It has been more than 10 years since the chair of DuPont asked his legal department to determine how the company could get better value for its legal dollar. Otherwise put, the general counsel was asked to figure out how to reduce outside counsel costs. The result was the DuPont Legal Model-an integrated approach for continuously improving how legal services are provided in terms of quality, cost and efficiency.
A dozen corporate counsel met recently in Toronto for a presentation by Julie Mazza, DuPont's manager, law firm partnering, corporate counsel and Six Sigma black belt, from world headquarters in Wilmington, Delaware. Counsel in attendance are responsible for managing large portfolios of litigation assigned to outside counsel and were curious to learn how they might use some of the elements of the DuPont model.
The first 10 years of the model have seen dramatic results. Cycle times (the time to complete) are down from 39 to 22 months. Dockets (caseloads) have been cut in half. Large purchasers of legal services (such as insurers) will appreciate the impact of those results.
DuPont's legal expenditures dropped by 48 per cent between 1994 and 1998 and have held steady since. Imagine if your organization plotted outside counsel costs for the last four years on a graph. Likely the image would be an upward curve. Few law firms have reduced their rates in recent times. In fact, hourly rates have risen by 5 to 10 per cent or more every year for at least the last 10 years and will rise again in most firms before the first quarter of 2003 draws to a close. This is just as true south of the border as in Canada.
How did DuPont do it? They began by reducing the number of law firms and incorporating partnering concepts. But so have many other corporations-with lesser results. Three things appear to have made the real difference at DuPont:
- First, DuPont has developed a system of early case assessment that involves its business people along with inside and outside counsel. Every case is examined from a client (i.e. business) perspective. Factors such as the effect on the company's reputation, financial impact, and the need to mobilize resources for strategizing and litigation support are carefully scrutinized. The business perspective drives the focus for settlement or for the desired resolution.
- Second, DuPont is rigorous about case budgeting. Budgets are more than just a guideline. Law firms know that they will be held accountable to meet a budget. As a result, they invest time in putting together a reasonable estimate and then work to plan. Budgets are not static and can be revised to account for new or unforeseeable circumstances. This works, given the mutual trust relationship DuPont has worked to build with its law firms. There is no question that developing good estimating skills makes the difference.
- Third, nearly half of DuPont's law firms are using fee arrangements that are not hourly-based. Compare this against your organization. Chances are 90 per cent or more of legal work is still billed by the hour. Hourly billing is by its nature inefficient and does not encourage early resolution. Developing workable alternatives is also a daunting challenge for law firms and corporate counsel alike. It has worked at DuPont because the law firms worked hand-in-hand with the legal department to craft solutions.
Not in My Backyard
Roundtable attendees came away from Mazza's presentation feeling awed and overwhelmed. "Great ideas," said one, "but I can't see how we could implement the model in our organization. We just don't have the means to build a DuPont-type network." What is interesting is that this comment came from the general counsel to an insurance company-a large and regular user of outside counsel all across Canada.
Perhaps the reticence comes partly from the natural reaction to cost-cutting measures. Cutbacks mean giving something up. They also mean change, i.e., disturbance of traditional comfort zones.
John P. Kotter's, The Heart of Change, offers a solution. The absolute condition precedent to effecting change is to get people fired up and excited about doing things differently. Cutting costs doesn't inspire excitement. Kotter cites an example from one of the companies he interviewed, where the approach to reducing costs was founded not on cost-cutting, but rather on improving service. Everyone wanted customers to be treated well, and so enthusiasm was born.
Fundamentally law firms want to offer the best possible service. So do inside counsel. Early case assessment, accountability for budgets and alternatives to hourly-based billing are all really service-focused initiatives that any organization can adopt. Charting the unfamiliar territory is something that inside counsel who have utmost trust and respect for each other can accomplish.
There are many examples of innovation that reflect what DuPont refers to as its "five pillars":
- strategic partnering,
- early case assessment,
- use of technology,
- alternative fee arrangements and
- strategic budgeting.
The structuring of practice groups at Blake, Cassels & Graydon LLP to mirror CIBC's business units is an approach founded on strategic partnering. Intranets to promote knowledge transfer between law firms and their clients have made their appearance. Knowledge management initiatives are being developed in law firms to enhance client service.
A small percentage of legal work in Canada is no longer billed by the hour. The City of Victoria and the Quebec Hospital Association have abandoned hourly-based arrangements for 100 per cent of their legal work in favour of fixed-fee arrangements for a forecast number of hours. Some insurers have adopted flat fees for certain categories of matters. The City of Burlington has adopted fixed fees for each major phase of its Ontario Municipal Board hearings. Detailed case budgets and staffing plans were the starting point for negotiating the fixed fee.
No Canadian organization, however, has wholeheartedly adopted the five pillars. May we all live to celebrate "DuPont in Our Backyard".