Preferred billing methods

At the three meetings to discuss the survey’s findings event facilitator, Jeffrey Forbes from the Forbes Institute, explained that the research had been carried out before the full effects of the credit crunch had become clear. As a result, he speculated that in-house legal departments might now be under even more pressure to control their external legal spend than the survey suggested.

This hypothesis was certainly borne out by several of the events’ participants, both in-house and external. One of the Polish in-house speakers said they had noticed a shift of focus from quality to cost considerations when instructing external law firms. In Russia, one private practice speaker suggested that in-house counsel were now more able to shop around for high-quality advice, because many law firms were now less busy than they used to be – and were therefore more flexible about charging options. “Eighteen months ago, there was so much work in the market that there was a shortage of both lawyers and law firms,” he explained.

Across the entire Central and Eastern European region, the survey showed an overall preference (53 per cent) for fixed price billing, although this varied markedly between countries. For example, Russian respondents preferred fix price (64 per cent) to an hourly rate with cap (33 per cent), whereas Polish respondents preferred an hourly rate with cap (50 per cent) over a fixed price arrangement (36 per cent). In total, just 29 per cent of Ukrainian respondents preferred the fixed price option, compared with 50 per cent who said they preferred an hourly rate with cap.

By contrast, fees based on the “value” of a matter were preferred by just seven per cent of clients across the Central and Eastern European (CEE) region. There was one noticeable exception – Ukraine, with 21 per cent preferring this option. However, it is possible that this figure was caused by confusion about what “value-based billing” actually means. Rather than referring to the “financial value” of a transaction, it actually means “importance to the client”. Discussing this topic, one private practice speaker at the Moscow event described value-based billing as a “murky” concept, which lacked the transparency of other billing options.

In general, just three per cent of the survey’s respondents said they preferred using an uncapped hourly rate system – perhaps a surprising result, considering how popular it is in Western countries. The only country which appeared marginally interested in this billing method was Poland, where 14 per cent of respondents said they preferred this option, given the choice. Nevertheless, in general, CEE counsels appear wavy of agreeing to open-ended billing commitments. For example, an in-house lawyer at the Moscow meeting said that using an uncapped hourly rate billing made them feel “perilous”.

However, even though fixed and capped rate billings were fairly popular throughout the CEE region, several speakers at the various events commented that these billing schemes were by no means perfect. On the subject of hourly or capped rate arrangements, one Ukrainian speaker quoted “Parkinson's Law”, which states that work generally expands to fill the time available. At the Polish event, a private practice competition lawyer pointed out the practical difficulties of advising clients on a fixed or capped rate basis in their specific area of practice. “In a merger notification, it is impossible to predict at the outset whether it will be an easy or difficult job,” they said. On some occasions, they explained, large transactions - which they feared might cause problems - would be approved with very little fuss. By contrast, apparently simple matters would sometimes become bogged down by time-consuming problems.

Hiring of local versus foreign law firms

One of the most striking aspects of both the Martindale-Hubbell survey itself, and the also the feedback to it in the follow-up meetings, was just what a “non-issue” the national origins of law firms has become. Invariably, the survey showed that in-house lawyers tended to instruct international law firms on cross-border matters, while preferring local firms when detailed “local market knowledge” was important. However, in terms of service levels, the general consensus at all three meetings was that there was now “little difference” between local and international law firms.

Selecting an external law firm is now therefore a matter choosing one that offers the right balance of value for money, as measured by the quality of legal service they offered, versus other considerations – such as specialism expertise or the resourcing capability of the firm to be used. At the Moscow meeting, one in-house lawyer used a Russian-speaking local firm to advise on a matter of domestic regulation because their advice was highly specialist, but did not need to be circulated to non-Russian speaking colleagues. However, the same counsel also used international law firms for significant cross-border work. In-house speakers at both the Warsaw and Kyiv events said they generally did the same.

One issue that did raise its head at both the Moscow and Kyiv meetings was whether the availability of professional indemnity insurance (PII) was a factor, when considering which type of law firm to hire. One speaker at the Kyiv meeting suggested that some clients may seek comfort in instructing an international firm, knowing that they would be better protected if their advice subsequently turned out to be flawed. Similar sentiments were raised at the Moscow meeting. However, because many CEE countries do not have a good legal framework for suing professional advisors for negligent advice, some event participants were unsure as to what weight should be given to PII considerations.

Selecting external counsel

The survey discovered that the key criterion for selecting any type of external law firm – local or foreign – is belief that the appointed firm will deliver its advice on time. This criterion was considered vital within the CEE as a whole, but also within the country-specific finding, delivered to the Kyiv, Moscow and Warsaw meetings. Surprisingly, the expectation of timeliness was rated more important than cost, individual expertise – even understanding of the client’s needs – at least, when clients made their initial appointment decision. 
 

It is, perhaps, easy to understand why this would be the case. All clients – be they lawyers or non lawyers – will notice, if advice is not provided by an agreed deadline. Failing to provide legal advice on time can annoy any client, while also making the in-house lawyer who appointed them appear incompetent.  More importantly, because the CEE commercial market is evolving so fast, speed of response is often a matter of survival for corporate clients, and law firm advisors must be able to work within these tight timeframes.

For one participant at the Moscow event, delivering results on time actually meant “delivering results hours – or even days – ahead of time”. They pointed out that a law firm who delivered their advice at 5am, ahead of an early morning meeting, was not being particularly helpful. “In-house counsel need time to review a firm’s advice, and consider their options before the meeting,” they said.
 

