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02/15/94

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Legal Office studies possible restructuring

STANFORD -- The General Counsel's office is studying how to restructure legal services at Stanford with the aim of cutting fixed costs, providing more expertise and adapting to fluctuations in university and hospital legal needs.

As part of the study, members of the university's legal staff made presentations last week about their work to a dozen law firms that may bid on Stanford's legal work.

While the outcome will not be known for some time, it seems likely that at least some of Stanford's attorneys would be retained to manage the outsiders, cover their own areas of expertise and provide needed knowledge of the institution.

General Counsel Michael Roster said his interest in restructuring is not a negative reflection on his staff, who he said are "extremely good lawyers and very devoted to Stanford."

Rather, it reflects three primary concerns:

  • The need to cut expenses - "Slicing away piece by piece" does not achieve the savings needed to carry out the office's part in university budget cutting, Roster said. "We have to rethink our operation from the ground up and consider other ways to do things while still reducing our fixed costs," he said.
  • The need for more focused expertise - "We have good experts here," Roster said, "but there are times you need to go to an outside firm that has handled 100 or so matters of the same nature." Instead of one expert, an outside firm can offer literally dozens on all facets of the university's and hospital's special needs in such areas as taxes, employee benefits, government contracting and other regulatory matters.
  • The need for elasticity - By sending more work outside, Roster said, "we can expand or contract without having to hire or fire people. From year to year, you may not need as much service in various areas."

Outside firms

When he took over as general counsel at Stanford last August, Roster began thinking about different ways Stanford might meet its legal needs. In December, he began soliciting bids from outside firms to take over all or part of the large workload.

The firms have been asked to bid three ways:

  • Provide backup services - For a fixed fee, an outside firm would advise in-house lawyers on various matters, including regulatory issues. "This alone may be enough to give us the elasticity and expertise that I'm talking about," Roster said.
  • Take over specific areas - For a fixed fee, a firm would be responsible for all service in one area, such as tax law. Instead of replacing a tax attorney who left for an attractive outside position three months ago, Roster is interested in hiring a firm "that does tax work for a lot of clients and will give us the full range of advice we need for a fixed price."
  • Take over everything - Roster said he would give serious consideration to having an outside firm handle all of Stanford's legal work "if it saves us something like $1 million" from the $7.5 million Stanford currently spends for in-house and outside legal services combined. Six or so of the dozen firms that are bidding would be capable of fulfilling all the university's needs, he said.

A disadvantage to this approach is loss of institutional memory, Roster said, but keeping a core staff would avoid that problem.

He also is suggesting that firms proposing to do all the university's work might hire some of the in-house lawyers "so there's continuity, and knowledge of university history, and knowledge of even such mundane things as where to find the closed files."

Roster said of the three alternatives that "we have no preconceived notion that one approach is better than another. Each can be made to work very well."

Deputy General Counsel Michael Hudnall is working with Roster on plans for the possible changes.

Unusually wide range of tasks

In a move considered unusual in the legal world, representatives from 12 firms gathered in Schultz Auditorium last Thursday to hear university lawyers talk about their work.

"The Stanford attorneys made absolutely superb presentations," Roster said. "If the campus community had seen the presentations, they would have walked away saying 'I had no idea that much goes on here' and they would have been very impressed by our people."

Hudnall said that "the meeting was something of a trying situation, and the presentations were very professional."

Many of the outside attorneys were in a state of disbelief about the range of tasks, Hudnall said.

"Nevertheless, based on some discussions I've had, I think a number of them will be enthusiastic about staying in the bidding," he said.

From a legal standpoint, Roster said, Stanford probably is the most complicated private university in the nation, "with a medical center and hospital, other highly advanced areas of research, huge amounts of land that are used for both academic and development purposes, and very sophisticated approaches to licensing technology."

Other schools invest their endowments more passively in partnerships or money-market accounts, he said, while Stanford has much of its in its land resources. "No one else I know of has a shopping center or a hundred industrial tenants on leased land," Roster said. And real estate, he said, carries many more legal implications than do money-market accounts.

The Legal Office now has 16 lawyers, down from the previous 21. Their work includes academic issues, business affairs (real estate, general business, tax, environmental/safety, intellectual property, estates and trusts, and utilities), employment/labor, health care/medical affairs, the Stanford Linear Accelerator Center, and litigation.

Putting legal services out to bid is a useful self-study exercise and will test Stanford's in-house operation against the market. Periodically in any enterprise, he said, "fairly radical changes need to be considered, whether or not they ultimately are implemented."

"We may find in the end that our operations are highly competitive," Roster said. Nevertheless, some resources would be shifted to outside counsel to purchase greater amounts of specialization, he said.

By the standards of a recent benchmarking exercise on university legal costs, Stanford's expenditures for legal services are under the average of American universities. "The notion that we're spending too much on lawyers may well be wrong," he said. "We may be underspending on upfront legal services and not putting enough into prevention."

Last month, Roster tested client satisfaction with his department through a questionnaire sent to all deans and department heads. The results were quite positive, with 47 of 56 respondents, for example, ranking overall satisfaction with the office as a 4 or 5 on a 5-point scale.

The office's attorneys also were superb at a recent conference of the National Association of College and University Attorneys, Roster said.

"In almost every main session and break-out session when a tough issue came up, the person presiding would ask 'Is someone from Stanford here? How are you handling this?' Our people typically were way ahead of everybody else in responding. It was very impressive," he said.

Legal services capitation

Two of Roster's ideas about use of outside resources are unusual: He would institute fixed fees, creating an incentive for firms to work with the university to find solutions and not "just let the meter run," and he would have the outside firms house their people on campus in the Legal Office.

"I'm telling law firms I want a capitation of our legal health," he said, explaining that the legal world is "being turned upside down, like medicine."

"I want them to undertake our work at a fixed price, keeping us healthy." This would involve both inside and outside counsel educating Stanford faculty and administrators on how to stay out of legal trouble, he said.

Having attorneys from outside firms use university offices in Building 170 or elsewhere could give us "the best of both worlds," Roster said. They would have access to expertise in their firm, but could better understand Stanford and its faculty and staff by being on site and a part of the university.

Bids from the outside firms are due Feb. 25.

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