It’s an old and all-too-common story. Speak to a business owner or entrepreneur about a legal problem they are having, and the complaints start. “My attorney bills me for breathing.” “Whenever I ask my attorney to explain what’s happening on my case, I end up knowing less than I did before I asked him.” Typical complaints include excessive and confusing bills, unclear explanations about pending matters and status, inaccurate cost estimates, lack of responsiveness and my favorite, negativity: “My attorney never tells me what I can do; only what I can’t do.”
This “Businessmen are from Mars, Attorneys are from Venus” disconnect is not inescapable. There are a few simple hints that can help you get the most from relationships with outside professionals. Because I am an attorney, my comments will address legal counsel, but these same techniques can be applied with success to your accountant, business consultant or other outside professionals.
One note that relates to all of these suggestions – lack of effective communication – is the biggest barrier between businessmen and outside professionals. Your ability to communicate comfortably and effectively with your attorney will determine how successful your relationship is. While there are certainly some attorneys who are “better” than others, the best attorney is the one who takes the time to speak with you in plain language you can understand.
Why do attorneys think that way?
First, understand that attorneys are trained beginning in law school to spot problems. Their experience in practice reinforces this tendency, and in a bit of delicious irony, the increasingly litigious nature of our society further reinforces this trend. An attorney will rarely be sued for pointing out problems, but if a suggested solution turns out badly, lawsuits are increasingly common.
Attorneys see their goal as eliminating risks to the client. But business is all about taking risks – calculated risks, designed to achieve commensurate rewards. So, how does a businessman bridge this “no risk” gap?
Learn how to ask the right questions. Never ask an attorney, “Can I do X?” The answer will usually be “No,” because that is the easy answer the attorney is trained to give. Identify the outcome you want to achieve. Be as specific as possible. Don’t ask vague or open-ended questions.
An example would be: “I am currently manufacturing and selling widgets, but most of my customers also need gadgets. I could make a lot of money if I could sell gadgets to my widget customers, but gadget manufacturing is very risky. How can I set up a new enterprise to manufacture and sell gadgets, and insulate my widget business from the risks?”
Tell your attorney what you want to achieve, in some detail, and ask them how to do it. If you don’t get a workable answer, refine the question and ask it in a different way until you get an answer that makes sense.
Again, learn to ask the right questions. Don’t ask “Why can’t I do that?” Instead, ask “If I do X, what are the likely risks? How bad are the consequences likely to be? How likely is it that they will occur, and if they do, are there ways we can limit the damage?”
Your attorney can serve an important function by helping you quantify the risks of various courses of action, giving you the information you need to make critical decisions.
Budgeting effectively for projects
Giving cost estimates, especially for legal projects, is difficult. There are many issues that affect cost that are beyond the control of the attorney, and attorneys are usually bad at making reliable estimates. So how do you budget effectively for projects? Does it make sense to ask your attorney to quote you a fixed fee?
I am not a big fan of fixed-fee arrangements. If a client asks for a fixed fee, I have to give an estimate that is higher than the hourly fee would be for a “clean” deal – to protect myself against unforeseen problems. Because the client is aware that there is a fixed fee, the project tends to undergo “mission creep.” The scope of what the client was requesting keeps expanding, and the client insists on a level of handholding that they would not ordinarily request – because they aren’t paying for it.
If there are no unforeseen problems, and I control the client’s desire for “free” handholding, I end up charging the client more than if I had charged on an hourly basis. If there are unforeseen problems, or I am not successful at controlling “mission creep,” I end up not getting paid adequately for my work. Some projects, such as forming a new subsidiary for an existing company, lend themselves to fixed fees. But, in most cases, fixed fees are a poor solution for what is, once again, a communication problem.