More generally, the survey found a few minor peculiarities between countries, when examining the reason for selecting external counsel. For example, Polish respondents believed that the firm’s ability to be a “being a trusted advisor” was just as important as its ability to deliver timely advice. For their part, Russian respondents were marginally more interested in appointing external counsel on the basis of the reputation and brand of a particular firm, rather than the expertise of the firm’s individual lawyers.

Retaining external counsel

In each of the three events, participants discussed what they expected from their external counsel, if they were to be retained long-term. A common theme across the Kyiv, Moscow and Warsaw meeting was that, once appointed, law firms had to provide advice that was “crisp” and “relevant” to its intended audience. This advice, said one participant at the Warsaw meeting should also be “brief” and “practical”, and also “understandable for a business person”. In general, Polish respondents were unusual, in that they placed particular regard to individual lawyers’ expertise as the single most important factor when considering whether or not to retain a firm. However, across the region, clients generally put a premium on knowledge of both their specific business, and also of their wider industry sector.

In the Kyiv meeting, one in-house lawyer gave an example of what law firms should not do. The speaker mentioned how, when working on a $500 million acquisition, they had received a 10-page memo regarding a $50,000 matter. Needless to say, this particular counsel was not impressed by their advisors’ inability to focus their efforts on the most important issues at hand. At the Moscow meeting, one in-house speaker spoke in favour of law firms who had taken the time to develop industry-specific expertise. “To some extent, M&A is M&A is M&A,” they said. “But it’s always nice to instruct a law firm who understands what concerns a company that produces chocolate, ice cream and coffee. In an M&A deal, that industry-specific knowledge really does make a difference.”

Reasons for removing external counsel

Invariably, relationships between a client and their external law firm occasionally break down. When this happens, the client will either replace the law firm with one of their competitors, or will bring the specialism in-house.
 

In many respects, the reasons cited by survey respondents about why they decide to cease instructing law firms are perfectly understandable. Poor service, poor communications, or not understanding the clients’ needs were all given as some of the most important considerations. But some aspects of firms’ behaviour may be surprising to Western readers. For example, the survey showed that Polish corporate counsels were surprisingly concerned by “ethical” issues, such as perceived lack of confidentiality, or conflicts of interest concerns. Both Russian respondents and Ukrainian respondents were also worried by lack of confidentiality - but also by more practical matters, such as unfair or unclear billing practices.

Reflecting on the findings, Polish meeting participants were at a loss to understand why confidentiality concerns were ranked so highly in the survey’s findings. More generally, several in-house participants offered examples of “bad service” they had received. One speaker at the Moscow event recalled how their law firm had sent them a memorandum which stated outdated law, and had written a letter to a court at an incorrect address. In Ukraine, one speaker lamented law firms’ inability to see beyond narrow legal considerations, and advise them as to whether they could do something “in practice”.

Client satisfaction surveys

The final point of discussion at all three events was in-house lawyers’ attitudes to client satisfaction surveys. Opening this part of this discussion, event facilitator Jeffrey Forbes said that, in his experience, law firms seemed strangely reluctant to carry out such surveys. By contrast, he added, the survey clearly showed that clients were only too happy to provide feedback – given the chance.
 

Overall, the survey found that 79 per cent of respondents had never been asked by their external legal advisor to take part in a client satisfaction survey. By contrast, 65 per cent of respondents said they would be willing to complete a survey - with no conditions at all. A further 28 per cent said they would be willing to take part in a survey, on condition that it was conducted professionally, and that the firm acted on the survey’s recommendations.
 

There were, however, some country-specific peculiarities in this part of the CEE report. While 50 per cent of Polish respondents said they would welcome client feedback surveys without conditions, a substantial minority - 21 per cent - regarded them as a waste of time. Conversely, 100 per cent of Ukrainian respondents said they would welcome such surveys – with not one respondent regarding them as a waste of time.
 

Commenting on the findings, Jeffrey Forbes said he was surprised by what the survey had discovered. If the survey findings reflect general law firm practices, many international law firms have not implemented best practice in the CEE region by setting up formal client satisfaction programmes. As fellow panellist, Derek Benton, explained, client feedback programmes were certainly well-established in other word regions, where they were widely regarded as “best practice”. “In the US and North America, around 54 of the top 100 firms carry out feedback,” he said. “In the UK, a survey by a local professional marketing association found that 80 per cent of leading law firms carried out systematic client feedback.” And Mr Benton should know: as International Operations Director for Lexis Nexis Martindale-Hubbell, he has travelled the world, seeking feedback from law firms and their clients alike.
 

Analysing the survey findings, which said that some in-house lawyers regarded client satisfaction surveys as a waste of time, Mr Forbes offered a wry observation. In-house lawyers who had stated this had themselves completed a lengthy survey to disclose this fact, he said. For both Mr Forbes and Mr Benton, the meaning of this statistic was clear – it wasn’t that in-house counsel believed that client satisfaction surveys were a waste of time per se – they were only a waste of time if law firms didn’t learn from them. “Law firms that conduct client satisfaction surveys, and act on the results, make big changes to the way they treat clients,” Mr Benton said told the Kyiv meeting. “They draw up client-specific plans, revise their billing practices, assign client managers, and implement service standards and quality reviews. They also train and develop their staff.” Mr Forbes agreed, saying that in-house lawyers expect firms to “act on the advice they give” as a result of their client feedback programmes. “Don’t just go through the motions,” he concluded, rounding off the meeting.
 

For regular updates and discussions on how in-house counsel in Central & Eastern Europe select and retain their external counsel, join Martindale-Hubbell Connected and join Jeffrey Forbes’ ‘CEE research’ group.