The legal community has some of “the worst papered relationships in the known universe,” according D. Casey Flaherty, a former litigator and in-house counsel with Kia Motors America.
The disconnect, he says, is in documentation. The inside/outside counsel relationship is often awash in conflicting, outdated forms – the inside counsel billing guidelines, the outside counsel engagement letter – that either side rarely reads.
“No legal department or outside counsel would ever permit” their client’s business contracts “to be so loose or indeterminate.” But while Mr. Flaherty thinks this should change, he does not see it as evidence of hypocrisy or laziness. Rather, he believes that the incomplete documentation stems from inside and outside counsel not viewing themselves as, first and foremost, being in a business relationship.
Mr. Flaherty has since founded Cost Control, LLC, a consultancy focused on legal department process re-engineering, resource allocation and technology needs assessment. He is scheduled as the key note speaker for the 2015 CounselLink Annual Customer Conference themed “Showcasing the Value of the Legal Department.”
Legal Advice as a Credence Good
On one hand, the legal industry faces a legacy as a “credence good,” which have “qualities that cannot be observed by the consumer after purchase, making it difficult to assess its utility,” according to Investopedia. Mr. Flaherty says this characteristic “inverts the price/demand relationship” and is accented by “sustained industry-wide profits.”
It’s analogous to medicine, he says, another “credence good” where the buyer simply does not have the knowledge to distinguish good work from bad. Other than how they feel, a patient usually has to take a doctor at his or her word as to whether or not an intervention was worthwhile. Without objective indicators of quality, judgments tend to be based on the credibility of the source, for example, how much consumer trusts them. Relationships matter, often too much.
“One of the most disturbing things is that incumbency seems unassailable until it isn’t,” said Mr. Flaherty in a phone interview for this blog. “Too often, an incumbent firm is impossible to dislodge until a certain inside counsel exits stage left.”
“At that point, incumbency is of no benefit; that is, until the new inside counsel determines who the untouchable incumbent will be. There should be genuine advantages to incumbency. Exemption from scrutiny should not be among them. But institutional memory, intimate knowledge of the client, and a proven track record should be considerable assets, especially when someone new is being brought in to manage the relationship. Too often, however, the politics of personal relationships are paramount while other indices of quality are ignored.”
On the other hand, times have changed as corporate counsel has rediscovered its buying power. Law firms are ever more reliant on relationships and advantages to incumbency.
However, there’s ample evidence to suggest those factors alone are thinning as the sole bases of preferred legal provider. Industry studies, including macro legal spend analysis, demonstrate corporate legal is more than willing to explore sending legal work to law firms outside of the incumbents.
If not personal relationships, then what?
Metrics as a Foundation of Counsel Relationships
Mr. Flaherty believes legal department operations – driven by data – is not just the path to improving efficiency, but a means to strengthen the bonds between inside and outside counsel.
He notes while the sentiment around legal operations and efficiency is often portrayed as “inside counsel bashing outside counsel” it misses how “important it is to have good strong relationships with outside counsel.”
Market dynamics may well dictate the “power and responsibility” lies with inside counsel but he offers a long list of reasons why both law firms and legal departments should embrace process, metrics and automation:
1. What gets measured – gets managed. Borrowing from Peter Drucker, Flaherty notes that technology is providing new means to measure, manage, and collaborate. While there is increased accountability, there is an attendant increase in the opportunities to demonstrate value and strengthen the relationship.
2. Real-time billing conversations. Many legal professionals on both sides of the table operate from monthly invoices delivered long after the work is done. Process and automation now permit invoice conversations to occur in the present, rather than trying to reconstruct events from months past. Backward-looking conversations tend to only arise when inside counsel is displeased. These distractions corrode the inside/outside relationship and they are also almost entirely unnecessary.
3. Revelation in aggregate. “Very few lawyers ever look at their spending in aggregate form,” he notes, another derivative of the traditional month-to-month, matter-by-matter process. Looking at matters as a whole, or in terms of entire categories, often leads to revelation only uncovered at a higher-level perspective. “Often, one side or the other senses something is wrong but they can’t empirically establish the basis of their unease,” says Mr. Flaherty. “Surveying the entire landscape presents an opportunity for both law firms and the corporate legal department to dispel any discomfort or, if something is wrong, fix it.”
4. Metrics are portable. Regardless of who is sitting in the office of general counsel, metrics serve as a transparent basis of evaluation for corporate counsel – and point of differentiation for outside counsel. People naturally turn to those with whom they are familiar, for example those who graduated law school together. But metrics can illustrate value that goes beyond personal relationships. “It’s not the quality of the legal service,” he says, noting that corporate counsel usually hire good outside lawyers. When the quality of the lawyers is a given, the differentiation is in the “delivery” of legal services. Metrics are useful for measuring delivery.
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We’ll have more from our interview with Mr. Flaherty in the coming weeks leading up to the CounselLink conference. The CounselLink conference is a complimentary event for existing clients and discounted hotel room rates are available using the codes listed on the conference website. Mr. Flaherty can be found on Twitter @DCaseyFlaherty.
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