By Michael F. Cade, CPA, CGMA

As part one of this blog identified ways to avoid some repetitive legal costs by standardizing agreements and establishing practices to deal with nonstandard issues. In this second part, I identify how to optimize lawyer relationships to get the best service at a reasonable cost when it is prudent to get outside legal help.

Some contract-related issues – even if you are able to use standardized contracts with minimal terms changes most of the time – should be discussed with a lawyer. These issues include changes to indemnification, contract jurisdiction, default, remedies, termination, and cancellation. Any proposal to alter your standard agreements in these areas calls for the engagement of your lawyer.

There are several other matters beyond contracts that should be discussed immediately with a lawyer. These may be industry specific, but in general they include unusual transactions, real estate, organization-level transactions or ownership changes, lawsuits, government or criminal investigations, or employee-related actions.

Some of these issues may be covered by insurance, such as wrongful employment termination or product liability. Know your policies’ coverage, and contact your insurance broker. Your policy may stipulate that the insurer selects legal representation.

Tips for Engaging Outside Lawyers

Selecting Legal Representation as a Procurement – Hiring a legal firm can be a subjective decision, but you, as the CPA, can bring concrete considerations to the decision. Work with your leadership team to use procurement practices to build an unbiased understanding of the firms under consideration.

Earlier Is Better – Work with your organization to identify a primary legal support firm before you need one. Find a firm that has direct experience with your type of organization in your business segment. If an issue arises that may or may not require outside legal support, do not wait to make that decision. An exploratory call can help define the size and scope of the matter and provide some idea of the magnitude of the cost.

Match in Size – The size of the firm you are considering should align with the size of your organization. If your organization is a small to midsize company, then you probably don’t need a high-end boutique law firm. Start with a local or regional firm if that is the reach of your business, and monitor the relationship as your organization grows.

Understand Risks – Lawyers are typically well-versed in assessing and communicating risk, so make sure that you are using that skill set. Do not hold back information that may be important to building a full comprehension of the issue.

Benchmark and Manage Fees – When selecting a firm (ahead of time), understand the prospective pricing schedule and practices for various levels of staff that may be needed for your typical requirements. In addition to rates, you should have an understanding that the firm will use the most cost-effective resource on engagements. You do not want to be paying partner-level fees for work that can be done by lower-level staff. The right firm for you will work with you to manage costs proactively.

Use Specialized Firms Sparingly – Try to find a firm with staff who are knowledgeable about as many facets of your organization as possible. This will cut down on the possibility of a one-time, high-cost specialty representation. Many legal firms have relationships and networks that can fill in gaps in their own practice, so consider that when choosing a firm.

Estimates, Monitoring, and Controlling Scope – When engaging a legal firm for a specific matter, discuss an estimate for the engagement and ask the firm to identify any viable cost-saving opportunities. During the engagement, have brief periodic updates on status, including costs. Ask the firm to notify you if the matter is not moving forward efficiently. People can get caught up in details and drag out decisions, which will result in higher legal fees, but provide little incremental benefit.

A Focused Point of Contact – Establish one point of contact within your organization for legal issues. That person should be the only person the legal firm should take direction from. Legal bills can skyrocket when several interested parties within an organization are interacting with the lawyers. Also, manage progress and decision-making meetings carefully to avoid wasting time and money. Set an agenda for all meetings, with any decisions to be made identified in advance so the right decision makers are in the room.

Insourcing Assessment

As an organization grows, hiring internal legal staff may become necessary. To aid in this process, maintain metrics on historical and current trends of legal expenditures, and conduct a formal review with senior management on a periodic basis. When the costs of outside support surpass the costs associated with hiring legal staff, then it might be time to bring on an internal legal resource. The analysis you have developed will provide input into the skills and experience needed in that new hire.

Bottom Line

As the CPA’s role in business and industry evolves, we are being called upon to find solutions for a wider array of challenges. In small and midsize companies, this can include managing legal costs. One way to optimize an expense that cannot be avoided is to engage outside legal firms before you need them by running a procurement action in partnership with your leadership team. Understand each firm’s pricing and practices during selection so that those issues are settled should a matter arise. Once engaged, partner with the law firm to monitor expenses to ensure cost/benefit and reasonableness. As a CPA, you can ensure legal costs are efficient, reasonable, and effective. So, save where you can, but get the proper legal help when you need it.

Michael F. Cade, CPA, CGMA is a strategy consultant and executive coach for MFCCoach LLC in Morrisville. He is a member of the Pennsylvania CPA Journal Editorial Board and PICPA’s Corporate Finance Advisory Board. He can be reached at mfcade@nfpbeyondthenumbers.com.

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