Read part one of this post here

When I moved from a large law firm to the law department of a large company, I was in unfamiliar territory. I was charged with managing outside counsel who were domain experts outside my personal niche. They were my subordinates in the narrow hierarchy of the corporation’s legal value chain but my superiors with respect to legal acumen in the areas in which they were retained. There was little I could do to improve them, or on them, as subject-matter experts. Then again, while legal insight is the primary source of value, it is far from the main driver of cost in managing outside counsel.Judgment scaled against knowledge

I have appropriated from my friend Jeff Carr, former general counsel of FMC Technologies and current president of ValoremNext, the useful mental construct that what lawyers do can be segregated into four buckets: content, production, counsel and advocacy.

Take, for example, responding to written discovery. The finite bases for objections are pure content. Putting those objections together with factual responses is production. Knowing which objections to employ and how to frame the factual responses is a form of counsel. Explaining to the other side and, if necessary, the court the logic of the objections and meaning of the responses is advocacy. The real value is in the counsel and advocacy. The content and production are necessary appurtenances to the provision of value. Yet, content and production generate the highest demand for labor and, as a result, are central to concerns about cost and waste. When in-house counsel complain about the excess costs resulting from inefficiency and lack of innovation, they are focused on content and production.

When I was at the law firm, I witnessed first-hand the plight of brilliant people embedded in large organizations beset by inefficiency and lack of innovation. I also observed that discounted rates and arbitrary invoice reductions did nothing to alter the structure of the legal services or the processes used to deliver them. So when I moved in-house, I decided to do something that struck many as absolutely radical. I sat down with my outside counsel and discussed with them the way in which legal services were being delivered.

Of course, I did a bit more than that. Before having the conversation about legal service delivery, I mapped legal service delivery. I sat down with the frontline workers – associates, paralegals and other allied professional support – to understand their reality. I didn’t just ask them to tell me how they worked, I asked them to show me. I gave them mock versions of real assignments that my outside counsel performed. And I asked them to show me the steps they would take to get these assignments done. The steps included delegation, which prompted a discussion with the delegate. I thereby made a crude map of who was doing what work, what tools they were using and how proficient they were with those tools. The results were just as messy as you would expect for scaled organizations where the answer to every challenge (efficiency, quality assurance, technology utilization) is to hire the smartest people and let them do their thing.

At first, my firms thought they were indulging just another client idiosyncrasy. Initially, they figured it was simply, what I call, a purple-tie exercise. If I made it known to my outside counsel that I had a strong preference for purple ties, most of them would wear purple ties whenever we met. When I wasn’t around, they might ridicule me. But they would wear purple ties nonetheless. While it was certainly silly, it cost nothing and made a client happy.

They soon discovered I was serious. Then came the realization that empirical evidence dramatically changed the nature of the dialogue. We were no longer engaged in idle speculation about the theoretical delivery of efficient, technologically-enabled legal services. We were having a targeted, concrete conversation about ways to measurably improve on how legal services were actually being delivered.

My findings were startling to the relationship partners. Most had limited visibility even one level below themselves, let alone all the way down the chain. It reminded me of a famous survey where IBM asked 100 CIO’s from blue-chip companies whether they used open source software in their companies. Ninety-five percent said no. The same question was then asked to their system administrators. Ninety-five percent answered yes. The relationship partners were not the process owners. That’s fine except that no one else was either.

Further, the partners expressed genuine respect for their support system. Everyone was bright and worked hard. On this, the partners were not wrong. But being smart and working smart are not the same thing. Indeed, the willingness to work extremely hard and the attendant overload are among the biggest barriers to stepping back and trying to fix a broken process. Myopia results from putting one’s nose to the grindstone. These were smart, hard-working people stuck in poor processes. They lacked proper technology or (more often) lacked proper training in the technology they did have.

The empirical evidence quickly overcame their disbelief and denial. And, because I was the client, they skipped the anger phase (outwardly, at least). We moved directly to bargaining. Their default response was to try to alleviate my concerns about process shortcomings by offering an even deeper discount. But I didn’t want a deeper discount. I also didn’t want to take my business elsewhere (my outside counsel were stellar counselors and advocates). What I wanted was for them to improve where they were lacking. Not everywhere, all at once. But I wanted them to selectively address priority weak spots over time in a way that could be tracked, measured and verified. After all, we had been partners for years and that relationship was going to continue. They did not need to fix everything overnight. But they did need to commit to continuous improvement.

The most important part: it worked. Like the true professionals they were, my outside counsel got demonstrably better in a number of different areas. My costs went down organically. At the same time, their realizations went up. What seemed like a gotcha moment was the initiation of an ongoing structured dialogue that led to rigorous collaboration, mutual benefit and a deeper, healthier relationship.

In my next post, I will dig deeper into the mechanics of my Service Delivery Review previewed above. But I will warn you now that the SDR and any similar approach requires real work. Uncomfortable conversations and a genuine commitment to change are prerequisites to realigning the interaction between law departments and law firms. Continuing to talk about discounts is far simpler and will remain the path of least resistance. The discount discussion is familiar, provides instant gratification and can be easily explained to superiors and outsiders. Except it isn’t a discussion, it is, too often, kabuki theater masquerading as negotiation with narrow parameters and even more limited effects. The problem with the easy way is that eventually it makes everything so damn hard.

This post was written by Casey Flaherty, founder of Procertas and former outside and inside counsel who first rose to prominence when he created the Service Delivery Review (“SDR”) to change the way he communicated with his outside counsel. Instead of generic complaints about inefficiency and arbitrary reductions in invoices, Flaherty sought to use metrics and benchmarking to foster structured dialogue, drive continuous improvement, and deepen the integration between his law department and his outside counsel. Follow Flaherty on Twitter at @DCaseyF.

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