Functional Conflicts Survey Results Blog!

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RION Corp. – Conflicts Analysis Survey Results                       March 2, 2015

PURPOSE & OBJECTIVES

Our Founder and President has worked in the legal industry for 10 years. As a Conflicts Analyst, he found himself frustrated with the tools available, as well as the wide variety of conflicts procedures at different firms where he worked. He set forth on a quest for a better conflicts analysis tool, as well as an industry standard.  He founded RION Corp. (RION stands for Real-time Intake Optimization for New business.,) in June 2014, and proceeded to develop a software product in line with the best practices he learned and knew to be successful. The issue still stands that there is no standardized process for conflicts, and we decided to take a survey of the conflicts community through LinkedIn.com to establish a baseline to begin forming a framework that all law firms can use to improve efficiency and accuracy of conflict checks globally. 

METHODOLOGY

We used a ten-question survey and distributed it electronically (via SurveyMonkey) to our contacts and groups involved in Conflicts Analysis around the world. The survey was open from January 11, 2015 to February 28, 2015; and we gathered 52 responses from 3 countries. We analyzed our results using IBM SPSS Statistics v22, and Microsoft Excel.

FINDINGS

FIRM STATISTICS:  Roughly twenty percent of attorneys at a given firm will need a conflicts check each day.

On average, a conflicts staff member will process approximately 11 checks per day (we know a check can vary broadly on how much time it takes), and we can see that if there is an influx of checks, for example with a lateral hire, additional stress will be experienced by the staff.

We also notice that as the size of the firm increases, the coverage of conflicts staff per attorney decreases:

# of Attorneys	0-100	101-300	301-600	600+
# of Conflicts Staff	3	1.62	1.57	1.44

PROBLEMS:  We noted that the only firms to report over-staffing (less than 5% of all respondents) had over 600 attorneys. We also found that firms of this size had the most consistent reports of “loose” adherence to conflicts procedures. Unfortunately, firms of this size can also have the most to lose from poor quality conflicts checks. The high cost of poor conflicts procedure adherence was outlined recently for one firm in the Washington Post, who lost a client that paid $12M in legal services, and paralegals had spent over 20,000 hours on the case – only to find out that a paralegal had accidentally left off two entities while compiling a list of potential conflicts before accepting the business. They ended up representing both the plaintiffs and the defendants in a lawsuit about false advertising.

POLICY ADHERENCE: Our survey permitted respondents to anonymously comment about the requirements at their firm, and how frequently they adhered to the requirements. The findings indicated that in times of high demand, the staff must deviate from the procedures in order to maintain timeliness in conflict reporting. Of the procedures we surveyed, the findings of procedure adherence (from high to low) is as follows:

 

Adherence to Conflicts Requirements*
97%	Use of Conflicts Software
83%	Searching 3rd Parties
82%	Engagement Letter required to open a new client matter
76%	Use of Workflow Tool
74%	Perform Corporate Family Tree Search
74%	Search Executives
73%	Conflicts Attorney clears Conflicts
70%	Checks against anti-money laundering, sanctions data bases
67%	Run Credit Checks on new clients
63%	Corporate Family Tree Searches for Lateral Hires
57%	Maintain client relationship library

* We anticipate more research in this area in future survey initiatives.

STAFFING:  Firms with less than 100 attorneys say they routinely utilize other departments to handle high-demand for conflicts checking. One third of all firms report being understaffed, and of those a majority see value in outsourcing conflicts in periods of high demand. A majority of firms with more than 300 attorneys (who report adequate staffing) concur with the concept of outsourcing in periods of high demand. Three quarters of firms with over 300 attorneys who report themselves as understaffed also see value in outsourcing conflicts checks in periods of high demand.

The resounding report from firms of every size, regardless of their staffing status (understaffed, overstaffed, adequately staffed), is that while the prospect of outsourcing may be useful in an ideal world, it seems there are several concerns about moving in this direction including:

·      Firm-specific needs (procedure)

·      Time for training

·      Skill level

·      Executive Buy-In

·      Ethics

·      Access to internal conflicts checking systems and data by an outside vendor

It seems there may be room for an outsourced option once these kinds of concerns can be addressed. The outsourcing vendor would have to prove itself in outstanding ethical quality, and must provide a level of conflicts checking that exceeds expectations at every firm. This would require an agreeable standardized process for conflicts analysis.

