Reconnecting value to costs for services

 By Barbara L. Jones

The Daily Record Newswire
 
William and Charles Mayo radically changed the business of medicine when they introduced doctors to the idea of forming groups to share their skills. They thought that team approach — now called the integrated group practice — would ensure quality of patient care and be an efficient way to practice. Doctors were paid salaries, separating their financial interests from their patient care. Their employee, Dr. Henry Plummer, invented a system of patient record keeping that is the foundation of today’s record systems. William said, “The very necessities of the [patient’s] case are driving practitioners into cooperation.”
 
William and Charles would like Jonathan Oviatt. As chief legal officer and corporate secretary of Mayo Clinic, he’s committed Mayo’s legal department to a focus on value-based legal work and value-based attorney fees. The very necessities of that practice require cooperation and trust between inside and outside counsel, he explains.

The Association of Corporate Counsel, of which Oviatt is a past board chair, launched a “Value Challenge” movement in 2008. The challenge “seeks to reconnect value to costs for legal services. Our aim is to provide networks, tools, and dialog for both in-house and outside counsel to help us all better manage our clients’ legal affairs.” Oviatt believes this is the future for corporate counsel. “For me it always comes back to value,” he said.

But the value challenge is more than alternative fee arrangements, he said. “The real change was [emphasis on] relationship and common understanding of how to do work,” he said. The focus on value forces in house counsel and outside counsel to plan and strategize together, he said.

Oviatt said that about two years ago Mayo began choosing its outside counsel through a request-for-proposal system, with the legal work packaged into groups such as labor and employment or general business and regulatory. Oviatt wanted to use fewer law firms. He wanted long-term relationships with his counsel and he wanted them to learn Mayo’s business — on their own nickel. He wanted to pay fees based on the value of the work and he wanted the law firms to think long-term and staff accordingly.

“You can’t do this one piece at a time,” Oviatt said. “There has to be trust and mutual understanding about the outcome [of the legal matter] and the billing. The in-house staff needs to understand that the firm is going to have this certain book [of business] and the law firm understands that as long as they perform they can expect to get our business.”

Which is not to say that alternative billing is not important. “The distinguishing features of the law firms are how they approach alternative fee structures. All law firms say they will do it but if they haven’t had any experience (with alternative billing) they aren’t going to be good at it, he said.”

Be willing to accept risk
Of course, the chief legal officer doesn’t spend all his or her time reviewing the bill. Oviatt also practices law.

“We’re first and foremost risk managers — primarily avoiding avoidable risk. They want my business judgment and legal analysis. ‘What would you do if you were standing in my shoes.’ The lawyer has to be willing to accept risk. I want nothing to do with the lawyer who says, ‘I’m just a lawyer,’”

But, Oviatt added, “They aren’t looking for me to say no.” Mayo wants the legal department to get it where it wants to be, and with a zero tolerance of violations of the law, he said.

Mayo has about 30 inside lawyers and a staff of about 90. Oviatt’s paradigm is that the least expensive competent person should do the work, and that’s not necessarily a lawyer. For instance, take contract management. “We don’t allow an attorney to touch a contract until it’s been managed,” Oviatt said. The non-lawyers are better at contract work, he added. “Lawyers are too nuanced.”

Dramatic change is predicted
There is “relentless pressure” on corporate counsel to cut costs and that is not going to change but almost everything else is, Oviatt said. Increasing amounts of legal spending will be in-house or highly managed by outside counsel. Business will demand that the legal departments do “process engineering,” a term that refers to a redesign of processes that increases value to the customer.
 
“I do believe that the legal profession is going to go through a very dramatic change that will involve process engineering, innovative technology and [non-lawyer] project management,” Oviatt said.

“What you didn’t learn about technology is going to hurt you. What you didn’t learn about project management is going to hurt you. There’s still room for the senior partner who knows everything about mergers and acquisitions but now there’s a broader team involved. The old days of saying the surgeon is the best person to be in charge of everything — that just isn’t true.”

Managing retirement
Oviatt said the search for his successor should be complete in February, and he didn’t articulate his next move. He did note that the last general counsel who did not maintain some kind of role at Mayo was Harry Blackmun, who presumably was busy with Supreme Court matters. So that’s a possibility, along with time with his family. He appears to be doing some “process engineering” on his retirement plans.
 
“My father was a very wise country lawyer and he said gracefully handling transition is one of the most important things in the world,” Oviatt said. But clearly Mayo will keep a place in his heart. “I’ve been the luckiest guy in the world.”