Improving outside legal support to litigation managers: Becoming radical

Clarke, Leo L

I.

INTRODUCTION

Re-engineering" has become a staple corporate cliche and a standing "Dilbert" joke. But virtually every company continues to struggle with the problem of providing the best legal support for its line functions. Indeed, it appears at times that a solution to the legal services conundrum is the black hole of litigation management: the sheer mass sucks even the most capable manager into becoming part of the problem.

My perspective on the problem comes from having followed a "varied" career path over the last two decades. I have served as outside and in-house counsel for financial institutions and other businesses. I have also represented carriers in coverage litigation and businesses in commercial litigation. Over the years, I have witnessed many companies adopt numerous, different models for providing legal services to the managers whose responsibilities and careers are affected by that litigation. Few companies in any industry have come to grips with the crux of the problem: how can legal services best be provided to professionals making business decisions about a large number of claims either by or against the company?

In my opinion, quick fixes are doomed to failure. The conundrum is not unlike the mazes found so often on childrens' menus in family restaurants. It is easy to identify the problem (the Queen trapped in the dungeon) and to describe the desired outcome (reunion with the Royal Family), but those two steps alone will not solve the problem. Nor will chronic whining or acute rage. Rather, the solution to the legal services conundrum, like the solution to the maze, requires the client to identify the obstacles and determine a way around them. I begin therefore with an attempt to identify the nature of the obstacles to more efficient and valuable legal services. I then consider techniques to identify either the best path around those obstacles or (something not permitted in the maze game) the best way to remove those obstacles.

Of course, if you have ever observed a child struggle with a complicated maze while waiting for her cheeseburger, you know that frustration from mistaken choices requires constant attention to, and management of, the process itself. Therefore, I also address the methods of managing the frustrations and disappointments along the journey to a solution, including some suggestions for use of an outsider who has the perception to see both your location and the exit from the maze. Finally, I close with some specific recommendations for dealing with distinct obstacles that might confront a company on its way out of its captivity in the dungeon of inefficient and ineffective legal services.

II.

TEN OBSTACLES TO EFFECTIVE MANAGEMENT OF LEGAL SERVICES

1. The Sheer Number of Claims

Managing a heavy litigation caseload is like the episode of "I Love Lucy" in which Lucy tried to put candy in wrappers as the candy comes past her on a conveyer belt. The sheer number of claims coming in the door makes it extremely difficult for even the most efficient and competent organization to treat each claim on an individual basis. As the pressure for efficiency increases, it is clear that this problem will not go away. Litigation must be "managed," not on an individual file basis, but according to policies and procedures for well-defined classes of claims.

2. Business v. Legal Concerns

Litigation does not exist in isolation. The dispute may involve a major supplier or customer with whom a long-term relationship is more important than total victory. The suit may involve proprietary processes which the company cannot risk disclosing. Positions taken about a product or the company's knowledge may affect other claims, customer and public relations, regulatory affairs and so on. These factors all require that otherwise fungible claims be handled with care and with the participation of persons who have the perspective to see the forest as well as the trees.

3. Jurisdictional Differences

Litigation managers face a dizzying array of federal, state and even local statutes. The same is true of regulations and case law. These interjurisdictional differences can overwhelm the factual similarities among claims pending across the country. The differences make nationwide standards for substantive management of litigation almost impossible and dramatically interfere with efficiency. This is true even when litigation is managed on a regional or subject matter basis.

4. Constraints on Service Producers

In-house and outside lawyers are subject to professional rules of responsibility which interfere with efficient litigation management. Rules regarding conflict of interests, confidentiality and the like, while salutary in themselves, may create major obstacles to the efficient provision of services and to the information flow which is so crucial to efficient resolution. This is nowhere more obvious than in the tripartite relationship among insured, defense counsel, and insurer. However, these rules can also significantly interfere with effective litigation in a multi-party case. For example, ethical constraints on lawyers may seriously interfere with effective and efficient litigation absent waivers of potential conflicts among co-parties and reliance on a joint litigation privilege.