Don’t ask your attorney “How much will it cost for you to do X?” You will get an answer that will not be terribly reliable, or terribly helpful. Start by determining a baseline. “What is the least you have seen this kind of project completed for?” Then try to determine what issues are likely to occur that could cause this cost to increase. “What kinds of problems come up on projects like this that cause the cost to go up, and how can we minimize them?” Then work with your attorney to avoid those problems. Also, find out what support you and your staff can provide. This may include assembling and copying documents or preparing factual descriptions of events.
Controlling fees is also an area where your ability to explain your goal is important. If you leave your goals vague, don’t be surprised if your attorney chooses the “safest” approach, which is unlikely to be the cheapest or most efficient. Get a clear understanding of what the project entails, what steps need to be taken, and the timeline. If you are not clear why a particular item is part of the project, ask questions until you get an explanation that makes sense. If you remain unconvinced, suggest omitting that particular item from the project or deferring it until later.
Make sure your attorney has a clear understanding of the facts before any drafting starts. This is critical to controlling fees. If your attorney does not know key facts, he will either omit crucial parts of the project or will make assumptions about the facts that may lead to extensive redrafting. This is one instance where it will pay dividends to keep your attorney on the phone and not let them off the phone until they describe the underlying facts to your satisfaction.
Trying to control costs is a good thing, but don’t be penny wise and pound foolish. While the expense of such items may seem like an unnecessary burden to a growth-stage company, solid, well-written employment agreements, employee policy manuals, trade-secret protection agreements and similar housekeeping items are well worth the expense. They can help prevent much more expensive disputes in the future. While litigation is sometimes necessary, it is always expensive, and can frequently be avoided.
Have a frank conversation with your attorney about what items really are necessary, and which can be delayed. If you are not the sole partner or shareholder of your business, one category of documents that cannot be avoided or put off are buy-sell or shareholder agreements. The best business partners can have disagreements, and even a successful business can be destroyed by a bitter fight between partners that could easily have been prevented by a properly written buy-sell agreement.
What to do when the bill comes
Even if you faithfully follow the advice I’ve given, the day will come when a bill arrives that takes your breath away. Do yourself and your attorney a favor and don’t pick up the phone immediately. Put the bill away for a couple of days, then pick it up again and review it carefully.
Can you figure out for yourself by reviewing the time descriptions why the bill got out of hand? If not, can you at least frame some questions, based on the descriptions, which you can ask your lawyer? When you are finally ready to call about the bill, make sure you are calm, and that you start the conversation with a positive tone. If you are confrontational or overly aggressive, your attorney will be defensive.
A good place to start might be something like this: “I was getting ready to pay your bill (lawyers always like to hear that), but there were a couple of things I wasn’t clear on. Do you have a minute to discuss it?” Then ask questions in a non-accusatory way. “Why was this work necessary? I really want to understand,” or “The bill seems a little high for that project.” While it doesn’t pay to be confrontational, you need to have a frank conversation.
If you truly believe the amount you have been billed is excessive for the work product you received, you need to tell your attorney that. However, that message goes over better when the undisputed part of the bill is being paid. If you really feel that the bill is excessive, make an offer along the following lines: “Normally your bills are reasonable, but this one just seems excessive. If you are comfortable with this, I’ll be happy to pay three-quarters of the bill, and you write off the balance. I’ll send the check today.” Then, of course, make sure you do send the check.
Remember, if used properly, your outside professionals are resources, and should be part of a team, working to support your business. Communication, cooperation and mutual respect go a long way toward building that team. Let your attorney know what you expect, make your goals clear, ask questions until you are satisfied with the answer and pay promptly. If you do have an issue with a bill, address it frankly but respectfully, and make a reasonable offer for immediate payment of the undisputed amounts. Following these simple rules will make you a popular client and will likely lead to lower fees and more customized, effective results.
Steven E. Peden is a member of Steptoe & Johnson's Business Solutions Department in the firm’s Century City office. Peden’s practice is focused on counseling and representing privately held businesses in connection with private debt and equity transactions and venture capital finance transactions, as well as both privately held companies and strategic and private-equity buyers in merger and acquisition transactions. He can be reached at email@example.com or visit www.steptoe.com.