Allocatur

Direct Briefing of Barristers

I recently presented at a conference of In-House Counsel and in one session the question came up about whether in-house counsel would be personally liable for barrister's fees, if they direct briefed.  But what do we mean by "direct briefing" anyway?  Simply, it means that in-house counsel send a brief to a barrister directly, and not involve a solicitor as a middle-man.

The concern was, that unless barrister's cost agreement was with the in-house counsel, and thereby making him or her personally responsible for payment of the barrister's fees, the Bar Ethics Rules preventing direct briefing by a client would be breached.

I am a great proponent of direct briefing as a way of controlling costs.  I will post separately on the dos and don'ts of direct briefing but suffice to say, in-house counsel will not be potentially liable for payment of barrister's fees, nor is there is a breach of either the Legal Profession Act or the Bar ethic rules when there is a direct brief, if done properly.

This is easiest to understand if you keep in mind there are two different aspects to engaging the barrister -  firstly, who is briefing the barrister and secondly, who is agreeing to be responsible for his/her fees.

In-house counsel would brief the barrister, so the direct briefing rule is not breached as the barrister is not accepting a brief or instructions directly from a client (the definition of direct access in the Bar Rules).

However, the company itself (the client) would agree to be responsible for the barrister's fees and therefore the cost agreement would be between the barrister and the client. This arrangement is envisaged by s 3.4.26 of the Legal Profession Act (Victoria) (and equivalent provisions in other state Acts)

s. 3.4.26

(1) A costs agreement may be made:

(b) between a client and a law practice retained on behalf of the client by another law practice;

In this instance, the barrister only has to give the disclosure normally required to be given to a solicitor retaining them on behalf of a client (i.e. details of how the barrister is charging, when he/she is going to bill, and an estimate of fees to be incurred).

To clarify a couple of points:

• Unless the barrister is charging in accordance with scale, a cost agreement is always required.

• Disclosure is not required where the client is a sophisticated client (as defined by the Act), (most commonly publicly listed companies and the Government).

• Only conditional cost agreements need to be signed - for all other agreements it is possible to specify what conduct will constitute acceptance (most commonly continued instructions).

Bailout for Law Firms

A very funny post from the Wired GC

The Wired GC can now report the results of a 3 month long investigation into governmental support for major law firms. Discussions at the highest levels of the new administration have resulted in a working plan. It has been slow going due to the requirement that no lawyers work on it. While still subject to change, the broad outlines can now be revealed: 

1. Driven by a need to keep the legal industry from imploding. Since so many large firms are needed to document other bailouts, the government wants to bail them out first. 

2. All firms can’t become 100% bankruptcy or Madoff litigation houses. There will likely be some M&A deal flow later in 2010, and there’s talk of an IPO or two in early 2011. 

3. Alternative fee arrangements are still a wildcard. The government has been told in no uncertain terms that many firms would rather fold than go away from hourly billing. But a recent government offer to fund the pensions of equity partners is garnering strong interest from certain firms. 

4. Some “shotgun” marriages may be in the offing. A few link ups of national and international firms could be required by the government as a condition of bailout funding. Early in the process, it looked like some UK firms would be in the lead, lately it’s not as clear. Also, a lot of the best names have been taken, and the headlong rush to confusing acronyms seems to have played itself out. 

5. Equity partners will have to share the pain. The government is requiring some senior-level sacrifice. It’s not certain that any managing partners will have to step down. But at least one major firm has told its 7-series BMW drivers that they will have to roll back to a 5-series (for their second car). Any requirement to “Buy American” has been a non-starter. 

6. Some additional restructuring of firms will be required. Partners without clients are getting a tad nervous. Here are some telltale signs for the slow-on-the-uptake: (a) you are given a really hot assignment as “activities chair” for the next firm retreat; (b) people are coming into your office and taking measurements; (c) your emails to the managing partner are being returned as “undeliverable”; and (d) your code for the Xerox machine says “3 copies left.” 

7. A plan in search of a name. While this train seems to be leaving the station, there is no legal industry bailout moniker yet etched in stone. Two leading alternatives, according to our sources: (a) Lawyers Annuity Protection Directive (Operated Governmentally); and (b) Partner Assets Recovery Scheme (National Income Protection). 

The negotiations are very fluid, and concerns about possible public reaction to yet another government-funded bailout could still derail these plans. Still, one new government appointee told us on deep background: “We just can’t let the lawyers down. They’ve been there for us forever.”