5. Third-Party Decision-Makers

How many times have you heard that the most rational response to a litigation problem won't fly because "Judge Bean just won't listen"? How many times have you heard "that defense just won't play to a Postule County jury"? Counsel and litigation managers must cope with inefficient, uncontrollable, and unpredictable third-party decision-makers. No company manual and no rule of thumb can always overcome this obstacle. On the other hand, effective legal support should attempt to minimize the tendency to use this factor as an excuse for ineffectiveness or insufficiency. A major goal of the legal services manager should be to avoid reliance on judges and juries whenever possible.

6. The Dearth of All-Around Lawyers

Wouldn't it be great if every lawyer was the legal equivalent of Michael Jordan or Ken Griffey, Jr., players who do all things well. Unfortunately, in the legal profession, as in sports, most players perform some tasks better than others. Lawyers differ in their abilities to manage litigation and to handle different litigation tasks, such as factual investigation, legal analysis, settlement negotiations, trial preparation, or trial itself. It is self-delusion of the worst sort to think that there are enough good allaround lawyers to provide cost-effective service to companies with large caseloads. Even though the number of lawyers continues to swell, a key responsibility of the litigation manager is to ensure that each lawyer is playing the role he or she performs best. Pavarotti is great, but the opera will be better if the fat lady sings too.

7. House Divided Syndrome

Most companies with significant litigation caseloads are large enough to have departments or divisions which treat the overall corporate interest in resolving litigation as less important than establishing their own freedom from fault, their overall importance to the company or even the accomplishment of day-to-day business. Traditional examples of such friction are underwriting against claims in insurance companies, engineering against sales in technology companies and head office against regional or district offices in sales organizations. The resulting rivalry can present exasperating conflict and unpleasant surprises for litigation managers who do not properly appreciate the need to address intra-corporate politics.

8. Front Line Responsibility for Resolution Costs

In many companies, front line employees have effectively unbridled control over the costs of litigation. This lack of involvement by management has a significant impact on efficiency. In most industries, basic cost decisions are not made on a daily basis by a company's independent contractors and first line employees. While General Motors is also subject to intense pressure to cut costs, workers in the Chevrolet assembly line could not be expected to make cost-versus-benefit decisions on an individual car basis. Nor should case managers and their outside counsel be expected or permitted to make those decisions on a per file basis. Human nature being what it is, the perceived need to make those decisions frequently results in hand-wringing and unnecessary (and perverse) analysis and investigation. Effective management of claims resolution requires management's involvement.

9. Transaction Costs v. Resolution Costs

This is another variation on the same theme. The relationship between the transaction costs of processing a given claim (typically legal fees and internal opportunity costs) and the ultimate outcome (typically settlement payments) is uncertain at best. A company may spend a fortune pursuing litigation and still lose big time. Perhaps more troubling, even if counsel marches in with a directed verdict, there is always a suspicion that the same result could have been obtained far more cheaply. The only source of comfort is vigilance and planning throughout the process.

10. Incompatible Economic Incentives

Most corporate litigants continue to rely heavily on outside vendors (counsel) whose economic incentives are not directly tied to those of the client. Few companies compensate counsel as they do sales representatives, where commission increases as sales increase. Interestingly, the economic incentives on the other side of the litigation fence are often aligned, since most plaintiffs' counsel work on a percentage fee basis. This lack of aligned incentives results in tension and ultimately in the mistrust which has fueled much of the billing practices debate.

III.

TEN STEPS TO BETTER CASELOAD MANAGEMENT

The combination of these ten obstacles presents a harrowing picture. Litigation managers are fighting a multi-front war on uneven and varied terrain with a myriad of weapons which do not necessarily perform their intended functions. Worse, the smoke and haze from institutional dynamics create levels of tension and uncertainty which make effective generalship more a dream than a reality. It is not surprising that all the participants in this endeavor, from entry-level paralegal, to the general counsel, to law firm senior partner, perceive a need for drastic change.

