Editors' Blog

Backs to the Wal-Mart

Posted 9/11/2007 by Deal Comment

An expert on US general counsel popped in to say hello earlier this week. Steve Pressman, editor of GC California, a Legal Week sister title, was interested to find out how European in-house departments tackled the perennial issue of rising costs. After all, it was only recently that the UK saw the arrival of the £1,000 per hour rate.

But it turns out that high external spend is not just a European problem – the same is true of general counsel across the globe. The common criticism in California is that while in-house lawyers complain a lot about fees, they are rarely able to halt spiralling costs.

That is why this week’s news that Wal-Mart has written to its advisers effectively banning any hourly rate increases for the time being is so interesting. Wal-Mart is understandably concerned that the bonus war that erupted in New York last week is likely to be passed on directly to its legal bill.

In a strongly-worded letter to the retail giant’s external legal counsel, associate GC Miguel Rivera said: “In an effort to address some of our concerns about hourly rates for legal services, we are today announcing a moratorium on across-the-board rate increases.

“Until further notice, we will only consider reasonable, individual requests for rate increases for those attorneys in your firm who are performing at an exceptional level and whose experience and knowledge is adding substantial value toward meeting Wal-Mart’s legal objectives.”

This kind of approach will have many legal heads nodding with approval - firms cannot get away with passing on wage increases to clients forever, they will say.

But Wal-Mart’s approach is not foolproof. Firms are masters of this game and will no doubt find reasons to bill more hours to compensate for the rate freeze, or put in place uplifts for the successful work they do. In addition, the plans are only temporary, so may not help Wal-Mart in the long term.

Ultimately, whether it is in California or Copenhagen, general counsel will always face an uphill struggle. Until, that is, they are prepared to call their advisers’ bluff and instruct firms with less powerful brands. But that in itself is a strategy that has its risks. As the saying goes, you don’t get fired for hiring IBM.

paul.hodkinson@legalweek.com