Competitive Intelligence: A Tool for In-house Counsel

Competitive Intelligence has long been used by corporate America to analyze trends, client feedback, and marketing strategies to get an edge. It's the newest buzzword among law firms to win more market share and retain clients. But it's barely a whisper in law departments, at least when it comes to selecting outside counsel.

'The selection and evaluation of outside counsel remains highly subjective,' says Daniel DiLucchio, principal at Altman Weil, Inc., which provides management consulting services exclusively to the legal industry.

There are a number of reasons for the paucity of competitive intelligence in selecting outside counsel. While the idea that law is a business has been around for a while, it usually takes the legal profession longer than other industries to change. Moreover, it takes more time to review and analyze objective criteria versus calling a friend and asking for a referral. And as competition among firms has become heated, legal departments might have a tendency to sit back and reap the benefits.

'These days complacency among firms is out the window,' says Richard Brzakala, law firm manager for Royal Bank Canada Financial Group (RBC) in Toronto. 'There's always another law firm that is willing to learn about your business, your services, your methodology and can offer efficiencies from a different angle.'

Whatever the reason, when new outside counsel is needed, most general counsel pick up the phone. 'Based on anecdotal evidence, obtaining a referral is the most common way to choose a firm,' says DiLucchio.

Competitive intelligence is a systematic way of gathering, analyzing and managing information that can affect a company's ' or legal department's ' plans, decisions and operations. And those corporate counsel who use competitive intelligence to select new outside counsel and review existing counsel swear by it.

Making a List

After consulting with peers for recommendations, Michelle Gluck, executive vice president and general counsel at LandAmerica Financial Group, Inc., has a checklist of criteria that a firm must meet to be hired. First, and most importantly, she interviews the firm and asks about its depth of prior experience and results in the respective subject area. 'If I need to retain a firm for securities reporting advice,' she says, 'they better have reporting and enforcement experience. And I want to know what their success rate has been.' Then she seeks information about the consistency of performance by partners and associates in the firm. 'One partner might have expertise in a specific area, but if we have a case that expands to other geographies or other subject matters, consistent quality and expertise between offices, departments and lawyers is important,' she says.

Michael Hoffman, President, CEO and Chief Legal Officer of VarTec Telecom, Inc., uses the ratings if he doesn't have direct or personal experience with a new firm or if he needs counsel in a new geographic area. 'The rating system is part of trying to get a better feel or assessment of the credibility of that particular attorney,' he says.

Hoffman also culls names of pros-pective outside counsel by paying attention to headline grabbing legal matters and noting which law firms are involved. When he attends a conference or seminar and a lawyer gives an impressive presentation, he makes sure to take the lawyer's business card.

According to the 2005 The Law Department Management Benchmarks Survey, conducted by Altman Weil, the most important criteria used to select outside counsel was firm specialization, (32%); then responsiveness, (19%) and then cost, (17%). The survey was conducted April through June 2005, and 140 companies participated.

Some legal departments find a combination of objective and subjective criteria is the best formula for selecting outside counsel. In 2001, Royal Bank of Canada began consolidating its outside counsel in Canada from 3000 to 130. Initially, outside consultants were hired to manage the process.

'The consultants relied heavily on a generic RFP process that used objective data and pricing measurements,' says Brzakala. 'Historical relationships and established partnerships with our internal business partners seemed to take a backseat to other 'objective' things in the first go-around at convergence.' Subsequent regional reviews in Canada, and the present day consolidation of firms in the U.S., have been exclusively managed by the RBC legal department. The legal department has placed a heavier weighting on internal users recommendations in order to establish buy-in and future compliance with the final list of selected firms. 'Following 2001, we quickly understood that hiring outside counsel was not a run-of-the-mill sourcing project,' says Brzakala. 'We're not buying a product, but an attorney's time, expertise and knowledge of the client. The work may be objective, but the relationship isn't. You have to have the personality that fits with our company and that is accepted in the board room.'

Evaluate After Hire, Too

Even after a firm is hired, few legal departments bother to gather objective criteria to evaluate the firms and determine if they are meeting expectations. In the Corporate Legal Times/LexisNexis Martindale-Hubbell 16^th Annual Report of General Coun-sel, less than one-third of general counsel evaluate outside counsel after each matter or transaction (31.1%) or quarterly (3.7%) or annually (5.9%). In the Altman survey, only 18.32% of inside counsel said they formally evaluate outside counsel.

