Working Effectively with Your Lawyer: Five Tips to Effectively Engage and Use Legal Counsel

Like it or not, most business owners will require legal counsel from time to time.  In most circumstances, using legal counsel will be in the context of a transaction, like raising capital, buying a competitor, or bringing in a key employee.  In less pleasant circumstances, it may be in the context of litigation.  In either case, you can make a difference in how effectively you work with legal counsel and in keeping the costs down. [Read more...]

Working Effectively with Your Lawyer: Don’t “Recycle” Legal Work

Recycling is generally considered a good thing when it comes to trash.  It helps the environment and conserves resources.  However, in the context of legal work, it is not such a good thing.  Of course, when I use the word “recycle,” I don’t mean recycling the paper that the legal documents are on.  I’m talking about recycling the actual words on the page.  When a client “recycles” their lawyer’s work which was performed on a previous deal and uses it in a new deal, the client is asking for trouble. [Read more...]

Working Effectively with Your Lawyer: What can a client do to keep legal bills low?

One of the things that business people find most objectionable about the legal industry is the high cost of legal services. Bills often exceeds estimates, sometimes by many multiples. However, while many clients think that the size of the legal bill is something that is completely outside their control, the fact is it’s not. There are ways for clients to effectively work with their attorneys in a manner that can help keep the legal bill low. Recently, I came across an article by Tim Greene, founder of the site Fizzlaw.com, that has some great suggestions on ways clients can keep legal bills low. Here’s a link to his article: http://nyreport.com/node/81790. Below are the five suggestions Tim had in his article. (The sentences after each suggestion are my own thoughts; you should read the original article to get Tim’s):

1. Avoid paying for a learning curve. While your brother-in-law may be a great wills and estates attorney, he’s probably not the best choice for the Series A stock offering of a startup. Sometimes lawyers will take matters that they are not qualified to do and learn along the way. This can get expensive. Therefore, clients should use an attorney who has experience in the kind of law and transaction that the client will be hiring him for.

2. Ask for a flat-fee arrangement (at least for a portion of the work). I have mixed feelings about this one. Sometimes flat fee arrangements can save a client money, and sometimes they don’t. In any case, it’s always worth exploring, but realize that both the attorney and the client will need to make sure that the engagement letter includes precisely what is and is not included in the price. This can get complicated and is sometimes not worth the time spent. In my own practice, I’m always willing to discuss flat-fee arrangement, but I always let clients know that such arrangements do not necessarily save the client money, but are useful when a client is on a budget and needs certainty.

3. Establish a budget up front, and stick to it. It’s important for both the attorney and the client to regularly keep in touch regarding how quickly hourly charges are racking up. Monthly invoices are strongly suggested, but if the matter is short and moves very quickly, more frequent communication is sometimes necessary.

4. Do as much as prep work as possible. Many clients initially go in thinking that because they have a high-priced firm doing their work, they can leave all of the little tasks like organizing the documents and compiling information to the attorneys. After all, what are they paying them for? It just seems like good customer service, until the client realizes that they paid hundreds of dollars per hour to get that grunt work done. I always offer my clients the ability to work on parts of the matter that don’t require an attorney if they are on a tight budget.

5. Communicate efficiently (especially when being billed by the hour). Some clients tend to be a bit talkative with their attorneys at first. Then the first invoice arrives and that comes to an end. But this suggestion goes beyond merely not being too chatty. It’s also important for clients to organize their thoughts and documents in advance of a meeting to keep it as short and efficient as possible.

In addition to Tim Green’s five suggestions, I have one additional suggestion of my own: a client should have a clear detailed plan for the transaction from the outset, often developed with the assistance of the attorney. This crucial stage is not the time to avoid talking to the attorney to save money, because the end result will invariably be a higher bill. Nailing down a specific and detailed structure from the beginning with the help of your attorney will help avoid having to change the deal multiple times over the course of getting the it done. Each time a deal changes, the lawyers must revise the documents sometimes significantly (and sometimes have to scrap their existing work entirely). This greatly increases legal expenses because a lawyer ends up writing and rewriting documents multiple times, obviously driving the bill up. Therefore, get a term sheet worked out at the beginning that is sufficiently thorough, so that the deal will not go through multiple incarnations.

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© 2011 Alexander J. Davie — This article is for general information only. The information presented should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.

