In a pair of posts this week on 3 Geeks and a Law Blog, Toby Brown and Susan Hackett discuss the role of law departments and outside counsel in solving legal problems before they happen. Brown kicked off the subject on Monday by discussing how companies approach compliance and preventative legal work:
First – my sister works in compliance for a bank. She is not part of the legal department. Compliance is easily re-named as preventative law. So why isn’t it part of legal?
Second – at a former firm I helped develop a Litigation Readiness Audit service. The service was designed to help clients be better prepared for e-discovery, so they would not be hit with large costs when litigation occurred. Very few clients were interested in this. Their response “I don’t have a budget for that.”
Brown goes on to argue that law departments, like lawyers in general, tend to be backwards looking (a phenomenon he calls the Paradigm of Precedence). This tendency makes proactive problem-solving a challenge, even when the goal is to reduce the necessity and cost of future legal problems. According to Brown, the challenge for lawyers who want to provide greater value to their clients is in convincing those clients to spend money on a problem that has not yet occurred.
Susan Hackett, former general counsel of the Association of Corporate Counsel, disagrees. She argues that law departments are far more involved in compliance issues than outside counsel may think based on their client relationship:
While they spent the majority of their budgets on outside counsel who are retained to work on that which requires remedial attention, in-house lawyers spend the majority of their time on preventive law: counseling, advocacy, internal compliance and training, strategic business advice, internal meetings, and so on. It’s no wonder that law firms don’t see much of this – that’s not what they’re hired to do.
This perspective shifts the debate somewhat. As Hackett goes on to discuss, the question becomes not one of convincing law departments to engage in forward-looking problem solving, but instead whether outside counsel should be involved in the preventative and compliance activity of their clients. Law firms on the hunt for ways to compete in a low-growth economic environment would no doubt say that yes, their involvement is essential. And Hackett agrees, provided the approach makes sense. She recounts how the general counsel of Stanford University brought in outside counsel to do preventative legal work based on their experience remediating the University’s past legal challenges. Hackett describes the result as a win-win:
Lo and behold, the client got the benefit of more problems prevented than remedied, the firms were paid more than they were making before to handle problems and were focusing on how to keep the milk in the glass (which many of their lawyers found strangely satisfying!), and total legal spend went down drastically. Mike [Roster, GC of Stanford,] paid litigators to turn their brilliant minds to helping the company avoid litigation; he eliminated the need to pay a larger staff of in-house counsel to perform this function by setting up the firm’s retention to offer preventive compliance services on an incentive fee.
Brown and Hackett wind up on the same side of the issue with albeit nuanced perspectives. Both agree that outside counsel can offer real value in the form of preventative legal advice. The problem that remains, however, is how to enable a forward-looking relationship between a law firm and a client. Brown provides an example that did not work – he approached firms with a forward-looking solution and was rebuffed for financial reasons. Hackett counters with a successful example in the form of Stanford University, but the initiative in that situation came entirely from the client. The challenge, as Brown rightly points out in his original post, is in how law firms might initiate such a relationship.
Posted by Emily Fisher