Do your own insecurities, biases, and risk tolerances cost your company money in external legal fees? That’s a question I have been mulling over ever since I recently heard the managing partner of a non “seven-sister” firm suggesting that in-house counsel pay too much because they insist on going to the big firms for matters that smaller firms can do just as well and much less expensively.
The allegation is self-serving, of course. However, there is more than an element of truth in the statement and that element of truth deserves further exploration.
Having been heavily involved with the in-house counsel community for the past five years, I have heard the same comments about external legal fees, over and over. In fact, I’ve heard them so many times I was reluctant to write about this topic — reluctant to add to the dialogue because it seems as though there’s a lot of talk and very little action.
The basic concern of in-house counsel is the apparent disconnection between the value provided by external counsel and the time-based fees charged. This is an area where the competing interests of in-house lawyers run headlong into those of external counsel.
So, why am I now writing on this topic? There are a few reasons: In the last month, I have been involved in two events at which in-house counsel were discussing their many concerns about external legal fees. Having recently moved from Ottawa to Toronto, I have a fuller appreciation of just what sort of rates Toronto lawyers are charging and why my colleagues are so concerned. Most importantly, I think there’s an opportunity for me and for other in-house lawyers to make different decisions about which firms and lawyers we engage and thus save our respective clients money.
In the long term, our different choices will have the added effect of encouraging the kind of change in external billing practices that in-house lawyers and the businesses we represent would like to see.
There are certainly legitimate reasons for sending some of your legal work to the big firms. You might say that there are certain kinds of work that only the big firms attract and that only the big firms, therefore, have sufficient experience doing. I would agree with that assertion. But what about all the rest of the work?
Every organization has a wide range of legal work requiring a wide range of external support. You might also say that there is a drive to reduce the number of suppliers and minimize administrative costs. That makes sense, but surely not if analysis shows the increased cost of the work is a multiple of the potential increased administrative cost of managing more suppliers?
So what are some of the not-so-legitimate reasons in-house counsel cling to the larger and more well-known firms? I’d say there are a few and if you as an in-house lawyer are willing to navel gaze just a little, you may find that if you rout out these less legitimate drivers of behaviour, you’ll make different decisions and save legal fees.
More expensive lawyers are not necessarily better
On any level, do you buy into the perverse notion that if someone charges more, he or she is necessarily a better lawyer than someone who charges less? If you do, re-examine the notion. For example, the hourly rate for senior counsel at one Ottawa-based litigation firm is two-thirds of the rate I am seeing charged by fifth-year associates working for some of the big national firms in Toronto. The hourly rate for senior counsel at that same Ottawa-based litigation firm is the same as the rates being charged by law clerks performing relatively routine matters at some of the big national firms. Similar comparisons can be made between the fees charged by large national firms compared with mid-size and smaller firms.
Don’t hire a Jaguar mechanic to fix your Ford
On a similar note, even if the lawyer is the best, do you actually need her? Evaluate the skill set and experience required to do the work you need done and hire lawyers based on that requirement. Hiring overqualified lawyers is tantamount to throwing money away.
Making 'safe' choices for the wrong reasons?
I pretty well always hire the lawyer, not the firm, based on my experience that no matter how prestigious the firm, not every lawyer in every firm is going to be of the same calibre or the right fit. Going with a recognized and respected firm for your legal work may be a safe choice because if one or more of the organization’s cases doesn’t go well, the in-house lawyer’s choice is more defensible and there won’t be blame for picking the wrong firm.
However, our organizations hire us to make exactly these sorts of evaluations and we should be prepared to go outside of our comfort zones and make real judgment calls on the skills and fees of our external counsel — assuming less personal risk isn’t a legitimate reason for hiring more expensive lawyers when less expensive lawyers are equally capable.
There are excellent lawyers in smaller cities and towns
When I was in law school, the majority of students headed to Toronto to article and practise. It was the “thing to do.” Those of us who eschewed that path were going against the grain. The Toronto-based firms took pride in attracting the best and the brightest. It was in law school that we first encountered the notion that the best lawyers (in Ontario at least) are in Toronto.
Having spent most of my legal career outside Toronto, and having had the opportunity to work with external counsel in smaller centres, as well as a significant number of Toronto-based counsel at big firms, I go back to the advice that you should judge the lawyer’s experience and skill. If there is any “big-city” bias in your hiring decisions, take it out of the equation. Keep in mind that technology removes many of the barriers to engaging less expensive, non-local lawyers to perform your legal work.
As in-house counsel, we often hit the tennis ball back to the law firms asking them to solve issues relating to legal fees. The reality is that as consumers of legal services, we have many choices, and our own biases and insecurities shouldn’t get in the way of making sound and less expensive choices for our organizations.