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ISSUE IV 2019

Why We Need to Restore Trust in the Relationship Between Firms and Their Clients

In the last decade or so, the growing prevalence of outside counsel guidelines has caused the relationship between law firms and clients to become increasingly strained, to the point of becoming almost adversarial in some instances. This isn’t good for either side. In this article, Nick Jenner suggests a route back to more trust.

 

In the wake of the Deepwater Horizon explosion, one of BP’s law firms submitted an invoice for one million USD with one line item. The description was simply: “Legal Fees $1,000,000”. BP, which was overwhelmed by legal invoices, promptly paid it without question.

This illustrates a number of things: the scale of the disaster and how punch drunk everyone had become in the course of fighting successive claims and lawsuits and paying $65 billion of legal fees and clean-up costs.* But, also that, back in the day, clients really trusted their lawyers. So much so that they would sign off on a million-dollar invoice without even requiring the broadest outline of what it was for.

How times have changed. Today’s lawyers are living in the era of Outside Counsel Guidelines (OCGs), Legal Spend Management, and Legal Bill Review, meaning the line-by-line scrutiny of their legal invoices. These instruments have tipped the balance away from trust to such a degree that the dynamic between firms and their clients bears less and less resemblance to that of trusted advisors counseling loyal clients. Indeed, the relationship is teetering on the brink of being almost adversarial at times.

This is not a situation which serves either side well. The erosion of trust is bad for both parties. For legal firms it can feel as though clients are sometimes only too happy to catch them out in an inadvertent transgression, meaning hard work on their client’s behalf goes unpaid because of an unintentional infringement of some obscure rule. When fees are rejected on what feels like unfair grounds, it adds to the frustration of firms which have become increasingly, and wearily, resigned to constant write downs. And it doesn’t motivate lawyers to bring their A game to the next engagement.

For their part, in-house legal teams can feel equally bruised if they identify a firm which isn’t playing by the rules: e.g. padding bills to the limit of thresholds in every instance; or posting activity under different codes to get around complying with certain billing restrictions. It can feel like the law firm’s primary goal is to recover as much money as possible without regard to the spirit of their guidelines. And as trust in the fundamental intentions of firms recedes, so too does a client’s willingness to take their law firms fully into their confidence. Clearly this risks serious consequences for all concerned. So how can we restore these critical relationships—not necessarily back to the days of the $1m invoice—but at least back to a time when fellow professionals worked together in an affiliative and collaborative way?

How We Got Here

A big problem is that OCGs tend to drive a wedge between clients and firms. Of course, that is not what they were designed to do. Their original mission was to facilitate information capture and cost control. They developed because in the wake of the 2008 financial crash, legal spend, along with all other kinds of spend, suddenly came under much more internal scrutiny. So. whereas in the past general counsel (GC) legal teams had been given an annual budget and very much thereafter left to their own devices, in the new era, they were firstly asked to do more with less, and secondly to justify to the board every penny of budget they had left.

Under this new pressure to defend their headcount and their team’s existence, GCs needed to become more business savvy. They needed ammunition with which to demonstrate to the business that they were not a cost, but a profit center. They needed to prove that their work was saving the business money and that work outsourced to external counsel was providing the company with good value for money.

To help, technologies like Legal Spend Management and other reporting tools emerged. These allowed in-house teams to pull out the various objects of spend and run comparative reports against each one to highlight trends. This is when OCGs and e-billing became useful. Both provide a standardized framework for the production of the data used to analyze legal spend and to control it. At first, they were only used by bigger legal teams. But as they became more established, smaller teams have begun to adopt them too. Simultaneously, for law firms, the crash and what followed has turned a sellers’ market into a buyers’ one.

The Problem with OCGs

OCGs are drafted by in-house legal teams and are essentially a set of rules covering three areas: invoicing, including enforcement of fee earner rates, billing rules management, and how invoices are presented; matter management, including things like who at what level of seniority works on what, and who are the key personnel on both sides dealing with the matter; and company policy which will cover a multitude of things like dos and don’ts of. talking to the media, compliance issues, document governance, and diversity requirements.

The problem is that OCGs have grown organically, and in-house have fallen into a habit of continually adding new clauses every time they spot undesirable behavior that they want to stop. The result is that in some cases, OCGs have become extraordinarily unwieldy documents running to 30 or even 60 pages. It’s not surprising that firms struggle to ensure that all their lawyers are aware of all their different clients’ OCGs, particularly as there is rarely any consistency in their layout and format.

But even more troubling, another consequence of ever-expanding OCGs is they start to be perceived as time-consuming, dictatorial, and petty. Lawyers can therefore start reacting against them. It makes them want to game the system—to go out of their way to exploit loopholes and manipulate ambiguities to their own advantage. When clients see this, they then introduce another clause to plug the gap. It can easily become a downward spiraling war of attrition with no winners; and trust is the first casualty.

It’s Good to Talk

How do we reinstate trust in this new era? First, by re-establishing personal relationships. Firms should talk to their clients about OCGs upfront—before a contentious issue arises. After all, one of the purposes of OCGs is to provide the relationship with upfront transparency. Firms should discuss any grey areas, ask questions, and anticipate stumbling blocks. For instance, an OCG may say there can be no billing for research, whereas the firm may feel that in a highly specialized area of law it’s legitimate for them to bill for research to achieve the best results for their client. So, speak to the client about this in advance. General counsels are open to these conversations and have discretion. Firms can also discuss alternative fee arrangements with them. Of course, some elements of the OCGs will be non-negotiable, especially on policy. But on the invoicing side, there is often room for maneuver. Firms should open those dialogues.

The second way in which firms can reboot trust is by demonstrating to clients that you understand their pain and want to cooperate, adapt, and help them out. Show them that you’re their ally and will more than meet them halfway because you have nothing to be evasive about.

To that end, firms can show that they’re happy to have bills be scrutinized by adopting e-billing. This means submitting LEDES files with line-by-line itemization of spend: by lawyer, day, specific activity, etc. which will feed directly into the client’s Spend Management System.

Likewise, with the right systems, firms can cooperate fully by embedding OCG compliance into their internal systems and processes. Tikit’s Carpe Diem, for example, can validate compliance with billing rules at the point of time entry. This results in a very high standard of billing hygiene. This stands the firm in good stead come panel review time when not just the quality of law work is assessed, but also other metrics such as the proportion of invoices that were written down, failed on submission, or rejected due to non-compliance. Scoring well in these assessments projects the sense of a firm which is in control and happy to comply with nothing to hide.

There are other bonuses too. When firms adopt leading-edge technology, they come off as forward-looking and dynamic. When your business development teams talk to general counsel, it’s a point of differentiation. Such technology also levels the playing field for smaller firms. But above all, it underlines the firm’s willingness to be transparent with its clients. And that builds trust in the firm, which is what we really want to get back to.

Learn more: https://youtu.be/ZFeEfGAoJxQ

 

* https://uk.reuters.com/article/uk‐bp‐deepwaterhorizon/bp‐deepwater‐horizon‐costs‐balloon‐to‐65‐billion‐idUKKBN1F50O6

Tikit

Tikit is part of the BT Group and a leading provider of technology solutions for law and professional services firms. Intelligent Time is the latest augmentation to its flagship Carpe Diem timekeeping platform. Click here for more information.

 
 
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