2014-03-05 Brave New World Hypothetical...Brave New World Group Fee Exercise #3 ! YOUR SITUATION The...

Driving Value in Inside/Outside Counsel Relationships

BNW p. 1

Brave New World Group Fee Exercise #3

YOUR SITUATION The Nifty Tech acquisition has been completed and all the attendant litigation has been resolved. Nifty Tech has been integrated and these results are consolidated Omnivore data. You are the Law Department of publicly traded Omnivore Corporation. The CFO told you that a variety of economic factors have resulted in a prediction of a severe drop in FY2014 revenues for all business units and lines. You have resisted the urge to liquidate your stock holdings based on this information. The CFO also told you that your FY2014 Legal Budget will be cut by 25% which means you cannot exceed $24.75M in total legal spend (internal and external). Based on the CFO’s forecasts, the Legal Budget will not be increased for at least the next three fiscal years so your changes to create savings must be sustainable. Nevertheless, you will be expected to handle and maintain the quality of legal support for the full breadth of Omnivore’s legal needs. Over the last two quarters, the Law Department’s estimates of quarterly legal expenses varied from actual expenses by about 7%. The CEO has “challenged” the Law Department to improve the predictability of legal spend in conjunction with the Law Department budgeting for FY 2014 which begins October 1, 2014. The Law Department budget worksheet is due July 1, 2014. The CFO is giving similar edicts to operating business units and shared services departments which pay for settlements and judgments for their matters, so it will not be acceptable to cut legal fees only to incur increased liability or settlement payments. Omnivore’s outside counsel are chosen by the inside counsel with responsibility for the file. Inside counsel tend to default to a few favored firms upon which they rely. Inside counsel do not typically seek engagement proposals from even others within the small group of favored firms. Omnivore’s counsel, inside and outside, seem to be engaged in similar and repetitive tasks across the spectrum of engagements, but the Law Department has not seen improvements in quality that would be expected based in this repetition. Omnivore Co. is expanding operations to Europe and the Pacific Rim, areas where the current Law Department staff lacks experience. The Omnivore Law Department handles all transactional, regulatory, tax, contract, and policy administration legal matters internally. It manages outside counsel to exclusively conduct litigation, employment and labor guidance and issues, patent and trademark prosecution work, major IT contract negotiation and documentation, and M&A counseling (including, on average, one transaction per year).


BNW p. 2

YOUR ASSIGNMENT Your group now has to prepare an action plan that you will present at the end of the exercise and to advise the CEO & CFO how you will meet the budget reduction of 25%, while increasing predictability and efficiency of spend. The purpose of this plan is to communicate specific action steps and affected budget items. Any solution you achieve must allow your outside legal vendors to operate with some profit margin. Therefore, you will not be able to implement an across-the-board 25% rate cut on your existing firms. To focus on the tools you have used in this workshop, you will not be permitted to use any fee arrangements based on hourly billing (e.g., blended rates). Certainly, hourly billing is still a viable alternative for some clients and some future matters – just not in this exercise. Be prepared to present your specific plan at the end of the exercise and to advise the CEO & CFO as to the project plan for pursuing the changes you will propose. For purposes of this exercise, the presentation will be oral, but feel free to use the flip charts if that will aid your presentation.


BNW p. 3

DISCUSSION In developing your action plan, you may wish to think about these questions, as well as ideas you have on reducing spend, increasing predictability and increasing efficiency. Do not get bogged down in one area; you need to present an outline of the whole plan. 1) What is the goal? What will success look like? What is value for us? 2) Do we have enough data? What sort of data do we need to collect to make decisions about structure? To maintain the program once we develop it? What would be involved in creating that knowledge base? Maintaining it? What impediments are there to creating the knowledge base? 3) Do we have the right law firms? Do we have too many law firms? Do our law firms understand how we define success for each engagement? Are our law firms aligned with the law department’s objectives? Do we have enough in-house lawyers? How would we change it? Should we create a(n) (in)formal preferred counsel program? What would it look like? What impediments are there to creating a preferred counsel program? Is there work we are doing, but shouldn’t be? Is there a way to meet client expectations for that work that does not distract in-house staff from more important work? 4) What value-based fee engagements might make sense here? What impediments are there to implementing a program of value-based fee engagements? What can we do to reduce cost, improve predictability and improve efficiency in those matters that remain hourly based fee engagements? Before we retain a firm are we getting the right sorts of data from them about how the engagement will proceed? Are we getting the rights sorts of data about how engagements are proceeding during the engagement? 5) Does our in-house staff have the right skill sets? The right substantive legal skills? The right expertise across the various jurisdictions where we do business? Adequate project management skills? Are there areas ancillary to providing legal advice which can/should be outsourced? 6) How would we start the shift to the new structure? How do we maintain the momentum?

Driving'Value'in'Inside/Outside'

Counsel'Relationships!

BN

W p

. 4

!

!

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rnal

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ffing

& B

udge

t [1

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ased

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ity.

