Managing Legal
See update below about 3M lawsuit against a re-seller of its N-95 masks alleging “price-gouging” filed April 10, 2020.*
THE POINT
1. Conventional law firms design waste into their work — charging by the hour, over-staffing, assigning inexperienced attorneys alongside qualified ones, and avoiding substantial technology adoption.
2. In-house counsel — whose number and influence have grown in the past 40 years — have not used their companies’ purchasing power to fix this problem. So it persists.
DISCUSSION
On March 28, in the anchor’s set-up to a business news show’s interview with Mark Cuban, I wondered if I’d heard it wrong:
Was Mark Cuban really criticizing 3M Company for price-gouging and the like on 3M’s N-95 surgical masks (“so-called because they block 95% of very small particles”)?
In the midst of the COVID-19 pandemic?
No — not 3M directly.
Mark Cuban was alleging that 3M had failed to use its influence to stop distributors and other third parties from price-gouging and the like on 3M-made N-95 surgical masks.
His point: 3M could use its purchasing power with respect to these distributors and other third parties to bring a stop to this problem … if it wanted to do so.
…
” … Up until recently they [3M] sell, as best as I can tell, exclusively through [third party] distributors ….
“They [3M] apparently have just let their distributors price the [N-95 surgical] mask at whatever price they [those distributors] want to ….
“In a lot of cases they [the distributors] are not selling them to health care providers. Those distributors are selling them to re-sellers and black marketers who are then trying to jack-up the prices even higher than the distributors did.
“And my point in all this was, there’s a contractual relationship between 3M’s licensed distributors and 3M corporate. It would be very easy for them [3M] to say very strongly [to the distributors]:
“If you don’t take the inventory we provide you and sell them to hospitals and health care providers that need the [N-95 surgical] masks, when your contract comes up, we’re going to end that contract ….
“But that’s not what [3M] did.”
…
Just last Friday, the Wall Street Journal (subscription required) reported that:
“Mark Cuban, in an interview with Bloomberg News, … criticized 3M’s distributors as ‘making as much money as they possibly can’ from selling the masks.”
Reports to similar effect kept coming: The Observer, March 3o — “Why are N95 Face Masks So Expensive and Hard to Find? Mark Cuban Blames 3M ; The Intercept, April 1 — “3M Faces Pressure to Prevent N95 Mask Distributors’ Price Gouging”; Fox News, April 2 — “Florida Emergency Management Official Says 3M Selling Masks to Foreign Countries: We’re Chasing Ghosts”.
I don’t know if Mark Cuban’s description of what 3M has done here is or is not correct. And, as of this posting, I don’t know whether 3M has implemented Mark Cuban’s advice with its distributors and other third parties or not.
But Mark Cuban’s business logic makes sense: A company is not helpless if its vendors refuse to meet its needs.
…
Unlike the critical shortage of N-95 surgical masks amidst the COVID-19 crisis, there is no shortage of business lawyers.
For those companies that have a single in-house counsel — or one thousand — on their payroll, it’s the in-house counsel’s job to negotiate what’s best for that company’s interest in pricing and in other terms of purchase.
…
But, for the most part and for over 40 years, in-house counsel have ignored the waste that conventional law firm have embedded on purpose into their services:
- Charging by the hour,
- Over-staffing,
- Assigning inexperienced attorneys alongside qualified ones, and
- Avoiding substantial technology adoption.
…
In every company function — other than Legal — productivity is a ratio of value-produced-to-resources-consumed that places a searchlight on inefficiency, and thereby enables managers to create more with what they’ve got.
But today — in 2020 — the conventional law firm still defines “productivity” as “billable hours worked per lawyer” (2020 State of the Legal Market by Georgetown Law School and Thomson Reuters Peer Monitor, at P. 7 to 8).
In every other business function, productivity is a ratio — it’s how much output you get in return for an input — as in productivity of capital (return on equity), store profitability (earnings per square foot), etc.
…
As Mark Cuban reminds us, purchasing power means that companies aren’t helpless when service providers or other third parties ignore their needs.
Meanwhile, conventional law firms’ waste-by-design prevails largely because in-house counsel have not yet decided to use their purchasing power to get anything better for their companies.
* Update: On April 10, 2020 3m filed a lawsuit against a re-seller of its N-95 masks alleging “price-gouging”. Bloomberg Law story here; copy of complaint filed with the court here. My quick read of the 26-page complaint indicates that 3M does not allege that defendant re-seller had any contractual relationship with 3m as a distributor.