The following post is sponsored by Fenwick & West.
Ask any entrepreneur, “What’s your biggest complaint about working with your lawyers?” and one of the top answers will inevitably be that the cost can be too darn expensive. And even when the cost isn’t “through the roof” expensive, it’s still unpredictable.
While unpredictability in costs is the bane of any company, this is particularly true for a start-up venture that is watching its cash outflow closely.
That being said, there are times when hiring a top-tier national or international firm, even if expensive, might make sense. But how do you decide what work rises to the level of needing one of those firms?
If you had to sum it up in one question, it would be “how strategic is the work?”. One helpful way to think about this is to break down your legal needs into 3 categories:
1) “Bet the company”
2) “Important”
3) “Commodity”
Not surprisingly, when a group of Chief Legal Officers were surveyed by Altman Weil (a management consulting firm for legal organizations) about the relationship between the level of work and the importance of price, as the importance of the work went up, the survey responders were less sensitive to the price and put more emphasis on the capabilities and reputation of the law firm.
Following this to its natural conclusion, “bet the company” work like financings, protecting key patents, negotiating strategic agreements, and advising the board will generally warrant hiring brand-name lawyers.
On the opposite end, for commodity work like document review or negotiating those “purchase order” type of agreements like the proverbial “water-cooler” agreement, clients are willing to take more risks.
But what about the work that’s important enough that you want to make sure you’re protected, but is not so important that it’s worth calling your favorite $600/hour lawyer? For instance, closing sales deals, reviewing offer letters or changes to the NDA before you let a new developer see your key source code, or revising your form agreements?
Fortunately, because the economic downturn has forced many companies to cut back on headcount, there are more options than ever before to obtain temporary legal help, including temp agencies like Robert Half Legal or Axiom Global, and a bevy of former law-firm attorneys who’ve hung out their own shingle.
Depending on the lawyer you find, you can find lower rates than a traditional law firm hourly model, and with some providers, you may be able to negotiate a predictable rate as well.
But don’t write off all law firms just yet.
There are a couple of law firms, one in the US (FLEX by Fenwick, http://flex.fenwick.com) and one in the UK (Lawyers on Demand, http://www.lod.co.uk), that are trying to help companies by providing experienced lawyers that can handle the “important-level” needs of their clients, but at a rate that is a fraction of what you’d pay at a law firm while also providing “predictable billing” models.
How is that possible? Both firms operate these businesses without much staff overhead and offer their attorneys a salary that is less than the typical law firm associate or partner, but is still very competitive with in-house attorney salaries. Since salaries make up the bulk of the cost to a client, by cutting those significantly, they’re able to then pass along these savings to the clients.
While the traditional hourly model will continue to be part of the legal landscape, as clients become more savvy at defining the level of importance of their needs, law firms that develop creative solutions that align the importance of a matter with the client’s risk tolerance and price sensitivity will likely be the ones to succeed in the future.
(Reuters) – Standard & Poor’s plans to update its credit ratings for the world’s 30 biggest banks within three weeks and may well mete out a few downgrades in the process, possibly surprising battered global bond markets.
Among the institutions that could be downgraded are Bank of America Corp (BAC.N), Citigroup Inc (C.N) and Morgan Stanley (MS.N), said Baylor Lancaster, an analyst at CreditSights Inc.
Spokesmen for the three banks declined to comment.
Some European banks could also be affected. On November 9, S&P downgraded its scores for the health of the banking industries in a number of countries, including Denmark, Sweden, Finland and the Netherlands.
The updates in ratings are part of a major overhaul of S&P’s methods for scoring the creditworthiness of some 750 banking groups.
The agency, the subject of intense criticism because its positive ratings for mortgage-backed securities played a major role in inflating the housing bubble, has been working on the changes for more than a year.
The updates are part of a broad push by S&P to improve its products and repair its reputation as its parent, McGraw-Hill Cos Inc (MHP.N), divides itself into two publicly traded companies.
S&P has taken pains to prepare the markets for the changes, but when it actually releases results for individual banks some downgrades could surprise, analysts say.
“One reason there could be surprises is that the new ratings method is very complex and it has been very difficult to simulate results,” said Beate Muenstermann, a London-based research analyst for the money management arm of JPMorgan Chase & Co.
One area for potential surprise lies in differences between actions the agency may take on bank holding companies compared with grades for their operating units. Another is variations between long-term and short-term ratings.
S&P posted an advance notice of the coming changes in March 2010 and in January 2011 outlined its initial plans and requested comments.
Earlier this month the agency published its final criteria and said it expects 60 percent of all bank ratings to stay as they are, while 20 percent will go up one notch, 15 percent will fall by one notch and less than 5 percent will drop by two or more notches. One notch is one-third of a letter grade — for example, the difference between a rating of “A” and a rating of “A-minus.”
S&P has not said what proportion of downgrades it expects among only the biggest banks. It has said to expect regional differences in the results for all banks. Western Europe fared worse than Latin America and Asia in the November 9 changes in scores for banking industries by country.
S&P estimated in January that there would be more downgrades, but the agency lowered some ratings while the plan was being completed and also eased some of the criteria.
The agency plans to first announce its results for the 30 biggest banks, possibly as early as late this month, and then begin quickly rolling out its ratings for smaller banks.
The agency has been discussing the often-arcane mechanics of the new methodology with banks and institutional investors and has posted explanations and tutorials on public pages of its website.
“S&P has been extremely good at guiding the market through this change in the methodology,” said Muenstermann.
How the changes are perceived by regulators could prove to be more important to S&P than to the markets. Bond fund managers say the market has probably already priced in the information underlying S&P’s research and judgments.
“The rating agencies tend to be laggards compared with prices,” said Ryan Brist, a portfolio manager at Western Asset Management.
S&Ps changes may even foretell a coming upturn for banks, he said. “Historically, ratings agencies tend to change their methodologies after large downward price movements in the market.”
John Croft, a portfolio manager and director of investment grade research at Eaton Vance, said, “They seem to be fiddling around with their methodologies more than opining about the underlying credit strength of issuers.”
Still, Croft gives the agency credit for trying to do better than in the past. Past ratings proved too high on such financial companies as Lehman Brothers, ABN AMRO and Wachovia, which either failed outright or were forced into mergers with stronger rivals.
“They are trying to rectify some of the problems that they have had in the past and to the extent that they do that, it is good,” said Croft.
The agency’s performance is under scrutiny from regulators, who are designing ways to reduce the power and profits from the ratings business now enjoyed by S&P and its main competitor, Moody’s Corp (MCO.N).
S&P made matters worse last week when its computer systems accidentally sent a note to some customers suggesting that the credit rating of the Republic of France had been downgraded in the midst of the European debt crisis.
S&P said later the error stemmed from a computer programing step it had taken last December with the banking industry country scores used in the first step of its new ratings method.
The impact of a downgrade can be very significant – aside from simply reducing investor appetite for risk (in its simplest form), it can trigger collateral calls and in a world where liquidity is hard to come by, and with the magnitude of funding (and rolling maturing debt) due over the next few quarters, we suspect this will be the catalyst for another leg down in equity prices as they snap back to credit’s reality.
Source: http://onlinereputationmanagement1.com
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