By Michele Gorman
As some general counsel curb outside counsel work or seek alternative fee arrangements, law firms are trying to accommodate those needs in order to keep valuable clients amid shrinking demand, while empathizing with companies experiencing coronavirus-related cash flow issues.
Ben Gross’ legal department at retailer rue21 has limited its outside counsel use to time-sensitive and essential matters, and has changed the terms on payments, which he said firms understand. And for now, he’s placed longer-term projects “on ice” to help the company weather the economic challenges facing a sector hit hard by the crisis.
“Essentially it’s a small loan from the law firms going forward, just until we get out of it,” he said.
General counsel said they noticed that some firms embraced the uncharted territory of the pandemic early on, offering discounts, setting up COVID-19 teams and resource centers, and hosting complimentary webinars to guide their clients. Working together to share the burden, general counsel and firm lawyers are drawing on their relationships to agree on discounts, alternative fee structures or lengthened payment periods.
“When you have a good relationship with your outside counsel, they’re going to work with you in thick and thin,” Gross said. “They know that in ordinary times I pay my bills on time … but they also understand that every retailer right now has tremendous cash flow issues until we get back to normal.”
Joe Morford, a managing partner at Tucker Ellis LLP, also underscored the importance of relationships and assisting where he can, especially as some longtime clients approach the firm searching for ways to reduce their outside counsel costs.
“Those are circumstances where of course we’re going to help because these are our clients and that’s what you do with your good relationships in life,” he said.
Among the requests he’s seen: clients seeking temporary fee reductions, asking to limit work to the most essential tasks, and moving back a payment date, with the intention of catching up by the end of the year, Morford said.
And some lawyers predict these requests from in-house counsel might only be the beginning.
As businesses adjusted to the work disruptions brought on by the outbreak during the past few months, most general counsel have been focused on protecting the well-being of their employees and businesses. But soon they’ll have to look at the volume of unanticipated legal costs stemming from COVID-19 and adverse impacts to the businesses they support and then determine whether and how to readjust their budgets, said Jim Gallagher, general counsel at Perspecta Inc.
“It’s highly likely that every legal department will have to revisit their budgets and revisit their approach to the discounts … even the ones that have already been pre-negotiated,” he said.
Discussions about different arrangements can also help firms grow relationships and demonstrate strengths. For example, if a client promises a certain volume of work or to try out other areas of the firm, Tucker Ellis will sometimes offer a larger discount than the one requested, Morford said.
Similarly, lawyers at Heise Suarez Melville PA have been encouraging alternative fee arrangements, which shareholder Luis Suarez said have been “extraordinarily well-received” as clients seek certainty.
An alternative fee arrangement, or AFA, typically refers to any method other than the straight billable hour to pay for outside counsel. The dominant AFA is a fixed or flat fee, but there is an assortment of other methods — contingency, fee cap, success bonus — that attorneys can explore.
In April, Heise Suarez signed two fixed-fee arrangements, one for several months and the other for a shorter period of time. And in another instance, a major national chain approached the firm for work related to unfulfilled lease payments.
“They don’t want to pay high hourly rates; they wanted that certainty of, ‘You’ll get me to this point in the litigation for this dollar amount, and then after that, get me to the next point,'” said shareholder Mark Heise. “I think that certainty in this time of uncertainty is very satisfying to clients.”
He added, “Nobody wants to be out on a limb and spending a bunch of money when they don’t know if they’re going to have money to come in the door; whereas if they say, ‘Here’s X dollars right now,’ it’s gone, it’s out of their mind.”
Since it opened in January, Heise Suarez planned to provide AFAs. As Suarez pointed out, any legal budgets that clients had set at the beginning of the year are likely irrelevant now.
If they’re not already doing so, Cedar Realty Trust Inc. general counsel Adina Storch encouraged firms to offer AFAs — maybe a monthly subscription model for unlimited access to COVID-19 crisis teams that can answer questions for a flat, monthly rate. “It’s like paying it forward: When the world returns to a greater state of normal … all of these goodwill gestures I would imagine would come back to these firms, and they would distinguish themselves in terms of legal client service from their peers,” she said.
Storch said it might require biting the bullet in the short term and supporting negative cash flow to cultivate relationships. But, she added, “if law firms are able to get in the door at drastically reduced rates or even offer certain support services for free — like paralegal support, even printing and mailing support — I really do think that that is something that will pay dividends when the world goes back to normal.”
At Tucker Ellis, Morford stands by his lawyers’ dedication to their clients and is optimistic many of the adjusted structures will return to normal arrangements. But each client’s needs are different. Morford said his firm isn’t working through new pricing arrangements with every general counsel or all industries; rather, the need has mostly come from companies such as those in the hospitality and retail sectors that have shut down indefinitely. In the meantime, he encouraged other firm leaders to keep in mind that most clients genuinely need assistance and aren’t looking to take advantage of their outside counsel.
“For the most part, these are good companies with good people in the in-house counsel office who actually need help,” Morford said. “When this improves, we expect that things will return to a more baseline position.” –Editing by Kelly Duncan and Emily Kokoll.
By Michele Gorman
Law360 (January 23, 2020, 5:25 PM EST) — Google parent company Alphabet is on the hunt for a new top lawyer after its embattled chief legal officer said recently that he would step down at the end of the month. Legal industry experts say there are lessons other businesses can learn as the tech giant hits the search button.
The Jan. 10 announcement by David Drummond, who joined Google in 2002 before switching to Google’s parent company in 2015, follows claims that he and other executives covered up sexual harassment. Drummond himself was accused of misconduct by a former subordinate with whom he allegedly had an affair, in violation of Google’s rules about employee dating.