But those law departments that use a formal evaluation process say they learn valuable information from it. The firms on Chevron's preferred provider list are evaluated annually to determine whether they've complied with the company's processes and procedures; how well the firm's IT functions, and how the firm's billing functions interact with the company's. In addition, the legal department gathers macro information about the legal industry to determine what it should anticipate from its firms in terms of billing rates for the next year. The law leadership team, made up of general counsel from the four major operating companies, and the global law function administrator, meets and comes up with its position on firms' rate increases in early fall.

At RBC, some of the most useful information comes from the legal de-partment's general performance questionnaire, says Brzakala. The in-ternal business clients evaluate outside counsel and the anecdotal information from that questionnaire goes a long way to help the general counsel and senior lawyers fine-tune the preferred list of providers.

Gluck regularly evaluates whether a firm beats the stated deadline for a project and helps her anticipate potential legal problems. 'Today general counsel have so many legal subject matters to monitor,' she says. 'If a firm can help me proactively plan, that firm stands out.'

According to DiLucchio, the best practice for selecting and retaining outside counsel is the use of competitive intelligence. 'It's not necessary to go through a formal Request for Proposal process,' he says. 'I recommend a checklist of criteria to ensure the firm meets expectations, including reference checks.'

Yet RFPs can be an effective way to compare a host of outside law firms, while also satisfying internal compliance processes and due diligence requirements.

Still, most general counsel rely on subjective data to select new counsel.

'For small matters, I call several lawyers whose opinions I trust and ask them to recommend someone,' says Seth Jaffe, senior vice president, general counsel at William-Sonoma Inc. With those names in hand, he uses the Internet to gather information about the recommended lawyers ' what cases they've handled, their client lists, where they went to law school and what the lawyer's law firm says about itself. He might then call the lawyer and find out his or her billing rate.

Michael Roster, general counsel of Golden West Financial Corporation, and former general counsel of Stanford University says: 'Part of the reason I'm general counsel is that I know who is good and who isn't. After years of practicing law, if I don't know which firms have superb lawyers, I shouldn't be general counsel. I know by now which firms are first rate in legal work.'

But when Tyco International Inc. relied on an informal recommendation, it ran into trouble. The new management team at Tyco International Inc. asked its outside counsel for a referral to handle a political matter. The firm referred them to Jack Abramoff, who later pleaded guilty to fraud, tax evasion and conspiracy to bribe public officials. 'The referral came from a nationally respected law firm. It was a shock and disappointment,' says Timothy E. Flanigan, senior vice president and deputy general counsel at Tyco. Now, Tyco lawyers not only check the referrals in the local legal community, but hold face-to-face meetings with the recommended vendor. And for law firms in a RFP process, they consult the Martindale Hubbell rating of the lawyer.

'The lesson learned for me was to take the time to get to know the individual working on your account,' says Flanigan.

Tips for Selecting Outside Counsel

When selecting outside counsel, competitive intelligence, or objective market information, makes for better decision making. Here are some ways to get started:

1. To select outside counsel, make a list of criteria that a firm or lawyer must meet. Such criteria might include firm specialization, responsiveness, cost, history with the company, reputation, location and partnering capabilities.
2. Consider using available vender services that evaluate a firm's or lawyer's expertise, service and quality.
3. Cull names of outside counsel from important legal matters. Attend conferences or seminars and retain the names of lawyers who give impressive presentations.
4. Decide whether a Request for Proposal process is the best approach to choosing outside counsel. If so, be precise in what you ask and set a timeline. Use your contract ' not the outside counsel's ' for the basis of an agreement.
5. Whether you're using a checklist approach or a RFP, interview the outside counsel to determine if they meet your criteria. If you're using an RFP, make sure all responses comform so you can compare responses. 'Talk with former clients and adversaries of the outside counsel and ask about the firm's work so you can find out if their experience is real and how much of their results is based on talent and skill versus dumb luck,' says Charles James of Chevron.
6. Gather macro information about the legal industry to determine what the legal department should anticipate from its firms in terms of billing rates for the next year.
7. If you're using a RFP, run parallel negotiations with many outside counsel. Eliminate one each round. Use a fixed format.
8. Once a firm is hired, institute a formal evaluation process to determine whether your criteria continue to be met. Make sure internal business clients evaluate outside counsel, too. Cull data from e-billing and information management systems to determine such things as: efficiency in providing services, results achieved, whether the firm adhered to your guidelines for billing, expenses, communication, and access to a firm's premier lawyers.

