To stay afloat in tough economic times, many in-house legal departments are under pressure to “do more with less,” as one local legal expert puts it.
Seventy-five percent of corporate law departments across the country are seeing considerable cutbacks this year, according to a December 2008 study from Altman Weil, an international legal consultant.
The vast majority of legal departments identified counsel costs and the unpredictability of legal spending as top concerns, the survey states.
In response to that, 65 percent of legal departments answered that they would bring more work in-house. Other tactics include switching to lower-priced outside counsel; moving to non-traditional fee arrangements as opposed to standard hourly rates; or making staffing changes, among others, the survey goes on to say.
John Allison, a senior litigator for general counsel at 3M Company, says the St. Paul-headquartered company is no exception. “All companies in the current economic situation have to look harder at how money is spent and their productivity,” he says.
Even before the recession hit, 3M had identified document discovery as a key area to look at in terms of expenses, he says, adding that some years ago, “we took as much in-house as we could, using internal and contract resources.”
The company has emphasized opportunities to resolve disputes early. While trying to be efficient at trial, “If [an issue] can be diverted to resolution, we can avoid a lot of unnecessary cost,” especially in discovery, he says.
3M has opted for alternative fee arrangements with outside counsel, something that a growing number of firms are receptive to. Generally speaking, firms are recognizing that the traditional model for billing by the hour with periodic rate increases is no longer realistic, says Allison.
The company recently imposed a rate freeze on outside contractors. It has also offered outside firms a pay cut in exchange for the opportunity to be hired more frequently, he said, adding that 17 law firms went for it.
Allison stresses the need for firms to be creative. For example, some are capping fees in particular areas. Additionally, if an issue is resolved more quickly than anticipated, a firm may be rewarded with a bonus.
By managing the process on the inside, contracting with attorneys under rates that the company negotiates, “we cut down on costs and keep the quality,” he says, pointing out that 3M has reduced its discovery expenses by two-thirds.
Over the past several years, 3M’s legal department has been more frugal on the inside, as well: “We’ve made more use of our company’s expertise in sourcing, helping us negotiate with outside vendors, including things like copy services.”
Additionally, they’re choosier about where meetings are held and who needs to be there, while doing more phone or video-conferencing. The legal department is trying to be more environmentally conscious, as well, by reducing paper waste and using other green tactics for saving costs.
Dan Lee, vice president, general counsel and secretary, for Minneapolis-based Caribou Coffee, echoes some of those sentiments. Through creative billings, including caps and success fees, “[outside firms] become a business partner,” he says.
Lee emphasized being a tough negotiator when it comes to leases and insurance coverage. That means using carriers for what they’re paid for, not just property claims and employee liability, but covering defense dollars, he said.
The legal department is working with the purchasing department to help manage supplier risk, something that people didn’t think of five years ago as valuable to the company’s future, he says. Contracts are important. “We’re enforcing them in a way that we didn’t before,” he says.
Considering an uptick in employment claims, doing a “disparate impact” analysis with human resources departments can help ensure that the company’s actions are defensible. “You can add value by working to manage risk … If you minimize the number of claims, it improves the bottom line and cash flow.”
Lee says his responsibilities are closely aligned with Caribou’s business objectives. He tries to stay focused on what matters most to the company’s mission. For example, Caribou has a huge amount of intellectual property that in the past it would have taken steps to preserve. Now, more thought goes into whether a mark or phrase will be around for the long term before carrying that work out.
In terms of the workload, there’s a sense of urgency to do more with less. “It takes a lot of soul-searching, you know, thinking about, is this something that needs to be sent out or should it be done internally?”
Overall, “you realize that the success of the company has to do with your performance more than ever,” he says.
Michele Lange, director of legal technologies for Eden Prairie-headquartered Kroll Ontrack, a company that provides technology-driven services and software to legal, corporate and government entities, says that despite declining revenue, litigation doesn’t necessarily slow down. “There continue to be employment disputes, contract disputes, IP disputes and infringements,” she says.
To deal with discovery, companies need to have an electronically-stored information (ESI) action plan, which illustrates how information flows in and out of the company (required by the Federal Rules of Civil Procedure). That needs to be developed in coordination with the company’s IT department. An ESI plan helps indicate what data a company should have on hand and what can be eliminated.
After layoffs, companies have to gain control of the computers and data that are left behind. That could mean removing data, maintaining it or getting rid of the hardware, Lange says.
However, a recent Kroll survey showed that 50 percent of companies didn’t have a plan for dealing with data.
Companies that are faced with three or more court cases a year, she says, should reassess their technology and seek more value out of it. They have to come up with new solutions with the technology at hand, including a growing number of online resources to help “get to the heart of the matter quicker,” according to Lange.
Despite the pain of the economic downturn, she adds, “there are some real things that companies can do to save money.”