Drummond’s looming departure comes less than two months after Google’s two co-founders, Larry Page and Sergey Brin, said they would be leaving their respective roles as CEO and president of Alphabet. They were succeeded by Google CEO Sundar Pichai.
Moving forward, experts say it would behoove the internet company — and any organization facing a similar situation — to identify how and why a culture that allegedly allowed sexual harassment developed and to ensure the issues are eradicated.
“If now they bring on a new CLO and new management and then six months from now something else appears, that’s really not going to be good,” said Jolie Balido, CEO of marketing communications and crisis management firm NewStar Media, adding that a public-facing company like Alphabet has an opportunity to “come clean, even turn this to their advantage by making a case study out of it.”
How Alphabet Got Here
Drummond’s departure comes as the company has struggled to put its troubles behind it. In November 2018, 20,000 protesters took to the streets following a report that Google gave Android creator Andy Rubin a $90 million severance package after he was accused of sexual harassment. Five months later, four New York-based pension funds filed a derivative suit accusing Alphabet’s directors of damaging the company by condoning a workplace filled with sexual harassment and misconduct by covering up top male executives’ bad behavior.
Drummond and other Google executives have been named in suits claiming the company covered up sexual harassment. Many of the allegations center on the way the company responded to reports that former Vice President of Search Operations Amit Singhal allegedly groped a coworker.
As for Drummond, former Google legal department employee Jennifer Blakely said in a piece published on Medium in August that after her four-year relationship with him ended abruptly in 2008, she was pushed out of the legal department and then out of the company. She characterized Drummond’s behavior as “abuse” and as designed to make her life “hell.”
Among other allegations, Blakely said that after the breakup, Drummond would go months without seeing their son, who was born in 2007, but still pursued an aggressive case for custody that Blakely believed was designed to punish her. Blakely was ultimately awarded custody of the child.In his letter to staff announcing his upcoming departure, Drummond said Alphabet is “entering an exciting new phase.”
“I believe that it’s also the right time for me to make way for the next generation of leaders,” Drummond said in the letter, which Alphabet provided to media outlets. Neither Alphabet nor Google responded to requests for comment.
The Hunt for a Replacement
With a permanent replacement now needed, all eyes are on the company for the high-profile pick. Experts say that any business facing backlash should find a candidate who can set the right tone at the top. They recommend someone who is not only a strong and respected leader — either inside or outside the given industry — with business sense, communication skills and a model for the highest level of integrity, fairness and ethics, but someone who is also willing to work with the board and chief compliance or risk officer to determine a clear strategy forward to prevent similar allegations from arising in the future.
They say it would also be helpful for the lawyer to have crisis management experience and to embrace any new company initiatives that would hold all executives accountable for their actions. Uber Technologies Inc. is another prominent company that recently went through a management change in the midst of public backlash. As part of its efforts to change course amid mounting reports of sexism and misconduct under the leadership of founder Travis Kalanick, the ride-hailing company in 2017 hired as its chief legal officer Tony West, then the general counsel at PepsiCo and a former senior U.S. Department of Justice official.
At the time, Uber’s CEO praised West for being “well-equipped to handle the investigations into our past practices” and emphasizing diversity in his legal department and across all business units at Pepsi.
Some candidates might even welcome the challenges faced by Uber, Google and other companies. “You’re looking for someone who’s going to take control of the organization and change the narrative in a way that’s positive, in a way that exemplifies the mission and the vision that the company wants to have,” said Jean Kuei, a labor and employment attorney at Pillsbury Winthrop Shaw Pittman LLP. She also underscored the option of hiring an attorney from an underrepresented group for the top legal position. While an increasing number of women held general counsel roles at Fortune 500 companies in 2019 — up 5 percentage points from 2018 — they only held a third of the spots last year.
“As we continue to evolve, we need to make sure that our company and our culture is evolving,” Kuei said. “In order to do that, you need to make sure that there are different viewpoints and people at the table when you’re making important decisions that will affect the company.”
Picking Up the Pieces
As Alphabet emerges from the scandal, Drummond’s replacement will be a key executive responsible for ensuring the company upholds its own policies and preserves its brand. Once a company has done its due diligence by fully investigating allegations — preferably by outside, independent counsel — its leaders must think about moving forward. In times of major transition, maintaining the company’s mission at the forefront of its messaging is crucial, according to experts. “Whenever there’s a leadership change, whatever the reason for that departure, it has the potential for great turbulence,” said Amanda Halter, co-leader of the crisis management team at Pillsbury. “The thing to do is maintain the company’s mission at the forefront of its messaging, both internally and externally.”To communicate the message that the culture is changing and leaders understand the desire of its workforce, a company could empower its chief compliance or risk officer, who typically isn’t at the C- suite level, and create a board-level committee to specifically address issues, perhaps by taking regular surveys to ensure employees’ concerns are rectified, Kuei said.
Managers might also consider doubling down or reinforcing training, including for executives, adopting a platform in which individuals can report misconduct without fear of retaliation and updating employment policy manuals.
“Until it’s taken seriously and until people recognize that you need to treat everybody the same and not do these horrible things these people have been accused of doing, it’s not going to change,” said Mark Heise, a shareholder at Heise Suarez Melville PA.
According to experts, most companies will at some point experience a crisis, so it’s crucial to have a plan in place for when the unthinkable happens that will instill trust and respect in crucial stakeholders, employees and the larger community.
“You need to have an appropriate plan in place, and you need to take action, even if it hurts your bottom line or your business interests in the short run,” said Balido of NewStar Media. “Over the long run, not taking appropriate action hurts something priceless and even more important, which is your reputation.”
–Additional reporting by Sam Reisman, Emma Cueto, Rose Krebs, Dave Simpson, Mike LaSusa, Hailey Konnath and Bonnie Eslinger. Editing by Jill Coffey and Alanna Weissman.