Allocatur

Rationalising Golden Parachutes

Golden Parachutes for exiting executives is a hot topic, in light of payouts to Lehman Brothers exec and others of banks being funded by bailouts in both the US and UK.

In my last post, I mentioned Watchell, Lipton, Rosen and Katz, the top New York law firm that has never billed by the hour, simply setting their fee.

 

For a further analysis of what took WLR&K to the top of the tree, have a look at Bruce McEwen's (Adam Smith) review of a book about the firm by one of their former partners.  The post was written in 2004, and is interesting in today's economic times. WLRK were involved in the development in the 1970s of "Golden Parachutes".  McEwen details the rationale and justification for the large payouts to executives who did not stay on after a takeover.  

"For many [in senior management] the jobs had taken years of effort to achieve....  The knowledge acquired by many of these executives was largely limited to the industry in which their company was involved.  There would be few opportunities for them elsewhere.  A senior manager's job also carried with it a position in the community and often defined social standing.  Much of that would be lost."

Certainly, in the present economic climate, there will be few opportunities elsewhere, but I'm not sure that most would accept this reasoning.  Nor does it sit with the value billing position adopted by WLR&K itself in that there is not the connection between payout and value delivered.

 

For an interesting detailing of who got what in their golden parachute, have a look at the Mint blog.  Perhaps a highlight is Alan Fishman who reportedly left Washington Mutual after being at the helm for only 17 days, and pocketed $19 million in severance pay and signing bonuses. 

 

Still not at $20 million for 2 weeks, but close - and better when you consider going to only one individual!

Pricing Blog from the Professional Pricing Society: Pricing Advice in Two Sentences

Pricing Blog from the Professional Pricing Society: Pricing Advice in Two Sentences.

The Pricing Blog is an interesting source for thoughts on value.  A recent post Pricing Advice in Two Sentences has advice from pricers of how to set the price.  

$20 Million for Two Weeks Work

I have just begun listening to the audio book of Outliers by Malcolm Gladwell.  The many rave reviews are fully justified - it presents a thought provoking view on what factors make a person successful.

One chapter analyses the optimal time to be born to become a successful Jewish New York lawyer - 1930 is the answer, but you will have to read (or listen) to the book to find out why. 

The founding partners of Watchell,Lipton, Rosen & Katz were all born about this time and created what has become a legend among New York law firms.  Of particular interest to me was the report that it has always refused to bill by the hour, but rather just stating their fee - "value billing".  

 

In one instance, cited by Gladwell, they charged Kmart $20 million for two weeks work in a takeover battle.  They modelled themselves on investment banks.  It's not clear whether there were instances where the outcome was not successful and the firm was out of pocket.  It may that they are so phenomenally good that clients would pay anything to have them on side.

 

It would be interesting to know whether such fees are still sustainable in present economic climes?

Horses for Courses

The Head of Legal at British Insurance group Liverpool Vickers has explained the reason for undertaking a review of the legal panel to Legalweek.com as;
 "Our legal needs have expanded and the nature of the work and credentials of the firms we have taken on as externals has grown and changed."

The interesting point is that not only the work has changed, but the credentials of the firms used have changed.  Managing legal spend effectively involves marrying the nature of the work required with the credentials and capacity of the firms engaged.  Increasingly, clients I work with are looking at boutique firms and second tier firms to undertake particular aspects of their legal work.  This itself ties in with the increasing commoditisation of many areas of law.  Where the work is commoditised, there is far less need to have that deep understanding of the company's business and history. 

Survey show that most corporate clients don't follow the lawyer when they move firms.  This raises the question of how important that corporate memory is.  Obviously it depends on the particular lawyer/client relationship, but I see many instances where the lawyer who left was the only one with any substantive connection with the client, requiring a lot of work on the part of in-house counsel to get the new lawyer up to speed.

How recently have you reviewed the nature of the work you are outsourcing?  Do you know your legal spend on this work?  Can you benchmark spend on this work?  Should any work be brought in-house?

These are the sorts of things which should be considered on a regular basis.

Do your lawyers ask FAQs?

An in-house counsel recently said to me that whilst his client relationship partner had that deep corporate memory, most of the younger lawyers working on his matters did not, and he was a little tired of answering the sorts of questions he felt the law firm should already know.

I was interviewed for this week's cover story in Lawyer's Weekly- "TechMate - How technology can position in-house lawyers to negotiate better with law firms".  An interesting suggestion of one of the other interviewees, Peter Moon, a partner at Logie-Smith Lanyon, was use of a wiki for a particular client, to provide FAQs - answers to those frequently asked client questions.

A wiki could be put to exactly the same use by a client involved in commoditised work.  For example, it could set out your general expectations regarding communications, your preferred format for advice, your billing and engagement guidelines, your general directions regarding accepting service of proceedings, information regarding the correct title of various persons in the organisation for reference in court documents - the list is endless.