 

SOFTWARE: We noticed that Elite and Intapp are the most popular, and the firms that seem to be moving from one program to another prefer to move-in with these two. Intapp has a strong standing in second place; collectively these two hold the market at 62% of implemented or about to be implemented in conflicts departments. 

 

A total of seven software products were reported including 6% proprietary implementations.

OUTSIDE RESEARCH: The majority of outside research resides with Dun & Bradstreet (over 35%), Lexis Nexis takes a strong second place with 21%. The other contenders for top 5 include Hoovers (19%), and The Internet and Google tied at 17%.

The full list of reported entities includes is 28 sources. We note that some of these entities are specific to type of law or region of practice, but may be worth considering to add robust practice your firm’s conflict checking procedures:

Rank	Entity
1	Dun & Bradstreet
2	Lexis Nexis
3	Hoovers
4	Internet
5	Google
6	Bloomberg
7	OneSource/Avention
8	Westlaw
9	Bureau van Dijk
10	Pacer
11	Acuity
12	Captial IQ
13	10K Filings
14	Courthouse News

15	Knowledge Management (SAP)
16	Thomson Reuters
17	Accurint
18	Global Data
19	Edgar
20	TLO
21	OFAC
22	ABA
23	Corporations Canada
24	BC Registry
25	Open Corporates
26	Courtlink
27	Monitor Suite
28	Amber Road

AUDIT PROCEDURE: We asked if firms are permitted to reopen matters for the purpose of audit. The results were pretty clear: a full half said yes. 21% reported that they don’t handle audits this way, and 15% said they handle it some other way. Some firms bill to one internal number to track time spent on client/matter audit.

CONCLUSIONS

·      Procedure Adherence: When conflict checks are in high demand, adherence to procedures suffers.

·      Staffing: When conflicts checks are in high demand, a majority of firms would consider using an outsourced option; though there are concerns about the adequacy of this option.

·      Software: 7 brands reported, majority held by Elite and Intapp (62%). 6% noted a proprietary system.

·      Outside Research: D&B and Lexis Nexis are most frequently used.

·      Audit Procedure: Half of firms are advised to reopen matters temporarily for auditing purposes.

We found a few trends within firms that point to the beginning of a standardized process for conflicts checking. We noticed that when conflicts departments are in high demand the accuracy of the checks goes down, and that outsourcing is one option that is interesting but deserves more research.

RECOMMENDATIONS

•       It is the recommendation of RION Corp. to establish a standard framework for conducting conflicts of interest research at law firms.

•       We have plans to create regionally based chapters for discussing and agreeing on a standard for the industry: C.A.S.E. (Conflicts Analysis Standardization Effort)

•       After this framework is established, we will insure our software product and outsourced staffing options for conflicts are aligned and fine tuned to be the gold standard in this industry.

CONFLICTS ANALYSIS STANDARDIZATION EFFORT (CASE)

For more information on CASE, please join the RION Corp mailing list for updates.

Thank you for reading our report. If you have any questions please contact:

Cori Blackburn: cori.blackburn@rioncorp.com

Ryan Vago: ryan.vago@rioncorp.com

"Other" Parties

"Other" Parties

How does your firm keep track of third-parties?  "Other" parties may be a third-party, a related party, potential clients, or potentially adverse parties.  Pretty much anything other than a party that is clearly a client or clearly adverse is a third-party or "other."  Often times "other" parties interests are aligned with the client.  Depending on the type of the matter, for example in an arbitration or mediation matter where a firm attorney is serving as the arbitrator or mediator, both sides may be listed as "adverse" or "other" simply to determine if either side (or if ​one of their affiliates) is a client.  Another reason to keep track of "other" parties is to list opposing counsel or the opposing law firm.  Some firms do not track third-parties at all.  If they do, they do not always search them extensively. 

We invite you to share in the comments section below.

