Allstate GC: Law Firm Rates Are Way Too High

Photo by 401(K) 2012 (Flickr/Creative Commons)

It’s not hard to find a general counsel to complain about law firm billing rates, but in a recent interview with Big Law Business, Susie Lees, who’s been at the helm of the Allstate Corporation’s legal department since 2012, sounded especially frustrated.

“As an industry, or a profession, there isn’t a lot of conversation about winning and losing, success fees, or maybe things didn’t go so well, so the law firm doesn’t get paid,” Lees said. “The industry is really unique, in that sense. It used to be tough to explain, but it’s gotten incredibly difficult to explain fees to business people.”

Because of the nature of the insurance industry — insurers are often contractually obligated to defend when a policy holder is sued — the Allstate legal department is much larger than most: Lees said the company has more than 1,300 in the law department, about 650 of whom are attorneys.

But even Lees needs to go outside for legal help, and she thinks, even in alternative fee arrangements, law firms are still too tied to the billable hour.

“We’ve all been slogging away at this for a long time, and yet, even though I read articles all the time about general counsels saying, ‘We do a lot of things by alternative fee arrangements,’ I’d have to say, if you dig in, a lot of them are still based on hourly rates,” Lees said.

Lees said Allstate has a total of 20 law firms in its preferred provider program. Allstate representatives didn’t divulge the identity of all 20 firms, but said that, for key litigation, the company uses “Dentons, Kirkland & Ellis, and Seyfarth Shaw – among others.”

Founded in 1931, the Allstate Corporation is the largest publicly held provider of property and casualty insurance for individuals in America. As of year-end 2014, Allstate had $108.5 billion in total assets. The company is ranked 89th on the Fortune 500 list of largest companies in America.

According to the Allstate website, the company includes more than 75,000 professionals, made up of employees, agency owners and staff. Fifty-six percent of the company’s employees are women, and 33 percent are minorities. More than 42 percent of officers and managers are women and 22 percent are minorities.

A graduate of Brown University and the University of Oklahoma College of Law, Lees has worked at Allstate since 1988. In addition to venting about high law firm fees, and the need for law firms to find ways of avoiding repetitive work, Lees spoke at length about the nexus between work-life balance and diversity: that section of the conversation will be published in Part II.

Below is an edited transcript of the first installment of the interview.

Photo Courtesy of Allstate Corporation
Photo Courtesy of Allstate Corporation

Big Law Business: What do you value in an outside law firm? What’s your biggest pet peeve?

Lees: As far as the thing that’s most important to me, it’s probably the relationship — somebody that we know, who knows us. I like to have that comfort zone. I don’t like to waste a whole lot of time explaining who we are, what we do. It’s so nice, once you build up a relationship over time, when you can call somebody with an issue and they immediately know where to go because they understand what your company’s all about.

As far as my pet peeve, it’s probably the same pet peeve every general counsel has: the way law firms bill, the hourly rate system, and the fact that rates go up, or at least they try to have them go up year, after year, after year.

It’s just a real difficult thing to explain to business folks. We’ve all been slogging away at this for a long time, and yet, even though I read articles all the time about general counsels saying, “We do a lot of things by alternative fee arrangements,” I’d have to say, if you dig in, a lot of them are still based on hourly rates.

It’s funny. As an industry, or a profession, there isn’t a lot of conversation about winning and losing, success fees, or maybe things didn’t go so well, so the law firm doesn’t get paid. The industry is really unique, in that sense. It used to be tough to explain, but it’s gotten incredibly difficult to explain fees to business people.

As an industry there isn’t a lot of conversation about winning and losing, or maybe things didn’t go so well, so the law firm doesn’t get paid.

Big Law Business: What’s that conversation with business people like? Are you able to turn around and put pressure on law firms to lower fees?

Lees: I think, years ago, when the general counsel had a conversation with the business people about the budget, the focus was on their spend with their attorneys, training, and that kind of thing. The outside legal fees were whatever the legal fees were. General counsels would say, “We’re doing the best we can, but we didn’t bring all of these lawsuits. People sued us, and we had to defend them.”

Now, when I have those conversations with business people, they talk about my budget. The more the law firms charge, the less I might have to pay my folks, or to do my training, or whatever it is that I want to spend in general. My business folks, whom I’m answerable to, are looking at this holistically.

Yes, I can go in and say, “We had a 10 percent increase in lawsuits,” but when you talk to business people, a lot of times it’s a zero-sum game on expenses. It’s, “Susie, how are you going to pay for that?” It makes it kind of tough. The law firms are all great in conversations. They say, “What can we do to help you?” I could say, “Charge me 50 percent of what you’re charging,” but that’s not realistic. They need to help design a new system, and not look for in-house counsel to solve their problems.

People don’t have a lot of time to read memos anymore. Everything is bytes of information. The world has just moved on from that.

Big Law Business: Are you taking business elsewhere? Why can’t you tell firms to lower their fees or find another client?

Lees: I can do some of that. As I mentioned before, there are certain things that law firms can provide. Let’s say you need help in a special area of the law — let’s say ERISA. I have a lawyer here who does ERISA work, but she doesn’t do ERISA work all day, every day. She doesn’t have the same experience level that some of the folks in firms do. So I might need to go outside to get that kind of expertise.

If rates become a huge issue, and I find out somebody else has the expertise, and they’re doing it at a lower rate, or they’ve come up with a different solution, then I can move my work. But in order for me to staff up and take something on in-house, I can only do if there is a consistent flow of work. If the work flow is sporadic, it just doesn’t behoove me to make the investment in my budget.

Big Law Business: Aside from lowering fees, what would you change about the way law firms do business, or the law firm business model?

Lees: First and foremost, I think they should be familiar with the way communications are done at companies now. The long memo may be great to stick in your file, because you might need the information at some point, but if I send my CEO a paragraph on something, it’s a lot.

The law firms say, “What can we do to help you?” But they need to help design a new system, and not look for in-house counsel to solve their problems.

These guys are busy. I’m busy. People don’t have a lot of time to read memos anymore. Everything is bytes of information. Law firms do not excel at that. They live and die by a work document and a memo. The world has just moved on from that.

I also think that they need to start really thinking about big data. I think law firms have a ton of information that they should start mining to provide a different kind of perspective to clients when it comes to either outcomes in litigation or negotiations. I think a lot of us feel that we pay for the same work to be done, over and over again, because law firms just don’t have the ability to mine a lot of the data they have. They lack the efficiencies in using data that businesses have really started to realize in the last few years.

(UPDATED: This story has been updated to reflect that Lees became General Counsel of Allstate in 2012.)