Keeping legal fees under control: legal fees paid to outside law firms can put added pressure on budgets, particularly in today's slow economy, and often managing these fees is the responsibility of the chief financial officer. CFOs can become attuned to managing lawsuits as well as the fees.

• Author: Moscarat, Ken
• Position: Legal Issues

In the current tough economy, corporate operating budgets are stretched thin. Outside legal fees paid to law firms put added pressure on company budgets. Though Fortune 1000 companies may be capable of absorbing the costs of litigation in complex business or intellectual property/patent lawsuits, for example, small and midsize companies are less able to do so.

Because these small and mid-sized companies may not have their own in-house legal departments, it often falls to the chief financial officer to try to manage an expensive company lawsuit and deal with outside counsel. Yet that can place the CFO in an awkward position, especially if the lawsuit is consistently costing low five figures or more in outside legal fees each month, with no end in sight.

Just as a law firm might not know how to do a CFO's job, the finance chief may lack the know-how and experience to properly manage an expensive lawsuit where there is no insurance coverage to pay the legal fees each month. The typical CFO may not understand how to effectively implement legal fee oversight, efficient litigation management 4 practices, proper law firm case staffing levels and predictable case budgeting in the company's lawsuit.

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Additionally, the CEO or board may start inquiring about why the company's legal fees on the lawsuit are so high and whether there are any spending controls in place. Legal fees in many difficult business lawsuits can become unpredictable.

In order to become more attuned to ways of conserving on legal fees, small and mid-size company CFOs should be alert to certain telltale warning signs about the fees in a lawsuit, such as those discussed below.

* Hiring Inefficient Outside Counsel

Small and mid-size company CFOs may naturally gravitate toward law firms that offer lower hourly rates. However, lower rates will not translate into lower legal bills for a company in an expensive lawsuit if the law firm is inefficient. They need to ask the truly important questions in the outside counsel selection process about a law firm's internal culture and attitude toward efficient billing, budgeting, case staffing and litigation management practices.

Greater law firm efficiency can lead to lower legal fees for the company overall, even if the law firm may actually be charging higher hourly rates. Not all law firms are created equal in how they handle, manage, staff and bill an expensive, uninsured lawsuit that a company may be paying for out of...