Corporate Counsel University®

201 - Outside Counsel Management Presented in cooperation with Thomson Reuters

May 18, 2015 Dallas, TX

Bernadette BulacanDirector,

Corporate Counsel SegmentThomson Reuters

Patricia GageSenior Principal & Principal

Deputy General CounselPromontory Financial Group,

LLC

Robert LavetChief Legal OfficerSocial Finance, Inc.

Session 201: Managing Outside Counsel

May 18, 2015

Patricia Gage, Senior Principal & Principal Deputy Counsel, Promontory Financial Group LLC

Robert Lavet, Chief Legal Officer, Social Finance, Inc.Bernadette Bulacan, Director, Thomson Reuters

• Emerging Trends in Managing Outside Counsel• Make vs. Buy: Retaining Outside Counsel

o Retention guidelines o International

• Legal Project Managemento Budgetingo Value Based Feeso Evaluation and Outside Counsel Scorecards

• Case study: The Preferred Panel• Q&A

Overview

Emerging Trends in managing outside counsel

During the 2008 Recession, there was a dramatic divergence between the number of departments decreasing their use of outside counsel and those increasing usage.

• No more carte blanche

• Multiple surveys report reducing outside counsel costs top concern

• Advent of ACC Value Challenge. “Meet. Talk. Act.”

• Competition for limited work drives introduction of legal project management techniquesFrom 2015 Altman Weil CLO Survey

An Oxford University study groups legal departments by their “make vs. buy” decisions.

MAKE Vs. BUY: RETAINING OUTSIDE COUNSEL

Set consistent rules of engagement. Use of billing guidelines sets tone for relationships between in-house & outside counsel.

Require discounts from standard rates 74.7%

Project budgets required 64.6%

No change of assigned attorneys without client consent

63.5%

Travel expense rules 60.1%

Early case assessments 59.6%

Client ownership of work product 46.6%

Policies encouraging alternative dispute resolution 29.8%

Technology requirements 24.7%

Policies regarding diversity of service providers 18.5%

Use of e-billing can streamline the bill review process and build a treasure trove of data concerning your outside counsel and legal work.

11

Systematically enforce billing guidelines to reduce spend and change outside counsel behavior.

• Referrals from outside counsel—US and international• Referrals from Company Management• Referrals from ACC International Law Group or other

companies• Seminars, conferences and other events• RFP Process

Retaining International Outside Counsel

Pros:•Relationship Manager—US or foreign jurisdiction•Leverage

– Priority– Fees

•Better understanding of your business•Multi-jurisdictional expertiseCons:•Quality may be inconsistent•May not be in all jurisdictionsSelecting lead counsel to select and manage local counsel may be an alternative to multi-jurisdictional expertise

International: Does a global law firm make sense?

• Meet in person, if possible, or by video conference• Take the time to educate counsel about your business and its

culture• Secondments• Set expectations

– Cultural differences– Touch base regularly– Billing

• Request time records• May be open to discounts and alternative fee

arrangements• Set protocols for interface with local management• Use shared portals to exchange information

International: Establishing the Relationship

• Conflicts of interest – Approach may be more liberal, for example in the EU– “Go-to” firms may be conflicted

• Attorney mobility • Limitations on Liability• Time Zones

– Flexibility– Impacts response time

• Language– Require that legal advice be provided in English.– Do I just have a bad translation?– Use in-house or local translation services, if more cost effective. – All documents may not need to be translated.

• Don’t be afraid to move your business

International: Challenges To the Relationship

LEGAL PROJECT MANAGEMENTA FRAMEWORK

The “Old Normal”…

Must I be a Six-Sigma Black Belt to be part of the “New Normal”?

High-level project management techniques can be used to better manage outside counsel.

SCOPE: Project Charters, EARLY CASE ASSESSMENTS & STAFFING

Early Case Assessments and Staffing• Spend resources at outset of case to scope potential liability

– Avoid protracted discovery and then having your counsel say you need to settle

– Recognize some cases may require a decision• If your company has repetitive type litigation and precedent

needed to deter future claims• Employment litigation which may lead to other employee claims• Suits involving competitors• But generally understand that when CEO says “win at all costs” he

doesn’t mean it

Early Case Assessments and Staffing cont’d• Set rules on staffing at beginning of matters

– Too many cases involve creep in number of timekeepers– Chance to control staffing is usually at outset of matter and requires clear

communication to outside firm– Limit entry level associates– Partner efficiency may trump very high hourly rate

• Focus on nature of matter in selecting counsel– Bet the company case vs. routine repetitive litigation– For a case with $50,000 of exposure don’t spend $50,000 on legal fees– Develop a roster of regional firms for the repetitive type litigation

• Save costs by providing standard pleading forms and past precedent• Have a form of letter with precedent to respond to threatened litigation• Use big firms in significant class action matters not routine single plaintiff cases

Early Case Assessments and Staffing cont’d• Saving costs on Discovery

– Discovery, particularly document discovery, is major reason for explosive rise in cost of litigation

– Considering disassembling the case and hiring temporary help directly for document reviews

– Be wary of firms hiring temporary attorneys and billing at full freight– Understand and get control of your documents before lawsuits– Make sure someone on your in-house team is proficient in electronic discovery

What are the elements of a project charter?