Competitive Intelligence has long been used by corporate America to analyze trends, client feedback, and marketing strategies to get an edge. It's the newest buzzword among law firms to win more market share and retain clients. But it's barely a whisper in law departments, at least when it comes to selecting outside counsel.

'The selection and evaluation of outside counsel remains highly subjective,' says Daniel DiLucchio, principal at Altman Weil, Inc., which provides management consulting services exclusively to the legal industry.

There are a number of reasons for the paucity of competitive intelligence in selecting outside counsel. While the idea that law is a business has been around for a while, it usually takes the legal profession longer than other industries to change. Moreover, it takes more time to review and analyze objective criteria versus calling a friend and asking for a referral. And as competition among firms has become heated, legal departments might have a tendency to sit back and reap the benefits.

'These days complacency among firms is out the window,' says Richard Brzakala, law firm manager for Royal Bank Canada Financial Group (RBC) in Toronto. 'There's always another law firm that is willing to learn about your business, your services, your methodology and can offer efficiencies from a different angle.'

Whatever the reason, when new outside counsel is needed, most general counsel pick up the phone. 'Based on anecdotal evidence, obtaining a referral is the most common way to choose a firm,' says DiLucchio.

Competitive intelligence is a systematic way of gathering, analyzing and managing information that can affect a company's ' or legal department's ' plans, decisions and operations. And those corporate counsel who use competitive intelligence to select new outside counsel and review existing counsel swear by it.

Making a List

After consulting with peers for recommendations, Michelle Gluck, executive vice president and general counsel at LandAmerica Financial Group, Inc., has a checklist of criteria that a firm must meet to be hired. First, and most importantly, she interviews the firm and asks about its depth of prior experience and results in the respective subject area. 'If I need to retain a firm for securities reporting advice,' she says, 'they better have reporting and enforcement experience. And I want to know what their success rate has been.' Then she seeks information about the consistency of performance by partners and associates in the firm. 'One partner might have expertise in a specific area, but if we have a case that expands to other geographies or other subject matters, consistent quality and expertise between offices, departments and lawyers is important,' she says.

Michael Hoffman, President, CEO and Chief Legal Officer of VarTec Telecom, Inc., uses the ratings if he doesn't have direct or personal experience with a new firm or if he needs counsel in a new geographic area. 'The rating system is part of trying to get a better feel or assessment of the credibility of that particular attorney,' he says.

Hoffman also culls names of pros-pective outside counsel by paying attention to headline grabbing legal matters and noting which law firms are involved. When he attends a conference or seminar and a lawyer gives an impressive presentation, he makes sure to take the lawyer's business card.

According to the 2005 The Law Department Management Benchmarks Survey, conducted by Altman Weil, the most important criteria used to select outside counsel was firm specialization, (32%); then responsiveness, (19%) and then cost, (17%). The survey was conducted April through June 2005, and 140 companies participated.

Some legal departments find a combination of objective and subjective criteria is the best formula for selecting outside counsel. In 2001, Royal Bank of Canada began consolidating its outside counsel in Canada from 3000 to 130. Initially, outside consultants were hired to manage the process.

'The consultants relied heavily on a generic RFP process that used objective data and pricing measurements,' says Brzakala. 'Historical relationships and established partnerships with our internal business partners seemed to take a backseat to other 'objective' things in the first go-around at convergence.' Subsequent regional reviews in Canada, and the present day consolidation of firms in the U.S., have been exclusively managed by the RBC legal department. The legal department has placed a heavier weighting on internal users recommendations in order to establish buy-in and future compliance with the final list of selected firms. 'Following 2001, we quickly understood that hiring outside counsel was not a run-of-the-mill sourcing project,' says Brzakala. 'We're not buying a product, but an attorney's time, expertise and knowledge of the client. The work may be objective, but the relationship isn't. You have to have the personality that fits with our company and that is accepted in the board room.'

Evaluate After Hire, Too

Even after a firm is hired, few legal departments bother to gather objective criteria to evaluate the firms and determine if they are meeting expectations. In the Corporate Legal Times/LexisNexis Martindale-Hubbell 16^th Annual Report of General Coun-sel, less than one-third of general counsel evaluate outside counsel after each matter or transaction (31.1%) or quarterly (3.7%) or annually (5.9%). In the Altman survey, only 18.32% of inside counsel said they formally evaluate outside counsel.

