There are many ways by which CPAs can benefit their employers. According to Michael Cade of MFCCoach LLC in Morrisville, an emerging avenue is through the management of company legal fees. Learn why CPAs are uniquely qualified for this responsibility. Check out more of Cade’s insight at http://nfpbeyondthenumbers.com.

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By: Bill Hayes, Pennsylvania CPA Journal Managing Editor

Podcast Transcript

There are many ways by which CPAs benefit their employers, but the one we will discuss today was called a new opportunity by today's guest in a pair of blogs for PICPA's CPA Now. That opportunity is management of a company's legal expenses. Today we will explore traditional management of legal expenses, why CPAs are uniquely qualified for this responsibility, and when it pays to get legal involved with Michael Cade, a strategy consultant and executive coach for MFCCoach LLC.

If this opportunity is new to CPAs, maybe someone else had previously been assigned to it. Who has traditionally been in charge of this for organizations?

[Cade] It really depends on the organization. These legal costs tend to be sort of a hot potato. They may end up in the operations organization. I've seen organizations where it was in HR and administrative. And sometimes the CEO or general manager handles it. It's just one of those areas that doesn't necessarily have a home by itself. I think it's a great opportunity for CPAs to show some value to the organization and bringing cost savings to those legal expenses is very important.

Let's talk about some ways CPAs can help manage legal costs. How does the use of a standard agreement help with this?

[Cade] In some cases, organizations, especially when they're starting out or kind of getting a little larger, may have a number of different agreements and they may be service agreements or employment agreements, NDAs, things along those lines that basically whenever they have one of these opportunities come up, they go to an outside legal support to get them done, basically fresh every time. But most of them pretty much stay the same.

So standardizing those agreements, saying “Listen, this is our standard version; here's what we are comfortable with,” it really gives you the opportunity to avoid some of those costs of having legal review all the time. Basically, you can set up some parameters around it to give you some wiggle room. But still you can figure those out ahead of time and not have to call outside help every time some new contract starts.

We're talking about how you can do these agreements and not involve legal, but what should a CPA's approach be as it relates to negotiations of these agreements? What in particular can they handle and when do you think legal does need to be involved?

[Cade] Usually what I would suggest with most organizations is you want to get some legal aid up front to understand the agreement. There's lots of little terms that don't necessarily make sense to someone who doesn't have the legal background.

Usually it's a good idea at the start to identify your common agreements, the things that you do on a regular basis, and then get a little legal help up front to get those terms where they need to be. Once you have it, you can basically run with it for a while. I usually suggest that periodically, every couple of years, you have someone look at them again just to make sure that nothing has changed. But you can usually get them moving pretty well.

There are a couple of areas in contracts that, if you're dealing with a third party and they want to change something such as indemnification or costs associated with termination, can get a little touchy. So you want to make sure that if you want to change something significant that you do reach out and get a little bit of legal help there to make sure you don't do something you'll regret.

What are embedded resources in contracts and how can they be leveraged to keep legal costs from getting too high?

[Cade] In certain agreements that you have, and typically these are consulting agreements, you may have access, as an outside organization, to resources that have a legal background. Two that pop to mind are either a benefits consultant who helps you work with your benefits providers, your healthcare, and all that, who may have an ERISA lawyer on staff. That's usually a very helpful thing to have some additional support there. Just to be able to go to and say, “Listen, let's just figure out the basics first and then go from there.”

There are certain circumstances where you'll have to get legal support. What are some of those specific circumstances, whether they be contract-related or otherwise?

[Cade] Typically if a government official shows up at your building with some type of subpoena, something like that, you definitely want to reach out sooner than later. If it's a bigger issue, if there's, like I said, a lawsuit involved, those are the things where you pretty much instantly want to get on the phone with someone because those can turn ugly pretty quickly.

From a contracts perspective, typically a contract issue will have to continue on a little while before it gets to a legal level. So if you have a disagreement on a contract, you need to interact with that party and figure out where it's heading. It should become obvious over time if something's not getting settled that at some point you have to say, “Well listen, either we have a relationship with this other party that we need to maintain and we're willing to live with something going on or we need to figure out to get some additional help.” But in a contract sense it usually has to grow to that.

Other than that, if it's a lawsuit or something along those lines where you're getting a document handed to you and you have to appear or something along those lines, that's when you really want to reach out.

If you do have to engage a lawyer, what size works best for CPA firms? Is it a smaller practice? Are you looking for one of the bigger ones? Or does it depend on the size of the CPA firm?

[Cade] With any organization, you sort of want to find a match. I've found that if you're a small organization, either a CPA firm or a small business, you typically aren't going to want to go to the very, very large legal firms. You're just not going to be able to afford it. You want to try to find someone, if you're a small community organization, maybe in the organization or in the community nearby. I think that's a good place to start.

As your organization grows, if you're regional geographically, then probably a regional legal firm would be a good match. Once you get to a certain level or if you have a very specific specialization, let's say you do things that are associated with intellectual property, you may have to get to a bigger firm to find someone who's qualified in that particular specialty.

But typically you want to try to match. If you're a midsized firm, get a mid-sized lawyer.

Most CPAs, they're probably good at getting a good deal. What can a CPA do to figure out how much the engagement's going to cost and how fees can be kept down if they need to contact legal?

[Cade] I think the most important thing as far as managing an ongoing legal matter is really being up front about what you're expecting to be done. So, sitting down with the law firm up front and figuring out what are they going to do. What are you going to provide? How can you work together to keep the matter as cost-effective as possible. But it's really expectations.

Now there may be a tail on some of these things that grows. If it takes longer, it's going to cost more. You're not going to be able to control that. But up front, it's really good to understand the roles and the responsibilities of your side as well as the legal organization to make sure that you're making good choices on who does what.

If the fees from legal outreach start to get a little too high for an organization, they might consider establishing their own legal team. Is there a role for CPAs to play in that assessment?

[Cade] Oh, absolutely. I think the most important role for the CPA in that type of decision is analytical. It's being able to look at the legal expenses previously and looking ahead from a budget perspective and saying where is there a concentration of costs? Because obviously, if you want to bring in a general counsel, they have to have enough experience in those concentrated areas to save the money. If you bring someone in who's like, I'll go back to the earlier example, who's a good intellectual property lawyer and you have a lot of contract law that needs some support, that person is just going to be picking up the phone.

So when that conversation starts to happen at the organization, I think the CPA is a great person to start that conversation of saying “Hey, listen, we're spending all this money externally. Maybe we can be more efficient if we had that resource in house and here's three or four years worth of historical data on the types of things that we spend money on so that we can target that hire to be the best one to save our money.”