Very appropriate given today's date.

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. 

To power dress or not to power dress

Two reports with contrasting views about power dressing for lawyers.  The American Bar Association Journal reports that the downturn in the economy is causing lawyers to turn away from casual dressing and back to "Gordon Gecko" power dressing, presumably as a way of reinforcing credibility?  The comment from one lawyer in the story is "I think people expect high-powered lawyers to look like high-powered lawyers".

In contrast, Patrick Lamb tells a delightful story about a lawyer attending on his client at their waste station premises, and how incongruous his power dressing (and attitude) were.

For years, I have heard comments from in-house counsel and other legal clients about the marble foyers and offices of their large legal firms.  The vast majority were throw away comments along the lines of "so this is where my legal fees are going".  Perception is important.  It's like the American and British banks who, having received huge hand outs, are now paying bonuses which are beyond the comprehension of the average man in the street.

It seems to me that in the present economic client, power dressing is not the way to go.  I understand that maybe it is time to pull back a little from the casual jeans and tee shirt (or green bermuda shorts!), but if my lawyer was wearing new clothes that put him straight onto the "Wall Street" set and echoing Gordon Gecko, I would query if my legal fees were being well spent.

For those doubting Thomases

One for all those doubting Thomases who tell me that no large firm will move away from the billable hour, no matter what their clients want.  Law.com reports that the British company ITV has entirely phased out hourly billing for its legal work.  The firms involved are Slaughter and May, Lovells, Addleshaw Goddard, DLA Piper, Olswang, Charles Russell and Goodman Derrick - not exactly lightweights.  Of interest is that Freshfields have not been reappointed to the panel.

The article reports:

Garard told Legal Week: "None of the firms will bill us with reference to a measure of time on any matters. The pledge forms part of the agreement we have with the firms selected. As far as I am aware, we are the U.K.'s first major corporation to have such a panel. Hopefully people will sit up and take notice and other companies will follow suit."

Lovells ITV relationship partner Peter Watts said: "We always work with our clients to find new ways of working and new ways of thinking about our relationship. ITV is a very exciting client to work with and we hope to do much more with them in the future." 

From an earlier report it appears ITV were looking to use fixed fees, caps and floors, with the rate based on deal completion.  

Earlier this year, Freehills were recruiting a pricing analyst.  All the top tier Australian firms offer fixed fees in certain types of work and on particular matters.  But the billable hour remains the most comforting means of billing for law firms - it's what they are familiar with.

My advice to all clients is to ask.  Until you ask you don't know what the answer will be.  But look at how and what you are asking for.  When I am working with client assisting in managing their legal costs, we put suggestions to the law firms about possible alternative billing arrangements, rather than simply asking the open ended question of "what can you do for us?"  The answer to this question is often "we are interested in exploring alternative billing arrangments with you" with no solid proposals being put.

Clearly ITV put a lot of work into their RFP and were proactive in making suggestions about alternatives.  It may well be that they were also proactive in the whole tender process, with feedback about level of work and possible alternatives.  If your proposal has any element of "success fee" you will need to define what "success" means.  You may need to look at how the law firm contributes to that success.

But the payoffs in certainty of fees make the process very worthwhile.

Jim Calloway recommended Allocatur

I am incredibly honoured that Jim Calloway has recommended this blog to readers of his Law PracticeTips Blog.  Jim is co-author of the book Winning Alternatives to the Billable Hour (2nd ed.) (2002 ABA.),  He is the Director of the Oklahoma Bar Association's Management Assistance Program and a member of the Council of the ABA's Law Practice Management Section and chair of its Practice Management Advisors Committee.

In other words, he is a guru on law practice management which is why I a so honoured that he recommends this blog!

Jim's blog is on my list of "must reads" as are his articles in the ABA Law Practice Management Journal, to which I subscribe.  Whilst there are many differences in the practice of law in Australia and the US, including fee arrangement restrictions on Australian lawyers that don't apply to many US lawyers, the trends in the US often eventuate here.  And no matter where you practice, Jim's commonsense approach to client service is relevant. 

For those of you interested in non-billable fee arrangements, Winning Alternatives to the Billable Hour is must and can be purchased from the ABA bookshop or Amazon and through selected sources in Australia (I believe the LIV bookshop has copies).  I have both first and second editions and they are an important resource.

Thanks Jim!