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CCCA_V2No4_Dept-Performance-FIN.qxd:CCCA_V1No2_Dept-MgLaw-V1.qxd 11/24/08 2:35 PM Page 11 Performance In The Law Department Look in the mirror Who is responsible for the cost of legal services? he general counsel of a company The same question, asked in a survey Twith 125 lawyers in four countries of corporate counsel in Australia and was more than annoyed about the cost New Zealand,revealed that cost manage- of external counsel in the 25 countries ment by law firms was also the num- where he retains them. Like all CLOs, ber-one way (62.0%) to improve he homed in on the rates of junior asso- working relationships. ciates. But he went further to consider Perhaps law firms are respon- the hourly rates of senior partners in sible for escalating costs by five second-tier firms in several markets, to ten percent annually, on a claiming “they simply are not worth it.” weighted rate basis. But Surveys of general counsel in three whose fault is that, in a countries tell us that the corporate free market? The busi- demand for legal services will continue to ness priorities and expand, and that most (but not all) of the business model of a demand will be absorbed by law depart- law firm are not the same as those of its financial and professional arrangements ments, which will continue to grow in primary corporate and institutional clients. with firms, and replace informal relation- size.About a third of the growth is expect- Very few law firms with more than 50 ship-based arrangements with their pro- ed to go to law firms. Litigation and spe- lawyers derive in excess of 10% of their fessional colleagues in those firms. cialty work like competition, regulatory, revenues from a single client year after Nonetheless, the likeliest outcome is that labour/employment and IP are almost year. And that is not because companies the primary firms will remain. always referred to external counsel. are spreading their work around: the If anything, primary firms are more Law departments are under increased Canadian survey found that 55% of com- assured of continuity under new arrange- pressure to reduce their operating costs, panies use only one or two firms for 80% ments. The cost of services does not fac- even when the company is doing well of their work, while another 36.5% use tor in the selection of law firms and financially.The current state of the econ- only three to five firms.More than 90% of the assignment of work between firms. omy makes such companies hard to find. companies rely on just a handful of firms. This only tends to be addressed after the The response is to focus on the easiest tar- On the non-economic side, only 16% work has begun or after it is completed. get — the cost of external counsel— and of Australian and 14.5% of Canadian sur- That makes it difficult to successfully the first reflex is to focus on hourly rates. vey respondents say their top firm is clear- challenge the hourly-based model of Wal-Mart Associate General Counsel ly better than its nearest competitor.Rates pricing legal services (now 45 years old) Miguel Rivera froze all hourly rates for are not a factor in the selection of the and annual rate increases in the face of 2008 by issuing a decree to all his law firm,60% of companies do not have writ- increased demand. firms in late 2007. ten terms of engagement with their pri- It is time for law department leaders to In September 2008,Catalyst Consulting mary firms, and no more than 60% of conduct a reality check on their efforts to co-sponsored a survey of Canadian law companies plan to review their working mitigate the cost of legal services. departments, which revealed that the arrangements with their law firms in the Consider the following: number-one way (43.5% of responses) a next two years.This is hardly a movement law firm can improve its working relation- towards across-the-board cost reduction • only 32% of law departments have run a ship with the company is “to be more by companies, and it conveys a mixed formal procurement process to select ISTOCKPHOTO concerned with costs.” Five other ways, all message to law firms. their law firms. Fewer than half of these Some law departments might initiate will run a similar process to renew non-financial, combined to make up the agreements within five years; other responses. formal processes to better structure their HIVER 2008 CCCA Canadian Corporate Counsel Association 11