You And Your Attorney

The relationship can be brief and hostile, or long and harmonious. Here's how to make it the latter.

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Many small businesses consider the use of professional advisers a sign of extravagance. The truth is, it all depends on need. And the need for competent advice is rarely clearer than in matters involving law. Good legal services can be used to great advantage. Or they can be wasted. The difference is up to the client.

You have the right to remain silent, as they say, but that's a good way to insure a relationship with your lawyer that is more prodigal than productive. If your company is not getting its money's worth from its attorney, if you feel that you're being overcharged or underrepresented, it's up to you to present the evidence. If you don't question your attorney's advice or fees, he or she has the right to assume that you understand and accept both.

Although the small business executive and the typical lawyer consider themselves in different professional leagues, the two have much in common. Both operate in an independent sector of the economy, and neither has a sheltered market. Both place great importance on the freedom to pursue their own objectives and to choose their own customers and clients. And both face the usual problems of running a business -- reducing paperwork, billing delinquent accounts, resolving personnel problems, maintaining facilities, and deciding whether to grow or to remain relatively small. Yet the relationship between small businesspeople and attorneys is often antagonistic. Lofty professional and lowly client often are paired, one to grapple with the problem while the other grumbles about the fee.

But small businesses and law businesses are vital to each other. A recent INC. study shows, for example, that more than 9 out of 10 (94%) small companies regularly rely on outside legal counsel, while close to 9 out of 10 (88%) attorneys consider small business clients important to their practices.

To help small companies improve their rapport with the legal profession, INC. surveyed some 5,000 small business executives and over 5,000 practicing attorneys (see "How We Reached Our Verdict," page 56). The results of the study provide five guidelines on how to be a better client and how to make your attorney a better adviser.

1. Treat your attorney as an insider. If your company is like most small businesses, its two most important outside advisers are its accountant (INC., March, page 81) and its attorney. Depending on company size and business circumstances, one of them probably holds the edge as your chief outside adviser. To build good working relationships, however, you should treat them equally -- as insiders.

Since the need for legal advice is not as predictable or as regular as the need for accounting services, keeping your attorney on the inside track takes greater effort. It requires frequent and candid communication with your legal counsel. Too often, small companies call their lawyers only when it's time to draw up a contract or when litigation is imminent. Yet providing your lawyer with timely and cumulative information should be the rule. For example, copies of management memos regarding the current concerns or status of your business should be sent to your attorney as background for his files. If you hold a special planning meeting to discuss goals or future directions, invite your attorney to attend. As a confidant and participant, your attorney will be in a better position to provide advice and to respond readily to your company's legal needs.

Very few small companies -- only 2% -- employ their own full-time, in-house attorneys. In these cases, the legal adviser is literally an insider, generally functioning as president, vice-president/general counsel, or secretary/treasurer. Since a house counsel is impractical for most small businesses, many have discovered the next best step -- tapping their attorneys to serve on their boards of directors. Directorship formalizes the attorney's status as an insider.

INC.'s study shows that the use of lawyers as directors is related to company size. About 10% of the companies with sales of less than $1 million enlist their attorneys for board duty. The figure rises to 20% among companies in the $3-million-to-$5-million category and to 30% in companies with sales of $5 million to $25 million. Judging from the responses from attorneys surveyed, the legal profession is not averse to director service -- 61% of them indicated that they currently serve on the boards of smaller clients.

2. Find out how you rate as a client. Small businesses are loyal, if not lucrative, accounts for most law firms.What they may lack in billing size they make up for in their preference for single long-term relationships. Some 68% of the respondents to the INC. survey rely on only one law firm, while 22% employ only two. The use of more than one attorney generally reflects the need for legal specialists rather than divided loyalty or competition. Most of those who employ more than one legal adviser are larger firms whose sales are more than $5 million and whose needs exceed the capabilities of a single general practitioner.

Not only do small companies generally rely on a single source for legal services, they also tend to stick with that source. The majority of the INC. respondents represent older companies founded before 1970. Yet 44% of them report that their present law firm is the only one they have ever had. Among those who have switched law firms, three out of four have changed atorneys only once or twice. On average, the survey participants have retained their current legal counsel for more than nine years.

The limited turnover is testimony to the value of retaining competent advisers who know your business. But the loyalty it represents also helps explain why most law firms value small businesses as clients. Small companies account for the majority of the clientele in almost half (48%) of the law firms responding to INC.'s study. Only 1% of the attorneys reported they don't have smaller businesses as clients, and only 11% rate small companies as less important than larger clients.

Most attorneys agree that small companies not only represent a solid customer base but also offer broader potential than many larger clients. For this reason, three out of five law firms now employ full-time small business specialists; on average, the small business legal staff consists of three professionals.

How does your law firm rate small business in general and your business in particular? Is there a sense of loyalty between your company and its legal counsel? Is your attorney responsive to your needs as a small company? Does your law firm intend to expand its small business practice in 1982? Positive answers to such questions indicate your standing as a client and provide the foundation for making a good relationship even better.

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