But those law departments that use a formal evaluation process say they learn valuable information from it. The firms on Chevron's preferred provider list are evaluated annually to determine whether they've complied with the company's processes and procedures; how well the firm's IT functions, and how the firm's billing functions interact with the company's. In addition, the legal department gathers macro information about the legal industry to determine what it should anticipate from its firms in terms of billing rates for the next year. The law leadership team, made up of general counsel from the four major operating companies, and the global law function administrator, meets and comes up with its position on firms' rate increases in early fall.

At RBC, some of the most useful information comes from the legal de-partment's general performance questionnaire, says Brzakala. The in-ternal business clients evaluate outside counsel and the anecdotal information from that questionnaire goes a long way to help the general counsel and senior lawyers fine-tune the preferred list of providers.

Gluck regularly evaluates whether a firm beats the stated deadline for a project and helps her anticipate potential legal problems. 'Today general counsel have so many legal subject matters to monitor,' she says. 'If a firm can help me proactively plan, that firm stands out.'

According to DiLucchio, the best practice for selecting and retaining outside counsel is the use of competitive intelligence. 'It's not necessary to go through a formal Request for Proposal process,' he says. 'I recommend a checklist of criteria to ensure the firm meets expectations, including reference checks.'

Yet RFPs can be an effective way to compare a host of outside law firms, while also satisfying internal compliance processes and due diligence requirements.

Still, most general counsel rely on subjective data to select new counsel.

'For small matters, I call several lawyers whose opinions I trust and ask them to recommend someone,' says Seth Jaffe, senior vice president, general counsel at William-Sonoma Inc. With those names in hand, he uses the Internet to gather information about the recommended lawyers ' what cases they've handled, their client lists, where they went to law school and what the lawyer's law firm says about itself. He might then call the lawyer and find out his or her billing rate.

Michael Roster, general counsel of Golden West Financial Corporation, and former general counsel of Stanford University says: 'Part of the reason I'm general counsel is that I know who is good and who isn't. After years of practicing law, if I don't know which firms have superb lawyers, I shouldn't be general counsel. I know by now which firms are first rate in legal work.'

But when Tyco International Inc. relied on an informal recommendation, it ran into trouble. The new management team at Tyco International Inc. asked its outside counsel for a referral to handle a political matter. The firm referred them to Jack Abramoff, who later pleaded guilty to fraud, tax evasion and conspiracy to bribe public officials. 'The referral came from a nationally respected law firm. It was a shock and disappointment,' says Timothy E. Flanigan, senior vice president and deputy general counsel at Tyco. Now, Tyco lawyers not only check the referrals in the local legal community, but hold face-to-face meetings with the recommended vendor. And for law firms in a RFP process, they consult the Martindale Hubbell rating of the lawyer.

'The lesson learned for me was to take the time to get to know the individual working on your account,' says Flanigan.

Tips for Selecting Outside Counsel

When selecting outside counsel, competitive intelligence, or objective market information, makes for better decision making. Here are some ways to get started:

1. To select outside counsel, make a list of criteria that a firm or lawyer must meet. Such criteria might include firm specialization, responsiveness, cost, history with the company, reputation, location and partnering capabilities.
2. Consider using available vender services that evaluate a firm's or lawyer's expertise, service and quality.
3. Cull names of outside counsel from important legal matters. Attend conferences or seminars and retain the names of lawyers who give impressive presentations.
4. Decide whether a Request for Proposal process is the best approach to choosing outside counsel. If so, be precise in what you ask and set a timeline. Use your contract ' not the outside counsel's ' for the basis of an agreement.
5. Whether you're using a checklist approach or a RFP, interview the outside counsel to determine if they meet your criteria. If you're using an RFP, make sure all responses comform so you can compare responses. 'Talk with former clients and adversaries of the outside counsel and ask about the firm's work so you can find out if their experience is real and how much of their results is based on talent and skill versus dumb luck,' says Charles James of Chevron.
6. Gather macro information about the legal industry to determine what the legal department should anticipate from its firms in terms of billing rates for the next year.
7. If you're using a RFP, run parallel negotiations with many outside counsel. Eliminate one each round. Use a fixed format.
8. Once a firm is hired, institute a formal evaluation process to determine whether your criteria continue to be met. Make sure internal business clients evaluate outside counsel, too. Cull data from e-billing and information management systems to determine such things as: efficiency in providing services, results achieved, whether the firm adhered to your guidelines for billing, expenses, communication, and access to a firm's premier lawyers.