2012 in Review: A Holiday Countdown of the 12 Must-Read Articles on the Changing State of the Legal Industry
To end a great year, I plan to highlight an article or blog post from 2012 that I found highly informative and/or influential in helping clients (and their lawyers) better understand the sea change currently sweeping over the legal industry. Smart clients (and their lawyers) can learn invaluable lessons from the analyses and insights from the authors and articles that follow. Without further adieu, I am pleased to present…(sound of envelope tearing):
[So, I guess I didn’t quite get all of my favorites in before the glittering ball fell in Times Square. Dang. But before I can charge ahead into 2013, I need to wrap-up what I started, and it is a necessary final Honoree.]
If you only had time to read two blogs this year, and you had a pile of attorney bills, the two I’d recommend are the bookends to my 12 for ’12. My first honoree, Adam Smith, Esq., gives you insight into how the enemy (your overbilling firm) thinks. My last Honoree, Law21, let’s you know how you, the smart client needs to think. I’m not going to even attempt to give a Cliff Notes version of the following articles here – just take the time to read them in full and you will have spent your time well.
- “And the walls came down“
- “Law firm profits in the process area“
- “The evolution of the legal services market, Stages 1 & 2 (stages 3 through 5 are good too, but we have enough to worry about in the present!)
It was a year full of big changes and great analyses and insights. There are seismic shifts rumbling through the legal marketplace and smart clients have much to gain. Any list like this necessarily is too brief to mention all the worthy individuals out there who equally belong here. I have every intention of getting to you all in 2013.
♦ Hildebrandt Institute’s “Law Firm Efficiency: Responsiveness, Reflection and Checklists“: In this excellent article, Emily Fisher explores what you might get if you mix a little military AAR (that’s After Action Reviews for you civvies), compliments of 3 Geeks Greg Lambert, with some of Dr. Atul Gawande’s medical checklists. Fisher notes that legal problems can get very complex, especially when large law firms and large corporations are involved:
The sheer number of people involved in the relationship, from the general counsel and the relationship partner to the clerks and legal assistants, can get in the way of effective communication and, yes, efficiency. Yet, in recent years, efficiency has been at the heart of the battle between clients and their firms.
So who is ultimately responsible for being more efficient – the firm or the client?
If you listen to Toby Brown, in a 3 Geek’s and a Law Blog post, it’s the client. He believes that firm’s are reactive in nature, and struggle being proactive. If client’s want things done differently, they need to speak up.
If you listen to John Wallbillich of WiredGC, who responded to Toby here, it’s the law firm. If a firm can’t keep up with the fast changes in the legal field, make way for those firms (and other providers) who can.
I highly recommend all of these articles, along with a few of the great comments following them.
What do I think? It’s the client’s problems, the client who is writing the check, so it’s the client who needs to demand that it gets it’s needs met. That said, any but the whitest of white-shoed firms, had better plug their leaky ships, because those who don’t, won’t survive the coming storm.
♦ Susan Hackett’s “Ending the Holiday Tradition of Outside Counsel’s Rate-Increase Letters“: Susan’s “annual rant” about end of the year rate increases warns firms that times are a changing’ in the legal industry, and if they try to reach into the cookie jar one more time this year, they are “about to get slapped.” Besides calling out law firms, however, Susan also lays much of the blame on clients and “their role in perpetrating this annual nonsense.” I couldn’t agree more with Susan and her recommendation to legal clients:
Please spend your time and energy this year researching, scoping, and negotiating the all-in cost or price ceilings you will set to reflect the value of each matter in your portfolio. These prices should be based on what the work is worth to you as the client (rather than to the firm); if your firms are not well-positioned to provide the work as you value it, remember that there are many possible and more plausible suppliers in today’s market, all of whom deploy quality workers or lawyers. Define what you value in a more tangible way so that your firms can provide exactly what you expect them to deliver, on-time and on-budget, and in accordance with an agreed-upon scope of work, result goals, metrics, and project management plans.
♦ Ed Poll’s “Alternative Billing in Litigation: Issues of Risk and Reward“: Colin Cameron had the audacity to suggest putting clients’ interests first. Ed Poll then wants to go even further – he suggests that lawyers should actually engage in real communication with the client before the engagement begins – with the goal being to understand exactly what the client really wants and what that might be worth to the client. He then identifies the growing trend of businesses now wanting their attorneys to have “skin in the game”:
There are many ways that alternative fees can be applied to litigation, and there is growing pressure for law firms to take alternative billing approaches in handling lawsuits as companies of all sizes seek control and predictability in legal expenses by rewarding lawyers for having “skin in the game”—a personal financial stake in the outcome of a case through compensation that goes up when the results justify it. The risk for the lawyer is in not meeting the client’s cost and business goals; the reward is in meeting them or even doing better than required.
