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Law firms fighting in a tight economy for opportunities to serve as outside counsel are finding they have to work harder and provide more perks. That’s the verdict from 16 general counsel and 16 law firm leaders who gathered at a Bar Association of San Francisco conference on March 27 to discuss the changing relationship between inside and outside counsel. The list of panelists at the conference read like a who’s who of the local legal world, and included Charles James of ChevronTexaco Corp., Stanley Stroup of Wells Fargo & Co. and Richard Burt of Bechtel Group Inc. On the law firm side the big guns included the likes of Gordon Davidson, chairman of Fenwick & West; Ralph Baxter Jr., chairman and chief operating officer of Orrick, Herrington & Sutcliffe; and Barry Levin, chairman of Heller Ehrman White & McAuliffe. The core of the discussion was, of course, money and the difficulties both general counsel and law firms face in finding alternatives to the standard hourly billing structure. The GCs said they are feeling enormous pressure to cut costs and are looking for alternatives to traditional fee arrangements and pricey outside legal advice. That, in turn, is putting pressure on firms to adapt to the changing marketplace. Orrick’s Baxter said his firm “stays with the billable rate because we’re accustomed to it — it’s habit. It works for law firms and we have no incentive to change it,” so the client has to push for change. James of ChevronTexaco hinted that his company will be changing its expensive relationships with outside counsel sooner rather than later. “Law firms are still billing at standard rates, and that’s going to change in the next few weeks [at Chevron],” he said. “Law firms will give discounts for patronage — volume discounts. But you don’t want billing rates to compromise the quality of work, so you have to balance.” James and the other GCs present at the conference agreed that firms that currently provide outside corporate counsel will have to provide more bang for the corporate buck to keep business. Those extra perks could include legal training sessions for business employees and keeping a tighter rein on time they bill the company for. Albert Moreno, general counsel of Levi Strauss & Co., said the pressure is on to keep costs low. Moreno said Levi Strauss always negotiates a set price from an outside counsel rather than allowing hourly billing. The company also wants good negotiators. “We also look for [attorneys'] ability to influence. Oftentimes we don’t tell our clients what to do; we have to persuade them,” he said. These days, getting a gig as outside counsel may rest on the extra things a law firm is willing to bring to the table. “Clients want extra value, and we’re looking for what we can add to keep them coming back. It’s getting more difficult,” said Wendy Tice-Wallner, president and managing director of Littler Mendelson. Fenwick’s Davidson said one difference he sees when talking to businesses about possible outside counsel work is that he’s “asked things I never was before, like ‘how much do you make and what’s your financial stability?’” Even something like in-house training on legal issues for employees is up for grabs. Law firms now have competition from businesses that provide the training without charging the steep hourly rates of law firms. Nancy Heinen, general counsel at Apple Computer Inc., said her company now hires non-traditional companies for some of its legal training — training that used to be done by law firms. But one thing all general counsels seemed to agree on was that law firm marketing materials are never a factor in awarding business to a firm. James simply said, “I throw them in the trash,” getting a laugh from the audience. In the end, James said, it’s all about trust in the attorney he’s hired. “It’s about making sure the outside lawyer has access to inside thinking.”

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