Businesses' Poor Communications
|Clients blindsided by high legal bills may be part of the problem.
A new survey suggests that big companies aren't good at telling law firms what they want, leaving the firms wide discretion to handle cases as they see fit.
The survey found that outside counsel have wildly different impressions than in-house attorneys at Fortune 1000 companies about who runs the show in major legal matters. The survey was conducted by Corporate Legal Times and Arthur Andersen, the accounting unit of Andersen Worldwide.
Law firms often wrongly assume that they call the shots, and therefore spend more time and money on cases than the company's law department may have ever intended, says Cindy Munger, head of Arthur Andersen's legal business consulting group, which analyzed responses from 258 corporate legal departments and 59 law firms. For example, in-house counsel said they give outside firms total responsibility for big lawsuits only 10% of the time, but law firms believe clients give them complete control of litigation work 58% of the time.
"There is often miscommunication about who is expected to handle which pieces of a transaction or litigation, and who is accountable to ensure there's no overlap," Ms. Munger says. When law firms charge ahead without consulting the client, or when the client fails to ask, she adds, "there are lost efficiencies and redundancies and millions of dollars wasted."
Ms. Munger says she frequently has seen three different sets of lawyers - a national law firm, a local law firm and a company's in-house legal department-build independent databases to keep track of deposition testimony in a complicated lawsuit. The overlaps weren't discovered until the clients had paid thousands of dollars in legal fees to store, analyze and index the same transcripts in multiple locations.
Miscommunication can be even more costly, she says, when outside lawyers fail to sit down early on with business people to learn how the client wants to handle a potentially acrimonious fight with another company. A litigator's natural instinct is to say: "I have a great case. It's so strong that I can just squish 'em like a bug," says Ms. Munger. But, she adds, the lawyer doesn't "consider the lost-opportunity dollars of ruining that relationship."
Legal-fee auditor John Toothman, who heads The Devil's Advocate in Alexandria, Va., says he once reviewed bills in a case where lawyers on both sides of a trade-secret dispute each ran up about $500,000 in fees in just two months. The suit was then dropped because one of the companies wanted to acquire the other. Only then did the acquiring company realize its lawyers had nearly sabotaged the deal.
"The lawyers didn't pay much -attention to cost-effectiveness. They also just weren't being sensitive to where this fit in with the client's business," Mr. Toothman says.
DuPont Cuts Back
John F. Dickey, manager of what DuPont Co. calls its law firm partnering program, says he was surprised by the depth of miscommunication uncovered by the survey. A number of general counsel, including DuPont's, have been moving to monitor their outside lawyers' work more closely. In recent years, DuPont cut the number of law firms it uses to 34 from more than 350, and the legal department now lays down guidelines to prevent misunderstandings.
DuPont insists that outside lawyers sit down with an in-house attorney and a business person within the first two to three months after a lawsuit begins. This is "to make sure the legal activity is focused so you are not turning over every rock and developing every argument when you don't need to," Mr. Dickey says. The company also requires that firms try to use a database of legal forms and research from past cases before drafting briefs from scratch.
"I don't think of it in terms of who's controlling whom. We're trying to develop a collaborative relationship," Mr. Dickey says.
In the survey, however, law firms didn't seem to be aware of how poorly legal departments rate their teamwork. For example, law firms gave themselves a B+ for understanding the importance of the balance between cost and quality. But in-house counsel gave firms a much lower grade of C+/B-. When it comes to avoiding costly research, redundancies and generally being efficient, law firms gave themselves a B. But in-house counsel gave law firms a lackluster C+.
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