A quote in a recent article in the European Lawyer pointed out a perceived shift in discourse recently from “value” to “cost.” General counsel used to speak about value; now, more bare knuckled, they demand lower costs. Whether or not that shift is underway, I thought of Oscar Wilde’s quip: “A cynic is a man who knows the price of everything but the value of nothing.” What else does the claimed re-orientation imply in terms of differences between value and cost?

1. Cost is objective; value is subjective.
2. Cost means hour-based bills; value favors alternative fees.
3. Cost favors law firms and cost-plus margins; value favors law departments and effectiveness for fees paid.
4. Cost favors offshore, negotiation, competitive bids; value favors data analytics.
5. Cost can be benchmarked; value is incommensurable.
6. Cost is CFO, procurement and audit; value is lawyer and professional judgment.
7. Cost is clear completion or deliverable; value is mitigating risks.
8. Cost is reality; value, to co-opt a quip, is the triumph of hope over experience.

Four stages to describe the contributions of internal and external counsel make up the heart of a recent report: the legal value chain. The Executive Summary for “Leading the Way to Value in Legal Services,” a 35-page thought piece from Global Leaders in Law (See my post of Dec. 2, 2008: formation of Global Leaders in Law.), frames its analysis around four sources of value.

One is “service value,” with its focus on optimal service delivery. Next is “expertise value,” which brings to bear “risk management specialist knowledge and expertise.” Third on the value chain is “commercial value,” emanating from “understanding and enabling the business,” followed by “leadership value,” which means “driving commercial value and acting as a thought leader for the business.”

The five-page Summary amplifies each of these links in the legal value chain and emphasizes various measurements and other attributes of them. You can get a copy and study it from the link above.

“Value from external advisers can be dependent on the quality of instruction from General Counsel.” I agree with this quote from the Executive Summary for “Leading the Way to Value in Legal Services,” a recent report issued by Global Leaders in Law (See my post of Dec. 2, 2008: formation of Global Leaders in Law.).

If in-side counsel were strict in their instructions, if they carefully defined what they want done by the firm and in what manner and with what deliverable, the firm that conforms to the instructions should be deemed to have delivered value. It did what the client told it to do.

If the value falls short of the client’s expectations, it either means the firm didn’t follow clear instructions or the client held from inflated or unrealistic expectations.

Previously I collected my posts on direct reports, decentralized reporting, and reporting lines other than decentralized (See my post of May 29, 2009: direct reports to the general counsel with 12 references; Aug. 5, 2008: decentralized reporting with 7 references; and Jan. 12, 2009: reporting other than decentralized by lawyers, with 13 references.). The topic of reporting is not exhausted.

Two other reporting topics remain to be aggregated: dotted line reporting and matrix reporting. As to dotted line, a few posts refer to two specific departments (See my post of May 7, 2006: GE; and Sept. 19, 2009: Bombardier.). Other posts delve more broadly (See my post of March 1, 2006: functional and dotted line reporting; Sept. 10, 2005: paralegals; Nov. 19, 2007: global legal departments; and March 5, 2008: org charts can show dotted lines.).

A related term for multiple reporting lines, which are sometimes expressed as dotted line and solid line reporting, is matrix reporting (See my post of Aug. 27, 2005: “double solid line matrix”; Feb. 15, 2006: the bane of combining reports; June 24, 2007: Cadbury Schweppes; and May 21, 2006: business lawyers and legal specialists; and May 2, 2008: Siemens’ reporting lines.).

My most recent article, published in the National Law Journal last month, summarizes why incumbent firms have such a strong hold on the legal departments they represent. That is common sense.

More originally, the article offers ten ways to combat the bias toward the familiar firms and level the playing field for new entrants (See my post of April 16, 2009: incumbent firms with 11 references.). Click here to download a copy of the article. Download 09-06-xx Incumbents and 10 ways to balance the field

I learned about another network of law firms, MSI Global Alliance, so I wrote to Giles Brake and asked him for an example of a legal department that uses a member firm.

Brake obliged: “Our Buenos Aires law firm member Garcia Menendez Abogados are the lawyers for an Argentine multinational which is the worldwide leading manufacturer of gas compressors (Aspro GNC). The firm handles all of the company's agency, distributorship and transfer of technology matters around the world. The CLO has used MSI members in various locations around the world.” (See my post of Feb. 21, 2008 #2: law-firm networks with 7 references.).

“About 280 firms are invited to complete the Vault/MCCA Diversity Survey, and results go into a database that is accessible at no cost to corporate counsel.” This resource of information about law firm diversity, described in Inside Counsel, June 2009 at 48, saves law departments from the effort of collecting their own data and saves law firms from providing basic diversity data to law departments.

The diversity database is an excellent example of a collective activity to help law departments (See my post of June 17, 2008: diversity with 29 references.).

If I were the head of strategic sourcing for a company, and I wanted to try to endear myself to the legal department, here are some tactics I would consider (See my post of March 1, 2008: procurement with 17 references.). These offers to help do not go to the core of expense reduction, but they may ingratiate you, will certainly educate you, and might advance your cause.

1. Offer to analyze some of their data about what the department has spent on outside counsel during the past 2-3 years.

2. Check the match between the department’s guidelines for outside counsel and how bill review is actually done in the department.

3. Suggest that you might be able to give some insights into their budgeting process between core spend and spike spend that is unusual and impossible to predict.

4. Shadow the department’s next competitive bid, and suggest some ways to improve the process for the next one.

5. Interview law firms that were most recently retained for significant projects and ask their lead partners how the legal department could improve the retention process.

6. Conduct a comparative study of effective billing rates and allocation of work among different levels of lawyers and paralegals.

7. Create profiles of the law firms used most by the law department.

A survey in 2008 of in-house counsel in Central and Eastern Europe, conducted by the Forbes Institute with Martindale-Hubble International, asked respondents to rank 13 reasons for “removing a law firm from a preferred provider list.” That is not the same, perhaps, as firing a law firm absolutely, but in European legal departments – partial to panels – it is pretty close (See my post of Feb. 19, 2007: fire law firms with 8 references and my article.).

The litany of reasons offers nothing new, but three of them diverge from what one might expect. “Not maintaining confidentiality with your information” was the second most common reason chosen. “Not being treated as an important/priority client” came in 9th and “Key lawyers working with you leave their firm” was 11th. In the US, at least, client confidentiality is a given. The last two points are also unusual to hear stated.

A 2008 survey of in-house counsel in Central and Eastern Europe, conducted by the Forbes Institute with Martindale-Hubble International, has some data about the relatively low importance of interpersonal chemistry. “Personal relationship with lawyers/chemistry” ranked 10th out of 12 in terms of criteria for choosing external counsel. It ranked 7th out of 11 in terms of being retained after the first matter.

In short, whether or not you like the outside lawyer you hire (“good chemistry”) has much less influence than the skill set they bring. An outside lawyer whom you dislike is another matter, but given a neutral or positive attitude about a lawyer, the relationship is essentially that of a service provider. True, unlike a plumber who fixes your sink and whom you need never meet, counsel spend late nights and pressured moments with you. Still, chemistry is often over-rated.