IN MOST corporate organizations the general counsel is the chief legal officer of the company and has over-all accountability for all legal matters arising from the company's business. Most outside counsel are familiar with dealing with the general counsel regarding traditional legal matters--particularly litigation. It is important to remember, however, that most general counsels also have profit-and-loss accountability for their internal legal departments and the management of outside counsel relationships. Legal departments of corporations are not profit centers; they are cost centers. Legal expenses represent significant costs to all organizations, and the general counsel is constantly challenged by other senior management to reduce this area of cost.
The impact on corporate bottom lines from cost reductions of any kind is dramatic. For example, in a company having a profit margin of 10 percent, the company must generate $10 in revenue to realize $1 in profit. Concurrently, reducing costs by $1 is the equivalent of generating $10 in revenue.
Outside law firms should appreciate this concept and present themselves as being dedicated to lowering a company's total costs. Outside firms that recognize that general counsels wear two hats--hat of a lawyer managing legal work and that of an executive with profit-and-loss accountability will be at a distinct competitive advantage.
ATTORNEY-CLIENT OR SUPPLIER-CUSTOMER
More and more corporations, while preserving the legal requirements of the attorney-client relationship and particularly the privilege that attaches, are approaching outside counsel relationships in a manner similar to their other more traditional supplier-customer relationships. Law firms are being evaluated based on their performance in many areas, not simply their legal skills. These areas include cost savings and efficiency, responsiveness, and a willingness to offer creative solutions to clients' problems. From the viewpoint of the corporate general counsel's office, there are an infinite number of outside firms with excellent legal talent. The successful outside firms need to offer additional value to the traditional attorney-client relationship.
Corporations also are rewarding outside firms as they would suppliers. At Rollins, given our goal to reduce total cost associated with legal matters, indemnity and defense costs, we have initiated incentive programs to reward outside firms for both positive results and significant cost savings.
The inherent conflict that often exists in typical long-term attorney-client relationships is that the client corporation is striving to lower legal costs, including legal fees for outside counsel, while outside firms are trying to increase revenue from these same clients.
At Rollins, we are committed to reducing and controlling total legal costs, but we also want the law firms working with our companies to profit from the work. Less revenue does not necessarily mean less profit. Efficiency and enhanced productivity are the goals.
Firms that respect their corporate clients as valued customers will benefit from this enlightened view of the business of law.
OUTSOURCING: OPPORTUNITY FOR LAWYERS
Leading-edge law firms are well positioned to take advantage of a concept now prevalent in all aspects of business. It's called "outsourcing," and it occurs when a corporation hires an outside organization or organizations to assume primary responsibility for one of the corporation's functional areas. Many corporations are downsizing their legal departments and placing more work with select outside firms. At Rollins, we have consolidated and outsourced our litigation work with six firms. In the process, we have reduced the size of our legal department significantly. Seven lawyers now manage the legal work for our three publicly traded companies, and much of their time is spent managing the regional counsel program
Outsourcing encompasses more than a law firm's offering to take all or a large portion of the corporation's legal work. …