Thank you.

RION Corp.

RION Corp. Conflicts Analysis Survey Results

Our first Conflicts Analysis Survey report is now available here.

We apologize if the hyperlinks are not available to you in the document.  You can find the link to the Washington Post article here, and the link to our mailing list here.

3 Types of Adversity in Conflicts

Adversity implies a relationship between two parties where there is the potential for harm or unfavorable results in success or development for one or both sides.  In legal matters, adversity does not necessarily imply contention; and contention does not necessarily imply litigation.  Let’s explore three scenarios.

1.    A legal matter where your client, X, is adverse to Y, in a contract negotiation.  For example, X and Y agree to enter into a business relationship where X, a manufacturer, sells a product at wholesale value to make a profit, and Y, a retailer, then sells that product at retail value to make a profit as well.  

2.    A legal matter where your client, X, is adverse to Y, in a breach of contract.  For example, X failed to deliver goods to Y within an agreed upon date, resulting in Y not delivering the product as advertised to consumers causing them potentially to lose customers.

3.    A legal matter where your client, X, is adverse to Y, in a lawsuit.  For example, Y goes out of business because it depended on X to deliver wholesale goods, which were advertised to consumers, but X never delivered, and Y went bankrupt as a result of cost of the ad campaign and bad reputation that followed.

All three scenarios above involve adversity.  #1 involves a relationship where the parties are likely on good terms, or at least likely not (yet) on bad terms, and each party is self-interested.  #2 involves a relationship where the parties are not on good terms, as the word “breach” implies that there is a dispute about circumstances that  occurred according to the terms of an agreement. #3 involves a relationship where there is a plaintiff and a defendant, as the matter has ripened into litigation.

When running conflict checks, it is important to distinguish between adversity, contention, and litigation.  Here is why:

Let’s imagine that a conflict exists because Y is also a client of another attorney at the same firm in a separate, unrelated matter.

·      In scenario #1 above, which may likely be beneficial to both parties, and the outcome on both sides may be favorable if the contract is executed.  So, when searching for the adverse party, if a conflict is found with the exact party or an affiliate of that party, it is likely that both sides will consent to the matter proceeding accordingly.  

·      A matter such as in #2 above, may at one point have benefited both sides, or the parties may have expected some mutually beneficial outcome, but one side acted or failed to act in a manner that was not agreed upon in the contract.  The likelihood of a waiver to be obtained from both sides if a conflict exists is less likely than in the first scenario.  A dispute has occurred, and there is a potential for a lawsuit or legal action to follow.

·      A matter such as in #3 above is not likely to benefit both sides of the aisle.  A decision has to be made that will ultimately favor the plaintiff or the defendant (or they may settle). Here, if a conflict exists, a waiver will most likely not be granted by either side due to the severity of the outcome in litigation against the parties or one of their affiliates.  

The example(s) provided above not only demonstrate why it is important to distinguish between the type of adversity in each matter, but also why it is important to distinguish between the matters.  For example, a waiver granted in scenario 1 above would not apply to scenario 3.  The parties would have to explicitly consent to the representation in the lawsuit.

I invite you to share comments or questions.

Thank you,

Ryan Vago

Founder & President 

RION Corp.

Searching Individuals for Conflicts

What is your firm's policy regarding conflicts of interest with individuals? 

We know that false hits are a waste of time, and while there's a small chance you'd find a false conflict - the bigger issue would be that you'd miss one.

Some firms identify individuals in their conflicts database by state of residence (SOR). For domestic matters, this applies to any state in the USA. The same applies to international matters, or SOR could also apply to the foreign nation. 

For individuals with common names, (e.g. Jane Smith, John Smith, etc.), there is a good chance that two individuals with the same first and last name live in the same state. In this situation, it is important to note the individual's middle initial (or full middle name if known).  

Further research into the billing contact information (address, phone number, job title, company, etc.) can help identify which individual is actually involved in the matter where there may be a potential conflict.  

Please share any ideas, strategies or experiences you've had below. 

Thank you, 
Ryan Vago 
Founder & President 
RION Corp.