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:

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Lega

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Lega

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ista

nt

[3]

Law

Dep

artm

ent B

udge

t for

Inte

rnal

Spe

nd:

$$

Mill

ions

FY20

11

FY20

12

FY20

13

Law

yers

$4.5

M

$4.5

M

$4.5

M

Non

-Law

yers

/Sta

ff

$.5M

$.

5M

$.5M

TO

TAL

Inte

rnal

$5M

$5

M

$5M



BN

W p

. 5

!

!

Om

nivo

re N

atur

e of

Wor

k C

ompa

ny-w

ide

– C

orpo

rate

& T

rans

actio

nal

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nivo

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ses

outs

ide

coun

sel f

or th

e fo

llow

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non-

litig

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ork:

em

ploy

men

t and

labo

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danc

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d is

sues

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nd tr

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wor

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ajor

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ontra

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d do

cum

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and

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A c

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clud

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on

aver

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one

tran

sact

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per y

ear)

. !

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or L

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area

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viol

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offic

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ass

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! M

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xpos

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ands

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isk

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! A

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vest

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llega

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ach

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each

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ide

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Litig

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ispu

tes.



BN

W p

. 6

!

!

Om

nivo

re TOTA

L%LEGA

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BN

W p

. 7

!

!

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nivo

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nd(

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BN

W p

. 8

!

!

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Fir

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eng

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nivo

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l 10

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l 3

435,

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l 4

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l 5

350,

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BN

W p

. 9

!

!

Act

ion

Pla

n S

pend

Cat

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pend

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Exp

ecte

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avin

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BN

W p

. 10

!

!

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Pla

n S

pend

Cat

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BN

W p

. 11

!

!

Tools%F

or%The

"%Brave%New

%World"%

%

%%

Fees%

Explore!riskUsharing!with

!law!firm

s!(to!permit!them

!to!re

duce!fe

es!fo

r!ind

emnity!against!

malpractice!claims).!

RiskUSha

ring!

Institu

te!a!policy!of!re

quiring

!hard!bu

dgets!from!law!firm

s!and

!allowing!no

!paymen

t!for!law!firm

!bu

dget!overrun

s.!!!

Hard!Bud

gets!

“Lifting!an

d!shifting”!all!work!from

!firm

s!to!othe

r!firm

s,!or!lettin

g!matters!ru

n!off,!assig

ning

!new

!matters!only!un

der!n

ew!fe

e!arrang

emen

ts.!

Lifting!&!Shifting!

Contingency!fees!(d

efen

se!and

!plaintiff).!

Contingency!Fees!

Flat/Fixed

!Fee

s.!

Flat/Fixed

!Fee

s!Ho

urly!fe

es.!

Hourly!Fees!

Discou

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!hou

rly!fe

es.!

Discou

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!Rates!

Blen

ded!rates.!

Blen

ded!Ra

tes!

Volume!discou

nts.!

Volume!Discou

nts!

Aggregating!matters!into!portfolios!a

nd!gettin

g!value!fee!arrang

emen

ts.!

Portfolio!Fee

s!!

!

Process%&

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anagem

ent%

Im

plem

ent!legal!project!m

anagem

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Project!M

anagem

ent!

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ineer!c

ertain!processes!

Process!M

anagem

ent!

Institu

te!early!case!assessmen

t!disc

ipline!for!a

ll!litigation!matters.!

Early

!Case!Assessmen

ts!

Assis

tance!from

!you

r!Procuremen

t!Dep

artm

ent.!

Procurem

ent!A

ssistan

ce!

Routine!po

stUm

atter!reviews!for!business!p

rocess!im

provem

ent!

Leverage!Data!

Improved

!use!of!e

Ubilling!to!carefully!ana

lyze,!m

onito

r,!man

age!an

d!track!legal!spe

nd.!

Leverage!Data!

!!

!!



BN

W p

. 12

!

!

Tools%F

or%The

"%Brave%New

%World"%

!

!!

Staffin

g%

Move!work!to!“alternative”!law!firm

s,!e.g.,!virtua

l!firm

s,!th

at!don

’t!ha

ve!law!firm

!overhead.!

"Alte

rnative"!Firm

s!Move!work!to!lowerUcost!g

eograp

hic!region

s!for!re

duced!fees.!

Geo

grap

hic!Re

distrib

ution!

Analyze!an

d!un

bund

ling!all!legal!work!into!levels!of!im

portan

ce!and

!risk,!and

!then

!usin

g!the!most!

approp

riate!legal!ven

dors!fo

r!each!level.!

Unb

undling/Strategic!Staffin

g!

Outsource!entire

!internal!legal!fun

ction,!as!w

ell!as!the

!han

dling!of!legal!m

atters!fo

r!a!fixed!fee.!

OutsourceUFixed

!Fee!

Legal!Process!Outsourcing

.!Legal!Process!Outsourcing

!Hire!add

ition

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2014-03-05 Brave New World Hypothetical...Brave New World Group Fee Exercise #3 ! YOUR SITUATION The...

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Transcript of 2014-03-05 Brave New World Hypothetical...Brave New World Group Fee Exercise #3 ! YOUR SITUATION The...