A View from Inside Out: Ten Best Practices for Outside Counsel
Presented to the AmericanCollege of Real Estate Lawyers by:
Joan U. Allgood, EVP - Corporate Transactions and Governance
Developers Diversified Realty Corporation
Rodney J. Dillman, General Counsel
Babson Capital Management LLC
Ronald L. Gern, General Counsel
General Growth Properties, Inc.
Patricia Habicht, Associate General Counsel
JPMorgan Chase & Co.
Moderator: Ann Peldo Cargile, Member
Boult, Cummings, Conners & Berry, PLC
Friday, October 6, 2006
Grand Hyatt Seattle
Seattle, Washington
A View from Inside Out: Ten Best Practices for Outside Counsel
1.Experience, Quality, Reputation and Demonstrated Expertise.
(a)It goes without saying that in-house lawyers expect outside counsel to be knowledgeable and to provide high quality legal work. The last thing in-house lawyers want to do is hire someone that they have to train. Published materials and seminar participation matter, but a recommendation from an industry colleague can be determinative.
(b)Having previously worked with an attorney, either on the same side of the table or the other side, is another important factor. The client knows what the client is getting. This prior relationship can be the foundation for getting the current deal closed.
(c)High quality legal advice creates a foundation for future business. In-house lawyers expect outside counsel to deliver what they have requested, but consistently exceeding expectations will foster a long-term relationship.
(d)Specialized knowledge or extensive staffing requirements drive the hiring of outside counsel, as opposed to handling matters in-house. Thus, demonstrated expertise and capacity are critical to the hiring decision.
(e)A distinction exists between an attorney having the right qualifications, and how one finds that attorney. The best lawyers for a task may be passed by if in-house counsel has not had direct exposure to them on prior deals or does not have other means to identify them. The ACREL directory is a great source of contacts who have been vetted by their peers.
2.Responsiveness and Timely Completion of Assignments.
(a)Timing is paramount. Be it a lease execution, a financing or an acquisition or disposition, a closing generally means the client anticipates a return on its investment and has budgeted on this anticipated timeline.
(b)Establishing a realistic timeline is critical. Outside counsel should assist the client in establishing timelines that can be met from its business (not legal) perspective. Be prepared to meet the client’s established timeline. However, never promise and under-deliver. Clients prefer a realistic timeline, even if longer than a client may prefer, to missed deadlines.
(c)Outside counsel must have adequate staffing to meet promised timelines. Outside counsel should never accept an assignment if the counsel has any concerns regarding staffing or timelines. Insufficient staff (or another transaction that delays the client’s work) cannot be an excuse for delays in that client’s work.
(d)If outside counsel commences an assignment and then determines that the timeline is no longer realistic from a business perspective, counsel needs to advise the client immediately and endeavor to assist the client in finding creative alternatives to meet its business plans and objectives.
(e)Prompt communication of hurdles to timely completion is imperative.
3.Fees/Cost Effectiveness.
(a)The job of in-house counsel requires them to obtain legal services at the lowest appropriate cost for a given matter. This obligation does not translate into the lowest absolute cost each time, but this obligation does mean that costs need to fall into a range that achieves this objective. In this regard, legal services are a commodity no different than a variety of other important services to a real estate company. If the underlying legal matter more resembles a commodity, cost will be a significant driver in the decision process. If the underlying legal matter has more unique or significant aspects, cost will be a less relevant factor.
(b)Clients appreciate flexible pricing formulas. One size does not fit all of the requirements from the client’s perspective. In certain instances, only a straight hourly rate will work. Even in these situations, clients will generally request a discount or a hold on current rates for a specified period of time. As a matter of philosophy, clients prefer to see a rate structure that better aligns the interests of the client and its outside lawyers. Examples of these rate structures include blended rates, caps, fixed fees and success-based fees.
(c)Thin, but proper, staffing provides one of the keys to good cost control. Counsel must avoid redundancy. However, they must balance this with having enough staff to meet the client’s timelines. Outside firms also need to be sensitive to the use of junior associates. The firm, not the client, should bear costs relating to training and turnover.
(d)Outside law firms need to understand that in-house counsel operate within budgets. Additionally, public companies have quarterly and annual earnings goals. Clients therefore need outside counsel to provide accurate budgets and to address deviations promptly. A blown budget can substantially undercut all of the effort that went into achieving a favorable outcome.
(e)The billing partner should review bills critically before submitting them to the client. Pro-actively providing appropriate write-offs can be a great tool for achieving client satisfaction. As a tip, if it is not already part of your regular practice, make sure that the client knows about the write-offs so that you get credit for the effort.
