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To Reduce Legal Spend, Do Less Law

How much “law should we do?” Companies seeking to reduce legal spend need to start by asking this question.

General counsels may invest too much solving legal problems. Today, GC control cost measures include moving work in-house, establishing alternative fee arrangements (AFA), and adjusting the resource mix. These answer the question “what is the best and cheapest way to do legal work?”. The better first question is “what work do we need to do?” After all, avoiding legal work altogether reduces expense far more than doing it at lower cost. (“There is nothing so useless as doing efficiently that which should not be done at all.” – Peter Drucker)

The problem is that we lack a good analytic framework to answer the question. We may be doing too much or too little law. Business managers, working with lawyers, need to make risk-adjusted decisions about which legal work is really necessary. This will be hard.

Consider a related question: defining the value of legal services. GCs struggle with this. The ACC Value Challenge does not define value. Pfizer, which has fixed annual fees with a couple dozen law firms, struggles with this question according to a recent College of Law Practice Management conference presentation. And UK law firm Nabarro recently issued a report, General counsel: vague about value?, which finds GCs have trouble defining value. (NB: excellent read overall.)

If GCs cannot value legal services, I suspect they will find valuing legal problems even harder. Without the ability to do so, however, how can we know the right amount of legal work to do?

One example of how we might “do less law” is settling more law suits. Mark Ohringer, General Counsel of Jones Lang LaSalle Americas, Inc., said, also at the COLPM conference, that if it becomes clear that a dispute is well-grounded, his company investigates and, if something did go wrong, writes a check to fix the problem rather than litigating. If more in-house counsel took this approach, total spend (fees plus settlement plus judgment costs) likely would drop.

Two recent New York Times articles about healthcare provide an interesting contrast and perhaps some ideas. Sports Medicine Said to Overuse M.R.I.’s (28 Oct 2011) reported that 90% of the shoulder MRIs of “perfectly healthy professional baseball pitchers [who] were not injured and had no pain” showed abnormalities. The next day, Considering When It Might Be Best Not to Know About Cancer explained that some experts propose less screening for some cancers because early detection does not reduce mortality and the test have risks.

Could lawyers be doing too much scanning, screening, and treating as well? How would we know? What are the right metrics? Tough questions. We need to start developing a rigorous and quantifiable framework to ask and answer them. My guess is that technology will play a role, for example, tools to analyze BigData or decision trees to support litigation risk analysis.

  1. filip corveleyn

    the value question is indeed a major issue. My experience is that lawyers are not really succesful in showing the added value of prevention. Often legal advice is sought to cure existing problems, not prevent problems from occuring. In my view, an integrated solution would encompass lawyers showing GC’s where they can really add value by preventing problem and where they can add value in providing cure, mostly using commodotised service models to serve clients (bespoke service is only a tiny fraction of the daily work), thereby using historic data to calculate fixed fee budgets, aligning client’s interest with their own interest, i.e. the more efficient they deliver the work, the more profitable the work becomes. Assets are then expanded beyond legal know how, also encompassing processes and budgeting tools. I personally find the use of decision trees for litigation risk analysis rather useful (see also determining ZOPA and cost of information). In my opinion, magic circle firms and others are not using their historic data as they could and should (not their business model). There is something about their business model that does not sustain that kind of change.