What are the elements of a project charter? This problem is important to our business because ___________.

The best possible solution is __________.

The most likely solution is _________.

We expect this matter to be resolved by __________(time frame).

In similar matters, the results were __________.

How much would we benefit from a win _______

Key stakeholders in the company: __________

Primary phases, including tasks/deliverables: __________

Was the matter appropriately staffed based on experience and value?

SCOPE: Alternative/VALUE-BASED FEES

Alternative/ Value-Based Fees

• Fixed or Flat Fee• Fixed Fee with Collar• Contingency/Reverse Contingency Fee• Success/Incentive Fees• Holdbacks• Capped Fee• Straight Discounts/Volume Discounts/Blended Rates• Combinations or permutations of the foregoing

Fixed or Flat Fees• Fixed or flat fee—agreed upon fee for a deliverable, portfolio or period of time. • Benefits

– Budget and accrual predictability– Low administrative burden– Efficiency– Guaranteed revenue for law firm

• Risks– Little incentive to produce quality work– Risk of leaving money on the table– Law firms continue to support hourly billing.

• Best suited for– Large portfolio of work– Recurring work– IP, Immigration, Litigation– Debt financings, including payment of underwriter’s counsel.

• Communication and trust essential

Fixed Fee With Collar

• Agreement as to fixed fee with further agreement as to “collar” (frequently10%) around the fixed fee.

• Adjustment where actual hours are above or below the collar with refund or payment at a predetermined percentage (frequently 50%) of the of the overage or underage.

• Benefits– Mitigates fixed fee risks to client/firm for work significantly over or

under fixed fee– Maintains efficiency

• Cons– Need to maintain shadow billing– Complicated and time consuming

• Best suited for– Matters of first impression– Transitioning to fixed fee arrangements

Contingency / Reverse-contingency Fees

• Contingency--based on a percentage of settlement or recovery.

• Reverse Contingency—based on a percentage of the amount saved for the client.– Calculation requires agreement as to potential exposure

• Benefits– Shifts downside risk of litigation– Incentive for law firm to maximize recovery or minimize loss– Can favor settlement and alternative dispute resolution

• Cons– May be difficult to quantify exposure– Greater risks to law firms who may not be interested

Success/Incentive Fees

• Contingent payment made when goals (monetary or non-monetary) are achieved.– Client and firm must establish goals in advance– May be combined with reduced fees– May Involve forfeiture of percentage of fees for failures

• Benefits– Encourages early case assessment– Shifts some of the risk to the law firm– Result focused

• Cons– Success may not be attributable to the firm’s efforts

Holdbacks

• Standard fees are charged with a certain percentage held back. Holdback amount is paid to the firm based on an evaluation of performance.

• Benefits– Accountability– Promotes better working relationship where firm is

performing– Firm shares in the downside

• Cons– Must be prepared to pay full freight– Might led to tough conversations

Capped Fees

• A cap or maximum is set above which the client no longer pays fees.

• Benefits– Control legal fees inside the cap– May encourage efficiency if cap set low enough– Necessary where you pay counterparty’s legal fees such

as in debt financing or asset backed securities issuance.• Cons

– No incentive to bring in fees under cap– Law firm likely to want provision to cover complication

• Give me your best hour.

Discounts (Straight & Volume) and Blended Rates

• Straight Discounts—firms are generally willing to discount fees 10-15% just by asking.

• Volume Discounts—firms may offer a tiered approach for significant work– Discourages selecting the right firm for the matter

• Blended Rates—all lawyer time charged at the same rate.– Encourages use of lawyers whose rates are below

the blended rate– May not be the best lawyer for the work

Value Based Fees: Other Considerations

• Nature of the work• Importance of the to the company• Relationship with the law firm • As you get creative, keep ethical considerations in mind.

MONITOR: USE OF BUDGETS

Low Estimate High Estimate

Outside Counsel $750,000 $1,250,000

Discovery Costs 300,000 550,000

Experts 125,000 150,000

Filing Fees 25,000 30,000

Expenses 75,000 125,000

Other 25,000 50,000

Total $1,300,000 $2,155,000

“Experienced-based” budget

“Project Plan-based” budgetTransaction Process Tasks Start

DateEndDate

LDGC

LDAGC

LFHours Total

LFPartner

LFAssoc.

LFPara

…

1 Draft and finalize NDA 6/3 6/4 0 4 0 0 0 0

2 Draft and confirm Charter 6/3 6/10 2 8 2 2 0 0

3 Build Project Team & Project Plan

6/5 6/10 1 2 18 2 16 0

4 Create due diligence checklist 6/5 6/10 1 2 14 2 8 4

a. Draft transaction documents

… 0 2 18 2 12 4

5 Review due diligence materials

2 60 4 40 16

6 Due diligence report …

a. Finalize documents

b. Negotiate documents

c. …

Total Hours 96 240 3,300 680 1860 760

Rates $332 $450 $375 $125

Total Fees $1,098,500 $306,000 $697,500 $95,000

EVALUATE:Post-Project Reviews & OUTSIDE COUNSEL SCORECARDS

Conduct Post-Project Review

Capture Feedback about Outside Counsel

Drive Work to Highest Performers

CASE STUDY & DISCUSSION CREATING A PREFERRED PANEL

SUMMARY and Q&A