Let’s revisit our Five Big Ideas to see what went right, what went wrong, and where they are now.
Thinning The Ranks: Convergence
E.I. du Pont de Nemours and Company was the first major corporation to apply the “less is more” mantra to its law firm roster. Starting in 1992, the Wilmington-based chemical colossus launched an ambitious program to whittle its defense firms from about 350 to 38 and to demand fee discounts. Soon after, “convergence” — the clunky term for consolidating work with fewer suppliers — quickly became one of the hottest trends of 1990s law department management. Chrysler Corporation, Marriott International, Inc., Mobil Corporation, and The Prudential Insurance Company of America instituted similar programs.
So, does it work? Absolutely, say veteran law department consultants like Daniel DiLucchio, Jr., a principal at Altman Weil, Inc. The more firms a company uses, the greater the expense of managing them. “If I’m serious about costs, the first thing I do is narrow the number of firms I’m working with,” says DiLucchio, who’s based in Altman Weil’s Newtown Square, Pennsylvania, headquarters. Putting outside firms on notice that they’re either about to lose a client or land even more business empowers general counsel and placates senior management. Among the major corporations now paring outside counsel lists are MCI Communications Corporation, Merrill Lynch & Co., Inc., and Tyco International Ltd.
The problem, consultants say, is that some general counsel don’t take convergence far enough. Law department managers simply fire a bunch of law firms, or take their efforts just one step further by demanding discounted hourly rates from the survivors. Corporate bean counters are happy, but, at the end of the day, it’s a limited victory. Law firms easily recoup their losses from lower fees with annual rate hikes and longer hours. What’s more, discounts miss the real problem with runaway costs, says Peter Zeughauser, a Newport Beach, California, law firm consultant. “Rates don’t drive costs,” he explains, “[inefficient] staffing does.”
But convergence still has its drawbacks. When John Liftin became general counsel of Prudential Insurance (now Prudential Financial, Inc.) in 1998, he inherited an ambitious program that had pared the financial services company’s outside counsel from some 800 to 200 law firms, embraced outside vendors, and awarded 143 fixed-fee contracts. Liftin liked the idea of a slimmed-down roster of firms but soon put an end to the more radical initiatives, including the mandatory request-for-proposal process that consolidated work among 60 out of the 200 firms. He says his deputies didn’t like limits placed on the selection of outside firms and that he wanted his in-house lawyers to be accountable for their hiring decisions. “When [corporate counsel] are required to use a firm because it won a bid,” explains Liftin, “it’s too easy when there’s a bad result for them to say, ‘What do you expect? This isn’t the firm I would have used.’ ”