In-house Counsel Wield Tighter Control Over Outside Counsel, Survey Shows

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Association of Corporate Counsel (ACC) releases 2005 ACC/Serengeti Managing Outside Counsel Survey

In-house counsel have become more systematic in the ways that they manage their work with outside counsel according to ACC’s survey of hundreds of law departments that it conducts annually with Serengeti. From requiring budgets more often and on more types of matters to improving matter management and billing technology, in-house counsel are placing stricter controls on the work of outside counsel. As a result, the survey shows that underperforming outside counsel firms are being terminated more frequently than before. The survey results were announced today in conjunction with ACC’s 2005 Annual Meeting, a gathering of nearly 2,000 in-house counsel from around the world.

“In-house counsel continue to increase the sophistication of their efforts to enhance the quality of service provided by outside counsel and ensure better results for their companies,” commented Fred Krebs, ACC president. “The survey also shows that in-house counsel are aggressively addressing the ongoing concern of spiraling legal costs through a variety of means. It is no longer business as usual.”

The survey indicates that in-house counsel are requiring budgets from outside counsel on a more regular basis. The percentage of in-house counsel who require budgets for at least some of their legal work remained relatively flat in 2004 at 76.2 percent. However, the average percentage of matters for which budgets are required has been steadily increasing over the years from 37.5 percent in 2001 to 56.4 percent in 2004.

Budgets are a key indicator of whether in-house and outside counsel are discussing the expected strategy, staffing, and levels of activity in a meaningful way before representation begins. A budget also gives the project team a set of milestones against which progress and spending can be monitored--to see if the project is meeting initial expectations, or is taking a different tack that needs to be addressed.

The survey provides insight into other retention terms that are increasingly common and agreed to at the onset of the relationship, including required monthly/periodic bills, no change of assigned attorneys without approval, periodic written matter updates, discounts from standard hourly rates and minimum experience requirements for associates working on their matters.

When it comes to selecting which firms/lawyers to retain, the survey shows that in-house counsel still rely primarily on personal referrals from a variety of sources. These include recommendations from current outside counsel (79.7%), a company-approved outside counsel list (50.4%), in-house counsel at their company (49.6%) and in-house counsel at other companies (48.9%).

In-house counsel also are becoming more sophisticated in their use of technology in managing outside counsel work. While 36.2 percent continue to rely on internally created systems such as spreadsheets and databases, 21.7 percent rely on internal, third party matter management software, and 16.7 percent use web-based matter management systems. The web-based systems which connect in-house counsel and outside counsel in a single online environment seem poised for growth, as 31.2 percent of respondents indicated that they are planning to use such systems in the future.

If outside firms do not meet expectations, in-house counsel are prepared to take action, with more than half of respondents (50.7%) indicating that they terminated relationships with at least some of their law firms during 2004. The primary reasons for termination remained the same as previous years: lack of responsiveness, too high fees/costs, and poor quality work/results.

However, outside counsel costs are less of an issue now than they were in previous years. For the first time, “reducing outside legal costs” was not named as the most pressing issue for in-house counsel (even though it still ranks as the second greatest concern). The top issue of concern for in-house counsel in 2004 was “keeping apprised of company activities that may have legal implications”—in other words, compliance. This may be in part because of the increased oversight necessary as a result of Sarbanes-Oxley and other statutes, as well as recent high-profile litigation relating to compliance issues.

The ACC/Serengeti Managing Outside Counsel Survey is conducted annually and collects data on a wide range of issues related to the relationship between in-house counsel and their outside counsel firms. One of the survey’s greatest strengths is its ability to uncover trend lines over a number of years from a statistically meaningful sampling of participants. This year’s report also includes specific information regarding the high, low, and average hourly rates paid by corporations for specific types of legal work in major metropolitan areas, giving in-house counsel an opportunity to shift work to more cost-effective firms when jurisdiction is not an issue.

“Rather than relying on ‘conventional wisdom,’ this report presents hard data about what law departments are actually doing,” said Rob Thomas, Vice-President of Strategic Development for Serengeti and author of the survey report. “Over the past five years, we have identified many significant trends in the ways that corporate counsel find, manage, evaluate and compensate their law firms.”

About the Survey

The 150+ page survey report is available on CD from Serengeti (order form available at: http://www.serengetilaw.com). Additional background information can be obtained from the author, Rob Thomas at Serengeti (contact information above).

About The Association Of Corporate Counsel

The Association of Corporate Counsel is the in-house bar associationSM, serving the professional needs of attorneys who practice in the legal departments of corporations and other private sector organizations worldwide. The association promotes the common interests of its members, contributes to their continuing education, seeks to improve understanding of the role of in-house attorneys, and encourages advancements in standards of corporate legal practice. Since its founding in 1982, the association has grown to more than 18,000 members in more than 55 countries who represent 7,500 corporations, with 46 chapters and 13 committees serving the membership. Its members represent 49 of the Fortune 50 companies and 98 of the Fortune 100 companies. Internationally, its members represent 42 of the Global 50 and 74 of the Global 100 companies. For more information, go to http://www.acca.com.

About Serengeti

Serengeti Law provides Serengeti Tracker®, the highest-rated system for both electronic billing and matter management in the General Counsel Roundtable’s 2005 law department technology survey. Tracker® includes electronic bill auditing, online document and contract management, automated budget management, and performance tracking. In-house counsel also generate customized management reports to analyze spending, track budgets, assess developing areas of exposure, and assess results. With only an Internet connection and an hour of training, one-lawyer law departments up to the Fortune 50 work online with all of their outside counsel, including over 7,000 firms in more than 125 countries worldwide. More information is available at: http://www.serengetilaw.com.

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