(f)Understand that clients do not always require 100% solutions. Business people and in-house counsel are accustomed to making decisions based on information that is good, rather than perfect. Before performing extensive (and expensive) work, outside counsel should communicate with the client to make sure that everyone is on the same page in terms of the scope of work needed.
4.Exercise Good Judgment. Be Practical.
(a)Clients expect their counsel to identify and analyze issues and risks. But that is not enough. The lawyer who prioritizes the issues for the client, and offers suggestions to resolve or manage the issues, will get the “bonus points” and will most likely get the call from the client for the next deal.
(b)A real estate transaction is a business transaction; not a law school exam or a negotiating contest. A good business lawyer is practical. Such a lawyer will help the client evaluate issues and risks, do a cost/benefit analysis, and decide on appropriate solutions that achieve the client’s goals. To do this, the lawyer must understand the client, its business, its goals, and its risk appetite. See Best Practice #6. Good lawyers also solve problems creatively. See Best Practice #8.
(c)Remember the client may have an on-going relationship with its customer or other parties to the transaction. In negotiating a transaction, outside counsel must keep the effect on this relationship in mind. If the lawyer eliminates all risks, as opposed to manages risk, this may eliminate the customer. The best deals benefit both parties.
(d)Sound judgment distinguishes a great lawyer from good lawyer, and is necessary to be an effective lawyer in the real world.
5.Communication.
(a)Frequent communication that keeps in-house counsel informed of the progress of a matter provides the key to a successful relationship. Ability to identify and analyze not only the primary issues and risks, but also secondary and tertiary issues and risks and communicate them to in-house counsel makes both outside counsel and in-house counsel look good.
(b)In-house counsel abhor surprises and so do those to whom they report. The bigger the surprise, the more problematic it will be for the client. An up-front understanding on the frequency and type of communication helps immensely. An email may be convenient for outside counsel, but depending on the message or news being delivered, a telephone call or an in-person meeting may be needed, so that counsel can answer the client’s questions and explore alternatives with it.
(c)Outside counsel should deliver bad news immediately. In-house counsel should never hear it from a third party (or even worse from their bosses or Board members) before they hear it from you.
(d)Accessibility is important. Lawyers who answer their own phones impress clients. If the client must go through an assistant every time the client calls, the client may get the feeling that the lawyer is screening the client’s calls, is too busy to talk, or does not find the client important.
(e)If a client has an urgent matter, the client may need instant communication with outside counsel. If counsel is unavailable, the client will want to know when counsel will be available, so that the client can assess the downside of waiting. Some matters may require 24/7 attention and communication. It is the client’s job to let outside counsel know this on the front end. If counsel cannot commit to such terms, the client would rather know this at the outset. Clients understand that they generally are not a lawyer’s only client and that the lawyer may be personally committed to another matter. If the lawyer is up front about this, the client will respect that communication. Even though the client may decide to go elsewhere for that particular matter, the lawyer will have engendered the client’s respect, and retain the possibility of other work in the future.
6.Understanding the Client’s Business and Its Internal Dynamics.
(a)Outside counsel must know and understand what drives the client’s business model.
(b)It is imperative that outside counsel understand its client’s business, since outside counsel represents the company, not the persons with whom the outside counsel interfaces. This entails understanding and balancing the respective needs of internal counsel and business clients.
(c)Outside counsel must understand the regulatory and business environment within which the client works and assist it in compliance matters. Closing the deal, but adversely affecting the client’s reputation, is not a positive result.
(d)Clients may require flexibility in addressing internal matters, which may include personality conflicts, closing requirements and training and development of in-house lawyers. Outside counsel must be prepared to address these types of matters.
7.Identify Legal and Reputational Risk Issues.
(a)In these times companies are and must be concerned about both legal and reputational risk. Companies realize that the profit from one transaction cannot compensate for a damaged reputation or remedy a compliance issue.
(b)Compliance is a top priority for many companies. Outside counsel can no longer leave awareness of regulatory issues solely to in-house counsel. Although in-house lawyers may have the regulatory expertise and should be consulted, outside counsel must understand the client’s regulatory environment and constraints when structuring a deal. They must know when to bring regulatory issues to the attention of the in-house lawyer or general counsel.
(c)Be sensitive to reputational risk issues, and escalate such issues in the organization for decision, as appropriate. Even if something does not technically violate any laws or regulations, it may still raise reputational issues. The balance and sensitivities have changed. Lawyers cannot be passive. In addition to Sarbanes-Oxley, various regulators have issued guidelines on managing reputation and legal risk, particularly in complex structured finance activities. Companies, and their lawyers, need to look beyond their conduct and consider the overall effect of the transaction, considering, for example, whether a customer transaction could be viewed as intended to mislead third parties.
