Lawyer, a Corporate Counsel sibling publication. The article profiled Dov Seidman, a young Harvard Law School graduate and founder of a company specializing in legal research. Seidman had an audacious idea: If corporate America required Am Law 100 firms to send research assignments to his Legal Research Network, Inc. (LRN), then junior associates could no longer cut their teeth on the client’s dime. The law firm pyramid would be turned on its head. Seidman, then in his early thirties, quickly captured a lot of media attention. Opinions split on whether legal research was essential to the practice of law or essentially a commodity that could easily be extracted from law firm services. While the debate raged, prominent general counsel began to take notice. By the time LRN’s one-year anniversary rolled around in 1995, 34 of the Fortune 500 had used its services, including MCI and Mobil Oil Corporation. Soon Seidman cut deals with other blue-chip companies, including AlliedSignal Inc., Chevron Products Co., and Prudential. In each case, the companies ordered outside firms to send all research projects estimated to cost above a threshold amount � typically either $1,500 or $2,000 � to LRN. DuPont’s Sager says that while not directly mandating the use of LRN, during annual outside counsel performance reviews he looks favorably on firms that use the vendor. LRN has found a comfortable niche, but not quite the one that it set out to carve. MCI’s GC, Anastasia Kelly, says she’s found the multistate surveys that research providers sell to be very useful. When Sears, Roebuck & Co. set out to amend its credit card agreement, Kelly, who served as its GC from 1998 until 2002, bought an LRN summary of consumer credit laws in the 50 states for just a fraction of the cost that she says she would have incurred using outside counsel. Specific company matters, however, she prefers to give to outside counsel. As for traditional legal research, LRN hardly has Am Law 100 firms worried about paying the rent. Earlier customers like Chevron Products and Prudential Insurance have ended their deals with LRN. Other corporations have signed on, but Seidman won’t disclose his business’s revenues or the number of Fortune 500 companies that used LRN last year. He concedes that legal research outsourcing hasn’t rattled the industry. “I’m not saying we’ve solved the perennial problem” of law firms training associates with research projects paid for by clients, says Seidman, “but we’ve put a dent in it.” Verdict: Fortune 500 GCs never embraced legal research outsourcing. And the seemingly indestructible law firm pyramid was never turned on its head. But don’t write off Seidman or his competitors, among them Minneapolis-based Legal Research Center, Inc., just yet. They’ve branched into new business lines, including Web-based training programs on sexual harassment, trade secrets, and other federal and state laws. Priceline For Lawyers: Online Auctions Describe the Internet as a revolution, and John Henry II almost sounds offended. “The Internet is no more than just the transfer of gigabytes of information between two sides,” he says. As a tool for interacting, it’s not much different from, say, picking up the telephone or hopping a plane for a meeting. There’s a reason Henry wants lawyers to view the Internet as an old friend. He’s the CEO of eLawForum Corporation, a Web-based matchmaking service for lawyers and clients that launched in 1999. He wants to convince companies to package chunks of legal work � such as patent applications � and put them out to bid, using his Internet service. In four years Henry says 67 Am Law firms have participated in an eLawForum-run contest and that his business has hosted more than 300 auctions. In one recent notable example, Lucent Technologies Inc. used eLawForum last spring to award a three-year fixed-fee contract for all of its employment counseling to Epstein Becker & Green, a firm the Murray Hill, New Jersey, telecom equipment maker had not used before. But Henry still faces plenty of hurdles. One is demand. “I keep hearing about it. It’s out there. But I don’t know who’s doing this,” says Susan Hackett, ACC’s longtime general counsel. Altman Weil tried something similar in 1999 but shut down its site, iBidLaw.com (later renamed LawVertical.com), after a year and a half and just two auctions. William Brennan, an Altman Weil consultant, says the service couldn’t line up additional funding after dot-coms fell out of favor. Henry is betting his business will improve as general counsel become more comfortable with online bidding and its potential savings. But as in-house lawyers get up to speed with the technology, some influential general counsel, including J. Keith Morgan at GE Commercial Finance and William Lytton at Tyco, are bypassing intermediaries such as eLawForum. Morgan is using GE’s own technology and staff to run virtual beauty contests. Lytton says he’s considering putting out to bid packages of select work such as patent applications. If he does, he’ll use Tyco’s own outsourcing department to choose the firms. Initially Henry, a former associate at New York’s Cadwalader, Wickersham & Taft, envisioned his service as a Priceline.com for lawyers. The site would match buyers and sellers matter by matter. But that didn’t take off, and Henry is no longer playing a neutral role. Now he’s actively pushing GCs to bundle all their work in one practice area and award it to a single firm under a five-year flat fee contract. He claims that GCs can leverage the high volume in exchange for as much as two-thirds less what the company would otherwise pay. Henry bases this claim on a calculation that includes past costs and liability incurred by the company in similar cases. Will it fly? Like legal research outsourcing, online auctions will undoubtedly find their place. Altman Weil is betting it’s still a viable business and plans to relaunch LawVertical.com this spring, according to Brennan. But will electronic bidding revolutionize legal services the way Priceline.com has upended the travel market? It’s unlikely. Verdict: For insurance, routine employment, or immigration work, it may be worth a try. But for that high-stakes merger or acquisition or bet-the-company patent lawsuit, GCs are sticking with firms they know and trust. Corporate Counsel senior reporter Krysten Crawford wrote about many of these big ideas back in the 1990s as a reporter for our sibling publications The American Lawyer and The Recorder.

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