Head 'em off at the pass.

The guidelines and principles under which the Department of Justice investigates and prosecutes corporations, their officers and employees may finally change for the better. This week a contentious Senate hearing was held in which members of the Judiciary Committee grilled Attorney General Michael Mukasey on why he had not re-evaluated the controversial aspects of DOJ’s approach to criminal probes of companies. Those notorious issues include company waiver of the attorney-client privilege.

Immediately following the hearing, on the heels of hints by Mukasey that the tenets of prosecution would change, Deputy Attorney General Mark Filip sent ranking committee members, Senators Patrick Leahy and Arlen Spector, a letter regarding proposed transformations. The letter states that DOJ will no longer evaluate a company’s cooperation based upon its willingness to waive the attorney client privilege, its decision to advance legal fees to employees, its entry into joint defense agreements or whether it disciplines allegedly culpable employees. Whether or not a company is viewed as “cooperative” in a criminal investigation can mean the difference between the life support of a deferred prosecution or the corporate death penalty of indictment. However, over eighteen months ago Senator Spector sponsored legislation, the Attorney Client Privilege Protection Act of 2007, to accomplish these exact policy amendments. In addition, three weeks ago, thirty three former United States Attorneys urged Senator Leahy to hold a vote on the Spector legislation.

It’s about time. DOJ’s heavy handed approach which penalized companies for not waiving privilege, paying officer and employee legal fees and signing joint defense agreements has seriously undermined the integrity of the criminal justice process in white collar cases. The revisions promised by Deputy AG Filip, if drafted clearly and forcefully, should stop the blatant erosion of bedrock constitutional standards. The collateral consequences of the Bush Administration’s get-tough-on-corporate-crime policies have been extreme. Corporate officers and employees should be able to consult with company attorneys, exercise indemnification provisions for the payment of their own counsel and participate in joint defense arrangements without the fear of utter ruin. Big brother should not have such a powerful stick as to be able to force privileged secrets to be revealed and prevent people from having funds to hire lawyers. While DOJ’s belated change demonstrates a desire to beat the Senate to the punch, I hope the altered course will be clear and true. CR

There's no business like law business.

The self-described “legal tabloid” blog Above the Law has been busy lately keeping up with its Nationwide Layoff Watch. Among large firms that have fired attorneys in recent months are Cadwalader Wickersham & Taft and Clifford Chance. On Tuesday, ATL revealed that Sonnenschein Nath & Rosenthal had laid off 124 employees, including 37 lawyers. The firm had nearly 700 lawyers before the cuts.

Sonnenschein Chairman Elliot Portnoy told the ATL that the cuts were the result of changes in the needs of clients owing to the “economic downturn,” and were not “performance based.” But in today’s Wall Street Journal, Portnoy is quoted as saying that some “unproductive” litigators were also let go. “We have to take the steps necessary to make sure we are competitive for talent and achieve the profitability our lawyers expect,” he said. In terms of profitability, “A small group of firms are positioning themselves to pull away from the pack. We intend to be in that small group.” The Journal article also notes that industry analysts predict many law firms will have a difficult time achieving even slight revenue growth this year, much less the double-digit increases that were previously common.

Law firms are businesses, and the bottom line matters. In this respect we’re all in the same boat, whether we’re a global behemoth or a boutique. Where we differ, though, is how we reach that bottom line. Most large firms operate exclusively on the basis of the billable hour. This business model encourages maximizing hours worked by younger associates who bill at lower hourly rates but put in enormous numbers of hours. A study done in 2005 found that nearly a quarter of New York law firms required its lawyers to bill a minimum of 2,000 hours per year, and the percentages were even higher in other cities. The result is a profitable revenue stream to the firm, but a significant expense to the client. And, as in-house counsel consultant Rees Morrison points out in his blog entry about the study, bill padding in these circumstances is virtually inevitable.

When partners either can’t keep a cadre of associates busy or aren’t amassing their own billable hours they become “unproductive” and are pushed out. Worse, this business model is extraordinarily dehumanizing and cynical, in my view. That’s why we rarely practice it at our firm. We regularly offer reasonable fixed or flat-fee arrangements that are affordable for the client and fairly compensate us for our efforts.

There has been a lot of discussion in the legal blogosphere about alternatives to the billable hour, especially among corporate counsel faced with pressure to contain and predict legal costs. In his Legal Marketing Blog, Tom Kane described a panel at the Legal Marketing Association’s annual meeting in March led by the chairperson and general counsel of the Association of Corporate Counsel. One of corporate counsels’ complaints was the perceived unwillingness of law firms to discuss alternative fee arrangements. Kane notes that there’s a lot of work out there for medium-sized and smaller law firms because of their lower fee structure and flexibility in pricing. To paraphrase the Chairman of Sonnenschein, we intend to be in that small group. CR