(d)Know your client. Your client is not the officer trying to close a deal and accommodate the customer, it is the organization. Rule 1.13 of the ABA Model Rules of Professional Conduct, has been amended recently to recognize the changing roles and responsibilities of a lawyer whose client is an organization.
8.Creativity.
The corporate world aspires to continuous improvement. In terms of individual transactions, in-house counsel want dealmakers rather than deal breakers. Generally, there are a number of good attorneys who can handle a given matter competently. However, one of the distinguishing characteristics of a “star” attorney is creativity: generating new or different solutions to a problem that sets that attorney, and hopefully the client, apart from their respective competitors.
9.Collegiality.
(a)There is no substitute for personal contact through telephone calls and meetings. Impersonal e-mails, although prompt, are not a substitute for meaningful discussion. Any matter of substance requires dialogue.
(b)A relationship established through both work and social environment will create a platform for resolution of issues, if they arise.
(c)A personal relationship with a partner or senior associate fosters open communication. Outside counsel can foster client loyalty, and keep the client by personal communications.
(d)The client must have someone to call, have a meaningful dialogue, and receive a substantive response. Someone must be in a position to take action when something goes awry, such as an unmet timetable or poor quality of work. Senior members of the firm must be accessible.
10.Intangibles.
(a)In the interview process, nothing is better than getting into the substance of the matter and providing real-time dialogue and solutions. The investment in learning about the client and situation shows that potential counsel wants the engagement. The ability to provide solutions shows that outside counsel has the capability to handle the engagement and sets that person or firm apart from competitors.
(b)Although there are generally a number of capable attorneys who can handle a given matter, the unique attorney provides meaningful help outside of the engagement. Examples include contacts and business opportunities for the client. In this regard, outside counsel needs to be careful to provide value rather than volume.
(c)A firm’s representation with respect to industry issues and other clients can be a relevant factor. Also, even though representation of other clients in the same industry may not rise to the level of a conflict, law firms should understand that clients are sensitive about using the same law firm as a competitor.
(d)Outside counsel need to navigate conflict situations carefully, especially as they continue to increase in size. Conflicts regarding transactions can hopefully be resolved on a mutually acceptable basis, but litigation conflicts touch an emotional chord that is not easily reparable if breached.
list of exhibits
Exhibit ASample Guidelines for Outside Counsel
Exhibit BSample Outside Counsel Usage Survey
Exhibit CSample Regional Counsel RFP
Exhibit DOutside Counsel Evaluation Form
EXHIBIT A - SAMPLE GUIDELINES FOR OUTSIDE COUNSEL
I.OVERVIEW
The Company and its affiliates engage outside counsel throughout the country in a variety of matters every year. Controlling legal costs while ensuring the highest quality of services is a high priority for the Company. The cooperation of outside counsel is critical to achieving this goal. In an effort to facilitate the retention of outside counsel and the timely payment of statements for legal fees, we have designed the following guidelines and procedures. The Company welcomes your observations and suggestions for improvement to these guidelines.
II.GUIDELINES
The following guidelines apply to all matters referred to outside counsel, unless a different arrangement has been agreed to in writing. These guidelines supersede any conflicting terms of any previous engagement.
1.Scope of Engagement/Staffing.
(a)Outside counsel and the Company attorney supervising the matter (the “Company Lead Attorney”) should agree on the scope of the project and level of staffing at the beginning of any engagement. Additions or changes to the scope of the project or staffing must be agreed to in advance.
(b)Lawyers within the firm should be assigned to a matter based on their level of experience and expertise, so that the time billed reflects the highest level of knowledge and most efficient handling of the matter. In that regard:
(i)We will not pay for “training” attorneys.
(ii)Unless approved by the Company Lead Attorney, only one attorney shall attend out-of-office activities such as meetings, conferences, depositions or hearings.
(iii)Communications between attorneys in the same firm are closely scrutinized. For example, the Company will not approve time charged (A) by attorneys in the same office which involves one attorney updating a more senior attorney on the status of a particular matter or issue, (B) where a senior attorney gives instructions to a junior attorney, (C) where one attorney is reviewing work or correspondence generated by another attorney, or (D) where several attorneys are reviewing the same document (unless the outside counsel responsible for the matter requests such review and such review is approved by the Company Lead Attorney.)