From Cravath: How to Cut Corporate Legal Costs

Hire lawyers who are too busy to pad the billable hour and open to fee-based work, especially in litigation, says Cravath's Evan R. Chesler

As cost-cutting takes hold across the business landscape, corporate general counsels will face enormous pressure to hold down legal expenses—particularly the cost of retaining outside counsel for litigation, which has been notoriously hard to control. Evan R. Chesler, presiding partner of New York-based Cravath, Swaine & Moore, one of the nation's most elite law firms, recently sat down with BusinessWeek to offer advice as to how companies can economize on the legal front.

First, says Chesler, "go to lawyers who are commensurate with the assignment." In other words, don't hire a firm such as Cravath to deal with routine matters. This may sound obvious, but Chesler says there's often a mismatch between the level of expertise that is needed and the level that is sought. "You end up buying a Mercedes Benz to take you to the train station," he says.

Second: "Hire lawyers who have more work than they know what to do with, because it will force them to be efficient." Lawyers who aren't busy may find that handling a matter expeditiously is not in their interest. "You want the lure of an additional hour to be a bad thing, not a good thing," Chesler says.

That leads to a third and core bit of counsel: Try to work out fees that are not based on the billable hour. "The billable hour can be a terrible thing," says Chesler. In litigation, he explains, "it creates all the wrong incentives," feeding a system "where it's more profitable to lose than it is to win." That's because when a corporate defendant loses a case, the process generally drags on with mounting legal fees.

Companies, of course, have been railing against the billable hour for decades. But particularly in litigation, it has persisted as the primary way big firms bill for their services. Chesler acknowledges that there "has been a one-way conversation" for years, but says Cravath now "is trying more and more to come to alternative fee arrangements that make the billable hour irrelevant." Generally, this means charging flat fees to handle cases, often with "success fees" for extraordinary results.

Flat fees may not always save clients money, but they do offer something of major importance to businesses: a measure of predictability in budgeting expenses. While Chesler thinks Cravath could do well under such arrangements, switching away from charging by the hour "is not intended to be a windfall for anybody," he says. "This is about trying to put some rationality in the system and come up with a better way of dealing with each other."

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