First Rule of Business: No Surprises!

by Timothy B. Corcoran on April 24, 2009

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In a recent post on his fantastic blog directed to corporate counsel, Rees Morrison describes the opening statement in a communication from a corporate General Counsel to his outside law firms:

On the first page of the JDS Uniphase guidelines for outside counsel gleams the distinctly un-lawyerly sentence “We hate surprises.” That dramatic and clear statement leads off two paragraphs about the utter importance of prompt and full communication between law firms and the law department.

This lesson cannot possibly be repeated enough.

I’ve had the good fortune to lead businesses. It’s hard to forecast revenues and expenses well in advance, it’s hard to make progress when talented employees come and go, it’s hard to make profits when those confounded competitors keep catching up or overtaking us! Each of these presents uncertainty. Uncertainty is a fact of business. Some have even found a way to quantify uncertainty so it can be incorporated into the business planning process (see here, but have Advil and a very good calculus textbook on hand).

With the market presenting uncertainty all day every day, the last thing business owners want is another surprise, particularly those that are self-generated, particularly from vendors and suppliers.

Most law firms add up revenues and expenses at the end of the year, and then decide whether to raise rates in the coming year. Problem is, the coming year has long since arrived when the rate increase notice is distributed in January or February. When’s the best time to issue notices of rate increases? Late December? By Thanksgiving? In the corporate world, most managers have to submit all revenue and expenses for the coming year by the end of August, and several revisions will take place until we lock it down by early October. Anything past that date constitutes a surprise.

The same goes for budgets for ongoing matters. Predictability is often more important than absolute cost.¬† But sometimes costs exceed expectations. As a service provider, you shouldn’t necessarily bear the brunt of overruns if your actions are in keeping with the assignment. But don’t ever ever rely on the invoice to communicate the delta between actual and expected costs. Make a phone call. Make it long before the invoice is generated. Give the client as much runway to adjust accordingly. It may even impact their business decisions concerning how to proceed.

But it’s not just about fees. We all know litigation is by nature unpredictable. That said, there is a finite set of potential outcomes. Each outcome has a financial and public relations cost. The savvy law firm helps its client identify and quantify the potential outcomes, within reasonable ranges. It’s not just good client service, it also helps the client make better business decisions. As I’ve written elsewhere,¬†most business owners don’t consider legal issues in the same way that a law professor might, as an opportunity to explore fascinating areas of the law. It’s merely risk management. What path gets me to my goal most expediently? Given my appetite for risk, what legal tactics further my business objectives? I may not even care about being “wrong” as long as the cost and PR impact are manageable. I don’t want to be surprised if the legal tactics you advocate present unforeseen challenges.

By the way, if you’re a lawyer and you don’t explicitly know your client’s appetite for risk, and how this shades his business decisions, and instead you provide advice based on what you feel is the “right” response to a legal issue, then you might very well be the next to receive a surprise.

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