The paradox is that change is the one constant in the litigation business. From internal policies and manuals, to organizational charts, to hiring criteria, to litigation guidelines for outside counsel, there has been scarcely a stone left unturned in the attempt to devise a better way to manage litigation. Unfortunately, the obstacles just described tend to cause all participants to treat each claim as a discrete problem. Attempts to impose order on the chaos by focusing on specific file handling procedures are generally doomed from the outset. The following are some techniques for improving legal services which are aimed at managing the process rather than on improving the services provided in individual cases.

1. Identify The Client

Management's job is to integrate the professional performance of lawyers into the company's financial performance for the benefit of shareholders and other stakeholders. The tension and inefficiency that result from a lack of clearly delineated roles for the business decisionmaker, the litigation manager, and counsel waste untold millions of dollars. Responsibility and accountability should go hand in hand. The first step is to identify a specific person as the client. The client alone has the authority to approve strategies, budgets, and settlements. In general, that person may trump the legal process with business judgment. Neither the client, the litigation manager, nor counsel should be permitted to defer or delegate decision-making within the scope of their responsibility. In particular, outside counsel should not be permitted to assume responsibility for business judgments under the guise of resolving litigation. If counsel has such good business judgment, she should become a client.

2. Adopt Clearly Defined Goals

It is surprising how few participants in the litigation business can articulate the company's goals regarding dispute resolution. Perhaps more typical is the classic deposition response of the manager who, when asked for a description of his duties, testified: "I deny claims." At a minimum, the client, in-house attorneys, and outside counsel should all have an appreciation of what the company expects in terms of responsiveness, aggressiveness, cost effectiveness, and results. Philosophies and attitudes can be expressed in simple terms: "Our customers and suppliers come first. We always seek to resolve uncertainties in a manner that strengthens our relationship with them." Or: "The company's goal is to provide world-class service to its customers. However, the company also has equally important obligations to other customers, suppliers, shareholders, and its employees to enforce our agreements and legal rights in accordance with our mission statement." These different exhortations would presumably lead to far different approaches to litigation management. The corporate goal should then be translated into objective goals for departments and individuals.

3. Maintain Accountability for Roles and Goals

This rule follows from the first two. First, management must eliminate the confusion over responsibility that results in undue overlap in some areas and causes avoidable slips between the cracks in others. Second, managers and counsel must focus on the welfare of the corporate forest despite the fact that their jobs call for them to fell individual dispute trees. Management is responsible to ensure that employee and counsel evaluations and file audits analyze the extent to which the corporate goals are advanced. In particular, outside counsel should be queried continually on how their case strategy and overall litigation management conform to the broader corporate goals. If employees and vendors contend the roles and goals are too squishy to provide concrete direction, the roles and goals should be more clearly stated.

4. Develop Statistical Norms

Large caseload management is a game played according to the law of large numbers. The players need to know the score and how they compare with the all-time greats. An increased allocation of resources to reporting and performance analysis can provide the statistics necessary to highlight out-of-line transaction and resolution costs promptly and credibly. Just as outside counsel may recommend a settlement based upon jury verdict statistics, litigation managers should be able to compare counsel's performance to the norm.

5. Maintain Achievable Work Loads

There is a tendency to hope that the litigation volume is a rat going through a snake. However, experienced managers and litigators recognize that high case loads cost the client much more than the additional personnel expense of a larger staff. Those costs just impact a different budget line. Overburdened litigation managers and lawyers cannot be as knowledgeable or responsive as they should. This leads to uninformed and ad hoc decision-making. It ignores the maxims that knowledge is power and time is money.

6. Maintain Quality Control

Over the last few years, corporate America has realized that all lawyers within a given firm are not equal. This has led to a new mantra that companies hire lawyers, not firms. However, that mantra is becoming equally pernicious. Individual lawyers can and will competently handle a finite amount of work. They will and should delegate work to other lawyers within their firms. It is incumbent upon the litigation manager to enforce quality within the specific provider firm by knowing each lawyer working on the client's files. Counsel should be evaluated on a per lawyer basis, not a per firm basis.

