Comcast Wants Law Firms to Change the Channel on Hourly Rates
Art Block, the general counsel top in-house lawyer at Comcast Corp., froze its legal spending in 2009 after years of annual law-firm increases of 5 percent or more. Block says the freeze was partly in response to the recession, but also was triggered by the belief that hourly rates, particularly for first-year associates, had gotten out of hand, according to Philly.com.
Now the company increasingly wants its outside lawyers to jettison the traditional hourly billing rate. It is pressing for flat fees or other alternative-billing arrangements that emphasize efficiency and expose firms to financial risk if matters drag on too long or conclude unsuccessfully.
Comcast, based in Philadelphia, has approved a 2.5 percent increase in hourly rates for 2010. But the law firm marketing message to law firms is unmistakable: The balance of power has shifted, and outside lawyers will have to scramble to keep the company's business.
"The objective is to get a sense that the law firm is managing its own business more efficiently for our mutual benefit so they have some skin in the game," Block said. "We are not looking to be punitive; we are looking to be more businesslike."
A decision by Comcast managers to push back against rate increases or to accelerate changes in the way law firms are compensated has ripple effects far beyond Comcast, the nation's largest cable company, with 24 million customers.
One reason is the size of Comcast's legal budget, typically between $75 million and $100 million a year but likely more than that in 2010 as the company moves to complete its acquisition of a controlling interest in NBC Universal Inc., a $30 billion transaction announced Dec. 3.
The law firms themselves say the push for greater efficiency and alternative-billing arrangements can work for both sides, provided there is a good working relationship.
"You have to have a good strong relationship for these things to be effective, and I think they can be very effective," said Robert Heim, chairman of the litigation department at Dechert L.L.P. who represents Comcast on some matters.
Comcast has 75 lawyers on staff. It will have many more once it completes its transaction with NBCU, which has 250 in-house lawyers.
The bulk of Comcast's legal work is done by about 25 firms; it is represented by seven in Philadelphia, including Morgan, Lewis & Bockius L.L.P., Dechert, Cozen O'Connor and Davis, Polk & Wardwell, and Freshfields of London.
Though the size and complexity of the NBCU deal likely means that Comcast's legal budget this year will grow significantly, the overall trend is toward clamping down on costs, Block said.
"We want to feel that the firms have a commitment to be businesslike and won't rely on asking us for annual increases without regard to facts and circumstances," he said. "We can be creative. We want them to be creative."
