Recession should spur executives to act on litigation risk management.

• Author: Anderson, Peter
• Position: LAW JOURNAL 2009

With every challenge comes opportunity. This applies even to executives who oversee corporate litigation in tough economic times. During a down cycle, business leaders must carefully evaluate litigation risks and options. When budgets were flush, many did not explore alternatives and simply hired the larger law firms to handle complex business disputes. Many executives consider litigation (and astronomical hourly lawyer rates) to be a cost of doing business. Since they are unaware of more cost-effective alternatives, many business leaders abandon all hope of accessing the best counsel when times are tight. But the good news is that there are meaningful choices.

Equally important, the pressure to reduce litigation costs also has forced business leaders to address prevention, early detection and cost-effective dispute resolution. Prevention is often the most effective means of managing litigation costs, and taking charge of litigation risk management puts executives back in control. The other important point is that there are law firms offering competitive rates to help ensure that preventive counseling makes business sense. Following are suggestions for identifying the most critical litigation risk-management components and for finding affordable counsel without sacrificing quality.

The outdated and costly litigation model

Most litigation departments at large firms have expanded by surfing on the waves of high-stakes lawsuits (or criminal indictments) filed against their clients. The pattern was all too common: civil lawsuit filed, complaint served, law firm hired, dollars flowed ... and flowed. At large firms, there is a trend to overspecialize, and the work is often done by inexperienced younger associates. Even though these associates charge less per hour, they are not nearly as efficient. The "value add" from this model is difficult to measure. Perhaps most troubling is that the law firm's economic interests in keeping the fight alive can be at odds with those of the clients' and that the focus is limited simply to reacting to the dispute at hand. Many businesses have been lulled into accepting this cycle as the norm.

Litigation risk management: It's not just about defending lawsuits and indictments anymore

The discipline of litigation risk management encourages executives to go beyond the reactive model and pay close attention to their operations while trying to anticipate where future risks might lie. Clues often can be found in...