7. Graft Common Decision-Trees

Outside counsel continue to spend too many dollars divining tactics and strategies for things that are, from the company's viewpoint, routine matters. Management should therefore identify the factors that affect strategic and tactical decisions in specific types of cases and determine the optimum, cost-effective responses to the decision issues that are presented. This work can be accomplished in-house or through a task force of interested constituencies. Litigation managers and outside counsel should be required to use those decision trees in their individual cases and should develop nonconforming strategies only when necessary.

8. Recycle Good Work Product

This is a goal that never seems to be carried out in practice because it requires intensive management oversight. All around the country counsel continue to draft anew what should be off-the-shelf discovery, motions, and case plans. There is a certain pride of authorship that causes lawyers to rebel against accepting standardized products from their own partners, much less from unknown or little known in-house counsel or litigation managers. However, most lawyers would prefer swallowing their pride to continued tension over billing practices.

9. Minimize Self-Interest

Management must encourage counsel to be creative, to problemsolve, and to partner with the client. Outside counsel now sense distrust and a lack of loyalty that tends to reinforce rather than eliminate self-interest. Management's goal should be to eliminate the shorter term disincentives to efficient claim resolution which hourly billing and lawyer shopping tend to encourage.

10. The Biggest Bang for the Resolution Buck

In case it is not clear by now, I believe that management knows best. However, sometimes management, like Robert Young in the old TV show "Father Knows Best," needs to be educated. It is management's responsibility to identify the acceptable trade-offs between transaction costs and resolution costs. Very simply, there is still too much reliance on the old claim adjuster mentality of "I know a good deal when I see it." Clients can only make major steps towards improving results if they have the courage to set objective performance standards. This means management must manage (and not simply avoid) the risk that objective standards, even if well reasoned and properly explained, might be counter-productive in isolated cases. At a minimum, management should provide guidelines to assure that transaction costs are only incurred when there is a direct relationship to an expected improvement in litigation results.

IV.

THE CARDINAL RULES OF SUCCESSFUL CHANGE

Each of the following ten suggestions focuses on an increased role for management in supervision of the legal services support. Of course, "management" is not one person, but probably numerous individuals at various levels of responsibility. These suggestions also require the acceptance and cooperation of all levels of participants. Thus, although the primary burden for improvement of the process in my view lies with management, improvement will only come with implementation of changes throughout the organization.

As you might expect by now, I also have some thoughts about implementing successful change within an organization. As with my other proposals, none of these rules is novel in itself. They are presented here because the secret to successful change is implementing the obvious. So here are the "five Cs" which management must follow to really improve legal services.

1. Consensus

Each constituency affected by change must understand that the plan offers real, significant value to its own interests. This does not mean each group cannot expect some disadvantages due to the change, but it must view the ultimate result as a net benefit. Management cannot expect the "losers" to cooperate with change, and the plan should be devised to address this issue directly, either by providing a net benefit or eliminating the constituency from the changed equation.

2. Compatibility

The plan must fit with the corporate culture as practiced, and not as espoused. Otherwise, the plan simply will not be credible (yet another C word), and management cannot expect to generate the support the change requires.

3. Consistency

There must be internal consistency between the plan as a whole and within each of its parts. Too often, re-engineering proposals are constructed on a crazy quilt pattern without anyone having stepped back to insure that everything fits together. Because change is always unpopular, those affected actively search for contradictions and inconsistencies as a basis for justifying their refusal to implement the plan. Thus, consistency is a key element.

4. Communication

The plan must include a reiterative process driven by feedback from all constituents; otherwise minor breakdowns will lead to the failure of the entire project. No matter how much attention has been paid to the first three "Cs," there will always be questions and problems that arise as fundamental change is effected. This certainty should be recognized at the outset and a process devised to deal with it. Otherwise the plan will seem arrogant, and attempts to problem-solve after the fact will be perceived as defensive and reactionary.

5. Commitment

Management, from the top down, must allocate the time and resources necessary to design and implement all parts of the plan. How many times have employees suffered through explanations of great changes ahead, whether at retreats or conferences, only to find that the change never materializes because of a lack of follow-up? Management must commit to devote the necessary resources to complete the plan, or it should never be started. Those responsible for implementing change must have both authority and respect and the ability to listen and act.

