August 28, 2013

An "IN" for Outside Counsel

Law Practice Magazine | September/October 2013 | The Finance Issue

GENERAL COUNSEL are more focused than ever on spending less and getting more out of their legal budgets. They are reading the legal trade press headlines about allegations of abusive billing practices and attending seminars where their peers and other experts coach them on how to be vigilant when retaining outside counsel. They are also closely reviewing outside counsel’s invoices and implementing processes and technology to identify and reject inappropriate billings.

Against this backdrop, is the client-law firm invoicing process destined to be adversarial? Should outside lawyers resign themselves to a hard slog for getting even the most reasonable invoices paid? Or are outside counsel’s invoices opportunities to demonstrate the value of their services and to strengthen their client relationships—and perhaps even grow their share of some clients’ outside legal budgets? I offer here some practical suggestions on how outside counsel can turn the invoicing process into an opportunity, rather than a necessary but painful burden. For this article, I’ve assumed that most of your clients have an in-house legal team, led by a general counsel, but the principles discussed apply equally well to clients who don’t have any lawyers on staff or who have a general counsel operating as a solo practitioner.

Before we dive into changing the paradigm for invoicing, you first need to undertake a “readiness assessment” for this initiative. Ask this question: Have you eliminated the billing practices that make reviewing your invoices a joyless, frustrating chore for your clients each month? You can find various articles on the topic, or ask your clients how they would like invoices prepared. Or perhaps my post about “Ten Law Firm Invoicing Habits Guaranteed to Annoy Your Clients, Reduce Collections and Extend Payment Cycles” on the Boosting Legal Value blog will help. You need to take steps to ensure your firm is not displaying any of the billing habits that a senior in-house leader at a major tech company recently told me that he “loathed.”

Once you’ve addressed these basic issues, it’s time to turn to the more interesting and potentially rewarding work. That is, how can you turn invoicing into an opportunity to earn more—and more profitable—assignments from your best clients, or those you’d like to include in that category?

An example from my first stint in-house involves the lead lawyer from the company’s primary outside firm. Each month, he would drive from downtown to our suburban offices to hand-deliver his firm’s monthly bills to each in-house lawyer who would be the primary reviewer of those invoices. This partner had been working with the company since its earliest days, was involved in many of its cornerstone transactions, and was held in very high esteem inside the company, so no one expected him to take on courier duties as well. Although I didn’t fully appreciate the brilliance of it at the time, from my perspective today, he was taking the simple step of delivering invoices as an opportunity to solicit feedback on his firm’s services and to enhance his relationships with our in-house team, many of whose members were relatively new to the company and who had their own ties to other law firms. I have no doubt that he picked up some additional projects each month when he walked the halls, making for a very good return on investment for the time he spent completing this simple task.

If delivering invoices in person doesn’t fit your personal style or your client relationship—your client may be far away or it may want invoices submitted electronically in a particular format—what else might you do? Based on discussions with numerous in-house leaders over the past few years, I offer five ideas for turning outside counsel invoicing into a marketing opportunity.

1. UNDERSTAND VALUE. Before you send out another batch of invoices, meet with your client’s general counsel, in person, to find out how his or her company views the invoicing process. How does his or her company define the value of your services, how does it use invoices to assess the value of your services, and how can your invoices do more to demonstrate that value? Value can be based on a myriad of objective and subjective factors, weighted differently by each client. Possible factors to include in your discussion are (1) the opportunity cost of having in-house staff do the work rather than sending it outside; (2) the risks presumed to be averted or mitigated by hiring expert outside counsel; (3) the “pain” (cost, reputation, and otherwise) the project represents; (4) the enterprise value to be derived from successful completion of the project; or (5) the savings gained from hiring your firm rather than a more expensive firm.

2.   BRING SOMETHING. When you have that discussion, bring along something or someone else of value. The easiest example of a “something” might be a great article, from your firm or elsewhere, addressing a key legal issue in the client’s industry. Also bring a one-page executive summary of your recommendations for addressing the issue within the client’s organization, based on your extensive knowledge of what they do, how they do it, their risk tolerances and any other relevant factors—prepared on your nickel, of course. A “someone” could be a mid-level associate whom you’d like to make available to your client for a few months—at your expense or a greatly reduced rate—to help the client clear out its backlog of “important but hard to get to” projects, and along the way learn something about the business—a law department “embed,” as it were.

3.   CONSIDER SEGMENTATION. Discuss with your client whether segmenting your billings into major project phases would be useful. For example, last year I reviewed several million dollars’ worth of bills from a dozen or so Am Law 100 firms for a major financial services enterprise, and I found that one of their primary firms voluntarily segmented their billings on merger and acquisitions deals into five useful categories: due diligence, drafting, negotiating, research and specialist work. What segments would be useful to your clients? What would it take to add segmentation to your billing practices?

4.   DISCUSS YOUR TEAM. If your projects include numerous professionals (particularly specialists) billing time to your client, talk with your client about who those timekeepers are, what they did and how their work contributed meaningful value to, or mitigated significant risks of, the project. Anyone who billed an hour or more on the invoices under discussion is a candidate for mention in such a talk. You may even find that this discussion turns into an “I didn’t know you did that, but we need help in that area” type of conversation. However, keep in mind that your primary goal is not “cross-selling,” but rather to help the general counsel be ready to answer the “Who are all these people who billed time to this project and ran up the bill?” type of question that he or she likely may get from the chief financial officer.

5.   GET CREATIVE. Take your client to lunch to brainstorm “outside the box” opportunities. Open your mind to include ideas that would not have a direct benefit for your law firm but could significantly improve the in-house legal department’s operations. For example, could you help the general counsel structure a legal process outsourcing type of arrangement—either with your firm’s own lower-cost resources or by partnering with a legal processing outsourcing vendor—to manage a legal process (e.g., nondisclosure agreements, low-value-but-frequent vendor deals or slip-and-fall cases) that takes up too much in-house time and adds too little value or mitigates relatively inconsequential risks? Or is there a new law department technology idea that your firm’s chief information officer (CIO) spotted at the most recent legal technology conference? Talk to your firm’s CIO about being on the lookout for one or two interesting innovations at conferences or in discussions with vendors. I’d wager that your CIO would be thrilled to be involved in business development in a new way.

To summarize, as outside counsel, part of your job is helping your clients in the legal department look good—or better yet, great—when they are asked the kinds of questions I know they get every day, such as “How much will it cost?” or “How much has it cost so far?” and, ultimately, “Why did it cost so much?” I believe that if you keep those three questions at the front of your mind as you prepare and deliver your invoices—in addition to doing great legal work at a reasonable cost, of course—you will regularly find opportunities to grow your practice and build your client base.