There are times in every CEO’s life where you’re going to need the help of a good lawyer. And when those times arrive, you’d like to think that your lawyer’s interests are fully aligned with your own. Unfortunately, you need to be aware of a couple of dynamics when you engage a lawyer because, if you ignore them, you can find yourself forced to make decisions that aren’t exactly favorable to you and your interests.
You need to consider two areas when it comes to managing the relationship with your lawyer: revenue and risk avoidance.
Every lawyer is a one-person business, even if they are part of a larger firm. Sure, many lawyers operate as part of a more prominent firm. But it’s still just a collection of individuals billing for their work. In fact, in a large law firm, the way lawyers are valued by how many dollars they bring into the business, either via new customers or through what they’ve billed their clients for.
That gives lawyers every motivation to drive up their revenue –which is not precisely aligned with your interests in keeping your legal fees to a minimum. There are a couple of areas you need to watch for where lawyers try to beef up those fees.
One area to watch for is when you find that your lawyers have invited some colleagues or associates to join the call with you. While you might be flattered to get the extra attention, you need to realize that they’ll be billing you for each person’s time. That’s especially true if you’re dealing with a senior partner in a firm who might ask a few of the associates who report to them to join the call. Not only do they use an opportunity like that to teach these younger lawyers, but the partner also gets credit for their billable hours. Like a momma bird, their job is to feed the fledglings.
I remember a transaction where the other party had hired a law firm based in New York City. For my part, I had only a single lawyer helping me. But every call we had, this other law firm had multiple attorneys on the call–each charging hundreds of dollars an hour or more. In the end, we closed the deal, but this other party spent tens of thousands of extra dollars on lawyer fees in the process.
Another area to watch for is getting billed for “research.” This is another example of a senior lawyer trying to bill you for training a younger associate. For instance, I had an HR contract issue I needed help with a few years back. I found the best and most experienced lawyer in my state for help. But when I got my bill, I saw a line item for 10 hours of “research” on employment law in my state by an associate. I challenged this fee. I told my attorney that I hired him because of his experience, so why was I paying for him to have junior associate research the law? To his credit, the lawyer struck the fee. But it should serve as a reminder that you need to watch for the different ways that lawyers might find to run up the billable hours on you.
By their very nature, lawyers are risk-averse. And they view their job as doing everything they can to manage risk levels down as low as possible by adding language, conditions, and clauses to protect their clients. As a client, you might argue that’s a good thing. But there comes the point where you will experience diminishing returns. The cost you’re paying to reduce that risk isn’t worth the investment. Unless you have a very savvy attorney, they may develop constructs that are highly protective and equally impractical.
But lawyers will continue to bill you with the justification that they continue to mitigate your risk for you. But at some point, as a CEO, you will come to an end where the amount of risk is acceptable and that it’s time to stop pounding the issue (and paying those mounting attorney fees). Your lawyer will never tell you that you’ve reduced risk “enough”; that’s your job.
You’ll find this dynamic, especially when you’re dealing with attorneys who work for big publicly-traded companies. Unlike entrepreneurs, where risk is part of the lifestyle, big companies try to avoid risk. They are ok with spending exorbitant amounts of money on paying lawyers to reduce risk.
So, whenever you’re dealing with your attorney, it pays to understand what motivates them while also ensuring that your own needs are met–without spending more than you need to.