Navigating through the Various Rules of Professional Conduct

To catch potential conflicts of interest, firms can easily keep track of the clients, adverse parties, and third parties involved in each matter, in a database that can be searched for a record of the parties involved in new matters, and for new parties involved in existing matters.

Here is a summary of some of the American Bar Assiciation Model Rules of Professional Conduct that govern conflicts in the legal industry.

Rule 1.7 - Conflict of Interest: Current Clients

The typical client-lawyer conflict of interest in a U.S. law firm involves the representation of a client who is directly adverse to another client, or if there is a risk that the representation will be limited by the lawyer / law firm's responsibilities to another client, a former client or a third person, or by a personal interest of the lawyer.

Rule 1.8 - Conflict of Interest: Current Clients: Specific Rules

The specific rules forbid a lawyer from entering into a business transaction with a client. What happens if a business contact asks to retain a firm lawyer for a legal matter, does your firm keep a record of business relationships to catch potential conflicts?

Rule 1.9 - Duties to Former Clients

How does your firm treat former clients? If a lawyer has formerly represented a client in a matter, the rules prohibit the representation of another person in the same or a substantially related matter in which that person's interest are materially adverse to the interest of the former client, unless the former client gives informed consent confirmed in writing. 

Rule 1.10 - Imputation of Conflicts of Interest: General Rule

What about new lawyers joining the firm? Generally, while lawyers are associated in a firm, none of them are allowed to knowingly represent a client when any of them practicing alone would be prohibited from doing so.  How does your firm handle potential conflicts when lawyers are bringing in business that has not yet been screened?

All of the above rules are important reasons why it is critical to keep, in addition to the parties, a record of the description of each matter, the practice area, and the roles and relationships of each party involved in your matters. 

Further, corporate affiliations and relationships between the many parties involved in legal matters at law firms are complex and also important to know when running conflict checks. 

For more details on the ABA Model Rules of Professional Conduct, see: http://www.americanbar.org/groups/professional_responsibility/publications/model_rules_of_professional_conduct/model_rules_of_professional_conduct_table_of_contents.html

For a list of states that have adopted the ABA Model Rules of Professional Conduct, see:
http://www.americanbar.org/groups/professional_responsibility/publications/model_rules_of_professional_conduct/alpha_list_state_adopting_model_rules.html

I invite you to share your thoughts or questions in the comments section below.

Thank you,
Ryan Vago
Founder & President
RION Corp.

Corporate Restructuring

Did you know that in 2011, Qwikster changed their name to Netflix?

Here is a list of six more companies that changed their names recently (f/k/a stands for "formerly known as"):

- Academi (f/k/a Xe Services, Blackwater USA; 2011, 2009)
- Ally Financial (f/k/a GMAC; 2010)
- Accenture (f/k/a Andersen Consulting; 2001)
- Altria (f/k/a Philip Morris; 2003)
- World Wrestling Entertainment (f/k/a World Wrestling Federation; 2001)
- AirTran Airways (f/k/a ValuJet Airlines; 1996)

Source: http://247wallst.com/special-report/2013/02/11/seven-companies-forced-to-change-their-names/3/

There are several sources that you can ask to automatically send a notification if an entity you have researched has made a change by setting up alerts.

This may not always be necessary, but if you find a source that indicates a name change, merger, or acquisition is pending, then an alert may be useful to update your database when the time comes.

Google is one very good source that you can use to set up an alert, and most business intelligence data sources allow you to set up an alert so when your entity shows up in the news regarding an updated corporate structure or name change - you can be made aware.

Another source of information regarding changes to corporate structure is the Institute of Mergers, Acquisitions and Alliances (IMAA) which keeps track of selected, regularly updated statistics on Mergers & Acquisitions worldwide.

Source: http://www.imaa-institute.org/statistics-mergers-acquisitions.html#TopMergersAcquisitions_Worldwide

Many firms may not be able to keep track of this information unless the entity comes up in a new conflict check request, or update to an existing matter.

What do you do when a client or another party involved in one of your matters has changed its name or corporate structure? I invite you to share in the comments section below.


Ryan Vago
Founder & President
RION Corp.