Joseph E. O'Neil and Alfred R. Paliani Author Article for The Corporate Counselor
October 2, 2015 10:09 AM
The IADC's Inside/Outside Counsel Relationship Survey was recently highlighted in an article in October's edition of The Corporate Counselor. Joe O'Neil, IADC President and Shareholder of the Litigation Practice Group of Lavin, O'Neil, Cedrone & DiSipio, and Fred Paliani, IADC Vice President of Corporate and General Counsel for Quality King Distributors, Inc. / QK Healthcare, Inc., authored the article that evaluated some of the findings from the survey.
Here is the article which was originally published in The Corporate Counselor. ©2015 ALM Media LLC
Legal Departments and Law Firms: Results of a Recent Survey
The International Association of Defense Counsel (IADC) recently conducted its 2015 Inside/Outside Counsel Relationship Survey in order to gain a better understanding of the relationship between lawyers in corporate legal departments and lawyers in law firms. IADC's membership is composed of both inside and outside counsel, and IADC works to provide resources that foster the relationship between the inside and outside counsel teams.
The results from the report revealed that while legal departments and law firms work toward many common goals, they have inconsistent views of their relationship in key areas such as the amount of work expected to be referred to outside counsel, costs, and methods and means of communication. With insight from 386 corporate in-house attorneys and 303 law firm attorneys, the findings, published in June 2015, are relevant to all those corporate and outside counsel who seek to understand more fully each other's perceptions and realities in order to maintain better working relationships.
Here are some of the survey's findings.
Although differences in expectations with regard to communication are evident, good communication tops the list of "best practices" by both in-house and outside counsel. Corporate counsel respondents noted the appointment of the right principal contacts for each matter with active one-on-one communication preferred, whereas outside counsel thought that regularly scheduled and written status reports were key and the highest rated "best practice" for communicating with their clients.
Regularly touching base with clients is key for law firms that want to understand client expectations and to meet them satisfactorily. The fact that the survey showed differences in the preferred approach shows that clients should not be approached as if "one size fits all." Outside counsel must establish a clear understanding with inside counsel as to how it is best to keep the client updated and informed and to tailor their communication strategies to their client's expectations. Corporate counsel need to determine what will work best for them before engaging outside counsel and to convey their expectations clearly.
Also, as companies expand nationally and globally, inside and outside counsel need to work together to define the best model for accomplishing their objectives and communicating efficiently. One respondent offered this example:
"As a manufacturer, we have a significant product liability litigation docket at any given time. Within the last 10 years, we moved from local counsel for every case to a "national counsel team" model, where all new product liability cases are assigned to one of the national counsel team firms, and the NCT attorney identifies appropriate local counsel for us to consider/retain. This has made the litigation docket easier to oversee for the in-house attorneys, and has given the NCT an opportunity to expand and deepen their knowledge of our products and our company."
With this model, clearly the client strengthens the working relationships between its regular national trial team and local counsel, and in so doing also promotes efficiency and cost savings in the handling of its national litigation docket.
Fees and Billing
Some of the biggest challenges in the inside/outside counsel relationship relate to fees and billing. Corporate counsel continue to push for value billing, capped or fixed fees and discounted fees in exchange for a greater volume of work. The unpredictability of costs and expenses or improper management of costs and expenses ranked highest on the list of challenges facing inside counsel when working with outside counsel. Inside counsel also indicated that they want outside counsel to suggest and promote efficiencies and show creativity in developing approaches to completing the work that keep in mind the corporate counsel's budget constraints.
"Many firms just think they need to bill and work and bill and work," said one corporate counsel respondent. "They won't survive. The firms that engage clients as partners, the firms who share the risk in litigation, the firms that go the extra mile and don't charge for it will increasingly get more business."
Outside counsel surveyed noted the delay in processing bills as being the top challenge when working with inside counsel. They also noted unreasonable rate levels and staffing limitations as another significant challenge. "Rate pressure is a problem," said one outside counsel respondent. "We may need to pick and choose those clients that will pay reasonably."
There were several outside counsel who commented specifically on bill auditing firms and the effect on the attorney-client relationship when it is perceived that the auditors' role was to "obtain discounts on otherwise legitimate billings."
These differences caused by the method of billing and magnitude of fees are not new, but their continued presence shows that the inside/outside counsel relationship is still struggling to find common ground when it comes to billing. It needs to be an area of continued discussion on how best to help corporate clients obtain excellent outside counsel support while staying within consistent and predictable cost budgets, but still ensuring that outside counsel are paid in a timely fashion and at a competitive rate that reflects the value of the services they provide.
Business Opportunities and the Importance of Building the Relationship
The estimates given for the amount of legal work being referred to outside counsel varied significantly among corporate and law firm respondents. Approximately 53% of corporate respondents said the amount of legal work directed to outside counsel in the past 12 months had increased, while only 27% of firm respondents said the amount of work sent to their firms in the past 12 months had increased.
Similar differences existed for the amount of work estimated to be outsourced in the next 12 months, with 47% of in-house corporate respondents expecting an increase and only 28% of law firm respondents anticipating an increase.
This may indicate a consolidation of work where more work is going to fewer firms. That makes building a good relationship between inside and outside counsel even more critical. Many inside counsel have an increasing amount of work for which they need outside expertise and assistance. They are sending it to firms with which they have existing and sound relationships. Conversely, law firms that work to address the specific needs of the inside counsel client and take the time to build the relationship are more likely to secure that additional business.
For both inside and outside counsel, the reasons noted for hiring outside counsel were to utilize certain types of expertise not available within the corporation's legal department. For inside counsel, that specialized expertise as well as the law firm's reputation, experience, and rates were primary factors when deciding whether to establish a relationship with an outside firm. For outside counsel, the volume of work and rates were, of course, critical factors in a potential relationship with a corporate client.
For corporate counsel looking to find and hire outside counsel, most rely primarily on word-of-mouth, a colleague referral, or in-house discretion.
The IADC Inside/Outside Counsel Relationship Survey underlines the point that while outside counsel expertise and experience is essential to starting the working relationship, the efforts to communicate and work together to meet the individual goals of the inside counsel are of primary importance to continuing and strengthening the relationship with inside counsel, which will, of course, lead to opportunities for increased business for the outside counsel. The continued disconnect on some of these day-to-day issues needs to be in the forefront of discussions between inside and outside counsel and the professional associations that serve them.
To read the complete IADC Inside/Outside Counsel Relationship Survey report, visit www.iadclaw.org/publications.