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According to a recent survey of chief legal officers conducted by Altman Weil and the Association of Corporate Counsel, the three most important law department management issues are budget constraints, cost controls, and staffing. Is that a surprise? Like every other corporate unit, law departments must be efficient. Even in an improving economy, there is no room for excess costs. This pressure has only increased with the implementation of the Sarbanes-Oxley Act, stepped-up shareholder activism, and the continuing prevalence of our litigation culture. So what’s a general counsel to do when dealing with this pressure? Maybe it’s time to think about convergence. If you’re unfamiliar with the term, think of it as a fancy name for concentrating more outside legal work among fewer firms. Indeed, convergence is one of the more popular cost-control measures to come along in recent years. At some companies, outside firms have been awarded “preferred vendor” status, analogous to programs through which their companies purchase goods and supplies. Several large, well-known companies have implemented widely publicized, dramatic reductions in the number of firms handling their legal work. General counsel at these companies have claimed significant reductions in costs while advocating that others follow their lead so that law firms will adapt to the need for fundamental changes in their approaches to client relationships and fee expectations. (It would, by the way, be something of a surprise to hear these GCs claim anything but success.) To be sure, these programs are not one-size-fits-all. Instead, they must be carefully customized for each company and its mix of legal needs. Concentrating legal work among a relatively small number of firms, for example, can work well when it comes to high-volume matters that involve common or similar issues, such as workers’ compensation, personal injury, and employment cases and leasing, licensing, and franchising transactions. In-house counsel should first identify the areas of legal work that might benefit the most from concentration among a small number of outside firms. The client should then identify in each area specific ways in which costs will be controlled or reduced and estimate the expected savings. Some benefits should be relatively simple and straightforward. Fewer firms should mean fewer instances of duplicative research, memorandums, briefs, and drafting form documents. Similarly, a curtailed list of outside firms should result in better coordination (and fewer misunderstandings) between client and counsel because fewer people will need to get to know and understand the client’s people, policies, and procedures. Other benefits that can be expected from convergence will require more planning, guidance, and monitoring. Cost control and cost reduction depend largely upon staffing quality and continuity. Reducing the number of outside law firms won’t be very productive if the firms themselves do not commit high-quality teams to perform the work over an extended period of time. This commitment should be a key part of the upfront agreement between the company and the outside firm. Much of the cost savings comes from the experience levels of the attorneys and staff dedicated to the client’s work. Although clients expect outside counsel to function efficiently, those of us who have worked at outside firms know that efficiency does not happen automatically. The initial agreement between the company and the firm should include an understanding about how the firm’s attorneys and staff will share information and work product for the client’s benefit. Particularly when the firm is being retained to handle high-volume matters, the client should expect to benefit from technological and other means aimed at streamlining client communications, including matter assignments, periodic reports, billing, and payment accounting. CONTROLLING FUTURE RATES A company’s chief legal officer, of course, expects cost reductions in exchange for the volume commitment. But reductions will be illusive without a specific agreement about future rate increases. If the firm continues to increase overall rates and individual attorney rates as they become more senior (the legal profession’s version of “bracket creep”), a general counsel might find some success in controlling costs, but will be unlikely to reduce them. In response, many GCs are insisting not only on discounted rates but also on caps on hourly increases as well as alternative fee arrangements. Some corporate law departments have negotiated with firms for additional services, including reports on legislative and regulatory developments, periodic revisions to forms and manuals, and in-house training, at no additional cost. One law firm went so far as to relocate the client’s team in less-expensive office space (separate from the rest of the firm) so that it could offer fee reductions without reducing its own margins. A common component involves some sort of incentive system for results and efficiencies. Although the notion of rewarding firms for excellent results and cost savings may strike GCs as paying for what they reasonably expect in the first place, such incentives can yield powerful, long-term benefits. In order to make a convergence program attractive to the law firm (and it must be a good deal for both parties for it to last), the client will need to commit a sufficient volume of work to the firm over a significant period of time. This probably means a multiyear commitment. These understandings should be very clear about the type of work to be performed by the firm and the exceptions that allow the client to take work to another firm. The commitment should also be conditioned on the performance by the firm of its various obligations — appropriate staffing, avoiding unnecessary work (which can result in unexpected charges), and providing quality services. A key to success is the selection of the best firms to be part of a company’s convergence program. There is no substitute for a thorough discussion of the details, wherein the proverbial devil lies. Mutual respect and a willingness to work together through the inevitable difficulties are critical. Common sense also applies. If something doesn’t feel right at the outset, that’s probably because it isn’t. If the deal seems too good to be true, it probably is. The selection of outside law firms is only the start. The program should include periodic review and reports to assess successes and failures. No matter how good the program looks on paper, both the client and the law firm will discover ways to improve it as they go forward. Convergence is neither easy nor a silver bullet. But it can be a productive and cost-efficient approach to working with outside firms. Michael C. Ross is the former general counsel of Safeway Inc. He is an adjunct consultant for Altman Weil Inc., which provides consulting services to corporate law departments. This article originally appeared in The Recorder , the ALM newspaper published in San Francisco.

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