V.

TEN COMMANDMENTS FOR GETTING THE JOB DONE

You're right. The five "Cs" are all very well and good, but they are too simple. Life is not Business Administration 101. How do we actually accomplish the job of convincing large numbers of people to endorse dramatically new ways of doing their jobs when they have well-developed egos and negotiate for a living? I modestly offer the following Ten Commandments:

1. Define the Scope

Don't bite off more than you can chew. Get to the root of the problem. Balance. Enough said.

2. Identify the Players

Be realistic about winners and losers. Can the losers be expected to support the change? If not (which is likely), make provision for their interests up front. Litigation management is a people business, and grand schemes will only be as successful as the people who implement them. Make sure those implementing the change have the necessary skills and incentives.

3. Establish Responsibilities

If the impetus for change is from upper management, those in subordinate positions will undoubtedly profess great support. However, clear objectives and responsibilities must be agreed upon, or the chances of success will be greatly undermined.

4. Focus First on Systemic Issues

There is no sense to rearranging the deck chairs if the boat won't float. Why discuss the colors of the bedrooms when you can't afford the mortgage? Focus first on systemic issues such as corporate goals, financial criteria, and performance goals. Focus on incentives for litigation managers, in-house and outside counsel. Then address policies and procedures.

5. Be Realistic About Costs and Benefits

Before announcing any plan for change, carefully evaluate all potential costs and benefits, and then convince your skeptical self that the benefits will exceed the costs. This step is obvious, but seldom is enough time or candor invested in self-second guessing. Cost and benefit criteria must be realistic and consistent if change is to be successfully implemented.

6. Maintain Realism

Do not let philosophy, current fads or jargon create an unduly optimistic plan. If the proposal is to greatly increase in-house counsel at the expense of work by outside counsel, be realistic about the real rewards of the in-house counsel position. Otherwise you will be saddled with underperforming, unhappy staff counsel and with clients who are whining for the "Good Ol' Days."

7. Simplify, Simplify

Change is hard and the devil is in the details. Your proposal is more likely to be accepted if it is understood. And it is only likely to be understood if it can be grasped quickly.

8. Force Consensus

Remember Cardinal Rule Number One: Consensus. Consensus does not happen automatically. It can be achieved only with high doses of persuasion and compromise. These take time, thought, creativity, and conviction. Unless a true consensus is achieved, any plan will come apart at its seams. Do not be fooled; insincere acquiescence looks like consensus until it is too late.

9. Stay on Schedule

Even realistic schedules need to be actively managed. Delay evidences a lack of commitment to change and gives nay-sayers the opportunity to carp and undercut the plan.

10. Be Radical

The more revolutionary change is, the better. To paraphrase Jefferson, when, in the course of corporate events, outside counsel cease to honor the wishes of the client, it is the right of the client to select new counsel. The same goes for the in-house functions. This is the time to step back from vested interests, and from organizational structures and programs and do what makes sense in today's marketplace.

VI.

FACILITATING CHANGE FROM THE OUTSIDE

Any real improvement in legal services support will require a Herculean effort. More than that, it will require substantial management time and a skill set that may not be available within the corporation. Here are seven good reasons to use an outside facilitator, matched with what you should look for: (Refer to Titles WHY / NOT)

Some companies have the talent in-house to perform all these functions without having their ship go off course in the interim. For the vast majority of companies, however, some degree of outside consultation will be beneficial. Change will be better, faster, cheaper, and friendlier with a well chosen facilitator.

VII.

SOME POSSIBLE PARTIAL SOLUTIONS

Generalized solutions are always far too facile for implementation. However, that does not deter angels from walking where fools fear to tread. Of the many possible techniques that might be considered in attempting to provide better legal service support, I offer the following seven. I have chosen seven in light of its symbolic significance, which predates even Mickey Mantle.

1. Use technology (Obstacles 1,2,3,6,7,8,9)

The litigation management industry has lagged woefully in using technology to increase efficiency. This is nowhere more true than in the relationship between outside counsel and companies with large caseloads. Although a few companies have taken some strides in this area, there is still much room for improvement. Commonly available technology can reduce reporting burdens, accelerate information flow, spread work product, and dispense information for analysis and additional improvements.

