WHETHER they got mad or just determined, company lawyers decided
a few years ago that they weren't going to take it any more.
Caught between rising legal expenses and cost-cutting demands by
senior management, many in-house corporate lawyers began
challenging the fees charged by outside attorneys. These general
counsel not only have sparked a revolution in how legal services to
business are billed and paid for, but, more broadly, their
assertiveness could effect long-term changes in how those services
"Efficiency," a production-line word that seemed as out of
place in many law firms as blue collars, has joined the legal
Even the most elite law firms that serve Fortune 500 America -
firms long accustomed to receiving millions in fees from blue-chip
clients with few questions asked - have been hit by companies'
insistence on economical practices. "There isn't a law firm in the
United States that hasn't had discussions with clients about value
billing," says a partner at one of the most prestigious law firms
in Chicago, who asked that his name and the firm's name not be
"Value billing" is an umbrella term for a wide range of new or
dusted-off fee arrangements between outside lawyers and, generally,
substantial corporate clients. "General counsel at major companies
are driving the effort, and the impact is mainly on large and
mid-size law firms," says James Marcellino, a partner at
McDermott, Will & Emery in Boston and president of the Boston Bar
Association. "But within that segment of the legal market, value
billing is a hot topic of conversation."
Fees gain new visibility
Indeed. At the three-day annual meeting of the American
Corporate Counsel Association in Washington last November, an
entire afternoon was devoted to a discussion among the member
in-house lawyers about fee arrangements with outside attorneys.
Business's concern over steeply climbing legal fees isn't new.
At least 15 years ago, many corporations began to bulk up their
legal departments in order to perform routine (and, in some cases,
even more-specialized) legal work inside. But most of the
achievable savings have been realized, and the trend has leveled
off. In fact, a nascent counter-trend is perceptible, according to
D. Broward Craig, a legal consultant in New York, who says some
downsizing companies are starting to shrink legal staffs and
"outsource" more work.
What is new is the willingness of company counsel to challenge
the bills they receive from outside lawyers. In part this stems
from the fact that corporate legal departments today are filled
with law-firm alums who know the pressure on outside lawyers to
rack up "billable" - but sometimes inefficient or unnecessary -
hours of work.
Companies and their in-house lawyers are taking their revolt a
step further, however. In questioning the billable hour itself,
they are raising fundamental issues about value and productivity in
the delivery of legal services.
Legal scholars Robert Litan and Steven Salop, reflecting much
current thinking, wrote in an article in the Jan.-Feb. issue of the
journal Judicature that "hourly fees provide ... incentives for
attorneys to run up bills at their client's expense." The authors
propose a combination of closer monitoring of hourly charges and
alternative fee arrangements to eliminate those incentives.
Many general counsel are adopting such practices. Some
companies, notably insurance giants like Liberty Mutual in Boston
(see accompanying story) and Aetna Life & Casualty Company in
Hartford, Conn., that have large litigation caseloads handled by
hundreds of outside lawyers, have developed extensive
Virtually across the board, companies are requiring detailed
bills from outside lawyers: Gone are the days when law firms could
submit five- or six-figure invoices "for services rendered. …