Working Effectively with Your Lawyer: Don’t “Outsource” the Details of Your Deal

Having an effective relationship with your lawyer involves more than just hiring an attorney who is knowledgable and competent. You must also be able to work with your lawyer in a way that gets a deal done while protecting your interests. This is an interactive process that involves the active participation of both parties. All too often, I see clients ignore the details of their deals, often under the logic of “I pay him to handle all the details.” This is a perfectly understandable reaction. First, most entrepreneurs are “big idea” people, and are not detail oriented, so pouring through the 10 page representations and warranties section of a stock purchase agreement doesn’t exactly sound like a good time. Second, lawyers are expensive (many would say overpriced) and so clients want to see some tangible benefit to having hired them. Mitigation of risk arising from a deal is rarely tangible, but the luxury of not having to deal with the hassle or reading a dense 80 page agreement does seem like a tangible and tempting benefit. The problem is, this approach of “outsourcing” the details of your deal isn’t always in your best interest. Here are some reasons why:

1. In the end only you know your own preferences and concerns. A good lawyer will ask you extensive questions about what is important to you in the deal and what concerns you have going in that you would like addressed. An even better lawyer can help you think about and your articulate preferences and concerns about the deal that you had never even thought of. Often times however, the client, after being asked about their preferences on an issue that they had never thought about or cared about simply responds with “I don’t care; do whatever you think is best.” Many lawyers will simply go ahead and do exactly that, but what the lawyer thinks is best is often not what the client really would have wanted had they taken the time to learn about the issues involved. Therefore, my recommendation for clients, is that the next time you are presented with a question from your lawyer asking your views on something you care little about, instead of telling them “do whatever you want,” instead ask them “Why should this matter to me?” and see where the conversation goes. For lawyers, my recommendation is that next time you hear “do whatever you want” in response to a question you posed to your client on a relatively important matter, you should take the time to explain to the client why this point should matter to the client specifically and what the consequences would be for each of the various options the client has.

2. You lose the opportunity to learn about new aspects of business deals. Every business person, whether a new entrepreneur or a seasoned venture capitalist always has more to learn. A lot of this learning occurs during the course of negotiating and executing deals. No one should ever assume that because they haven’t heard of something or never really thought about it that it must be unimportant. By being fully engaged in the deal and all its details, you have an opportunity to learn more about the issues that drive deals and that have the potential to upset them. When it comes to being a consumer of legal services, especially in the business context, an educated consumer is a better consumer.

3. Often, the more sets of eyes looking at the problem, the better the solution that will be found. Studies have frequently found that having more than one person involved in a decision-making process is “synergistic”; that is, a group of people will often make a better decision than each person would make individually. If you check out of the process, and your lawyer is the only person working on a particular problem in your deal, statistically chances are that the solutions to those problems will not be as good as if you had participated in discussions with your lawyer on the issue. Sure the lawyer can talk to other lawyers in his firm (and often does), but this is not always an option at small firms or even at large firms where the client’s budget does not allow for two lawyers to be sitting there talking over your issue at a $1,000/hour each. Therefore, I believe that it is alway beneficial for clients to be involved in the problem solving process where appropriate.

4. The more sets of eyes looking at an agreement, the less likely there will be mistakes and oversights. As we all know, lawyers are paid to be “perfect” and never make a mistake or overlook anything. Unfortunately, in reality, they are human and do sometimes make mistakes or overlook important issues, even when you use the most expensive international law firm in New York. Now, I’m not saying that you should be spending your time proofreading your lawyer’s documents. But by being actively engaged in the process of negotiating the legal documents, you will reduce the chance that items that are important to you end up being left out of the deal and you will maximize the chances that the terms of the documents conform to your expectations.

5. Your lawyer will be at his or her best when you are fully engaged with the process. Lawyers, like any human being, are apt to take their cues from those around them. When they ask for your views on issues presented on your deal, and you respond with “I don’t care,” then unfortunately, some lawyers are less likely to care. Yes, I know, they are paid to care, but when the message they receive from their client is that whatever issue they brought to their client is unimportant, then they themselves are more likely to treat it as unimportant as well. The really good lawyers are those that are willing to stand up to their clients a little bit and persevere through the “I don’t cares” and ensure that their clients make good decisions about details that may currently seem unimportant but could be significant down the road. When you are fully engaged with the issues that your lawyer is working on in your deal, they will see you as a willing partner in helping them iron out those issues, and will be more likely to work through them to find the optimal answer.

In the end, you shouldn’t hire a lawyer simply to escape having to deal with the details of a complex deal. Rather, the lawyers should function as your guide and adviser and a partner in helping you ensure that your interests are protected. A lawyer can certainly take a lot of the burden off your shoulders by being the one to draft the complex documents, but you should always read any agreement prior to signing it, and if you don’t understand any portion of it or have any concerns, speak to your lawyer about those concerns. Being fully engaged will get the very best out of your attorney, whom after all, you have paid a lot of money to in order to have access to their judgment and skills.

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© 2011 Alexander J. Davie — This article is for general information only. The information presented should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.