2. Use ADR (Obstacles 1, 4, 5, 6, 10)

ADR, like technology, has been around for a long time, but has received only grudging voluntary acceptance. Clients should not continue to grouse about legal expenses unless they put their weight behind alternative dispute resolution - if only mediation. It makes great sense to cosponsor a mediation program for common claims with a recognized consumer group or through an industry association.

3. Leverage expertise (Obstacles 1, 2, 3, 6, 7, 8, 9)

Many companies have begun to realize the benefits of leveraging specific expertise among outside counsel in multi-defendant cases by use of shared counsel and nationwide or regional "experts." This is particularly true in cases involving workplace injuries and toxic torts. That leverage avoids the expenses of educating tens or even hundreds of good local lawyers about technical issues which they face only rarely.

4. Unbundle services (Obstacles 2, 3, 5, 6, 7, 10)

At the most basic level, lawyers continue to provide services that do not require a lawyer's training. They are assigned specific tasks that do not match their specific skills. Not all lawyers are trial lawyers and not all matters are triable. Indeed, trial is the most rare form of alternative dispute resolution, since only one to five percent of all disputes are tried. All participants in the process will be more satisfied if they are doing what they do best, and the cost savings will be a windfall.

5. Implement alternative fee arrangements (Obstacles 5, 6, 8, 9, 10)

Hourly billing was a bad idea that has clearly failed. Clients should use the massive volume of cases and their knowledge of the outside counsel market to design alternative fee arrangements. These should pool or shift the risk of inordinate legal costs in exchange for commensurate rewards when counsel do resolve matters at a substantial savings. Books have been written about these arrangements, and it is time to put timidity aside and start implementing some workable plans.

6. Resolve client versus provider disputes (Obstacles 4, 6, 8, 9, 10)

As in any co-dependent relationship, disputes between clients and counsel regarding the quality and cost of services tend to simmer beneath the surface, creating tension and insecurity until an eruption changes relationships permanently. These problems could be largely avoided by the creation of a panel consisting of insiders and representative outsiders to address disputes between counsel and clients. It has worked for the police; it should work for lawyers.

7. Use case value guidelines (Obstacles 1, 2, 5, 8, 9, 10)

Lawyers and numbers are not the best of friends. However, the talents of actuaries, lawyers, and litigation managers should be combined to develop case value guidelines. The guidelines would provide benchmarks for determining the economics of settling or litigating various types of cases. Of course, I do not mean to suggest that even slip-and-falls can be settled merely by reference to the litigation equivalent of a mortgage interest table. However, the only way out of the current downward spiral is to have some overall sense of what is consistently a good deal. If we can have sentencing guidelines for arsonists and blackmailers, we should be able to have settlement guidelines for litigation managers and lawyers.

VIII.

CONCLUSION

Managing litigation and legal services support has been a difficult task, primarily because misguided notions of cost and value, especially hourly billing, and shibboleths about the mystique of trial advocacy have discouraged the parties from breaking the problem into manageable units for analysis. Combining a radical, comprehensive, and realistic approach to the problem with a well-crafted program for implementing the proposed changes can move the industry into a productive new millennium.

Leo L. Clarke, a member of the Seattle firm of Gordon & Polscer, L.L.P., received his B.A. in 1972, with distinction, from Stanford University and his J.D. in 1975, with distinction, from the University of California at Los Angeles where he was Phi Beta Kappa and Order of the Coif. He served on the faculty of the University of Mississippi School of Law from 1982 to 1984, attaining the rank of Associate Professor. Mr. Clarke served as General Counsel of Federal Home Loan Bank of Seattle from 1987 to 1990 and on the Adjunct Faculty of the University of Washington School of Law from 1992 to 1993. He is a member of the Washington State Bar Association, State Bar of California, District of Columbia Bar and Defense Research Institute.

Copyright Federation of Insurance & Corporate Counsel Summer 1997
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