Ed then discusses and offers practical examples of how AFAs can be structured (in a litigation context), to share both the risks and the rewards, between client and attorney. The crucial takeaway being that you will likely receive far better lawyering when your lawyers have “skin in the game,” and the price paid for any given work will be rationally reflected in the actual relative success or failure of the matter. All common sense stuff; the only thing hard to understand is why companies didn’t demand this from their attorneys before.
I discuss some of Ed’s advice in “The Good, the Bad & the Ugly“.
I’m hopeful that everyone has been enjoying the holidays with family and friends (I say that with just a wee bit of concern given I just watched “Christmas Vacation” with the family last night). Still not quite ready to get back on the work wagon, but have just enough time (before my tee time) to knock out Honoree No. 8:
♦ Colin Cameron’s “Win-Win Alternative Fee Arrangements“: Call me crazy, but I’m a big believer in Win-Win arrangements of any kind – hence, my allergic reaction to the billable hour. Colin’s article is an easy to read primer on the benefits of well-designed AFAs to both the client and the law firm. One “crazy” concept that Colin discusses is putting the client’s interests first:
Start by asking your clients what they value most. Many law firms are afraid to ask this question, as they feel the value of their services is worth less than the price they’re charging. But asking about what they value most, as well as their strategic goals, adds value to your services by showing the client that you really want to be a strategic partner. Once you know your client’s goals, you can organize your legal services to best meet his or her long-term needs.
Another important way to add value is to put the client’s profits ahead of your own. Most law firms start their strategic planning by setting their own profit targets, instead of thinking how they can help their clients increase their profits. When you help your clients achieve their profit targets, they are happier and more likely to give you more work—which means your profits increase as well.
Wow. You mean you actually have to understand what the client wants? And you only make a profit if you deliver? But, uh, what if you aren’t that good? Maybe that’s the reason these AFA thing-a-ma-jigs are such a hard thing to pull off for many firms.
♦ Okay, so as promised, beginning with Honoree No. 7, I’m moving on from the problems facing the legal industry, and now focusing on the brand new world of options and solutions available to clients today. And what better place to start than with the concept of unbundling. Unbundling involves using different legal service providers for different parts of a legal problem. Traditionally, a lawyer or law firm would handle (and bill) all aspects of a case. Unbundling results in separating the various tasks involved in the case and assigning them to the most efficient and cost-effective providers, whether this is inside, or outside of the firm. When done effectively, unbundling can result in substantial savings.
Thus, I return to the Guru to BigLaw, Adam Smith, Esq., who discusses, in “Growth is Dead: Part 7,” that outside vendors currently exist who can provide “immensely superior quality” to that provided by BigLaw associates at 1/3 of the price:
The founder and head of one of these firms, which is in the business of applying Six Sigma processes to document review, and which has demonstrated consistently and convincingly that their quality is immensely superior to that produced by BigLaw associates working on the same document sets, remarked fairly casually to me not long ago that “for every dollar of revenue we gain, BigLaw loses three.
Hmmm. Let’s see. Much better service, at a significantly lower cost. As I stated here, but it bears repeating: “Clients. Decisionmakers. General Counsel. I can’t help you if you won’t help yourself.” These results demonstrate that, unless you enjoy immensely overpaying your lawyers, the time has come to explore the next frontier. ‘Nuf said.
♦ Well, I’m halfway through, and to date, all of the articles have been about the problems facing the legal industry, chief among them being the tyranny of the billable hour. But, I’m sure we are all tired of problems, and more interested in solutions. But before I move on, I thought a brief respite from reading was in order, so for the Awards Intermission, I offer the following three media entries for your enjoyment.
- Riverview Law’s “Cometh the Hour” video about many lawyer’s resistance to fixed fees:
- John Chisholm’s excellent cartoon about the myopia of the Good Ship BigLaw:
- Jared Stenquist’s “Lawyer Clock” which gives a very scary visual of how fast those multi-lawyer meetings can add up:
♦ New York Times’ “Big Law Steps Into Uncertain Times“: Andrew Ross Sorkin examines the changing legal landscape and realizes that many of the answers being provided by traditional law firms are not in “the client’s interest at all.” Sorkin quotes Mark Harris of Axiom Law on what is wrong with the legal industry:
The problem, many lawyers say, is “P.P.P.” P.P.P. stands for profit per partner. It has become the ultimate metric for measuring success among law firms. When American Lawyer magazine began publishing a ranking based on profit per partner in the early 1980’s, it revolutionized the industry, but it also arguably led to a dangerous race among firms that left clients as a secondary priority.
In other words, according to Harris:
The interests of law firms went from serving clients to serving themselves.
Which, of course, if you are the paying client, means looking elsewhere for your legal representation, as I have discussed here. In addition, another must-read article is Scott Turow’s “The Billable Hour Must Die,” written all the way back in 2007.
♦ Slaw’s “The Lost Art of Pricing for Legal Services“: I see two fundamental problems with the billable hour: (1) increasingly high and unsustainable minimum billable hour quotas, and (2) the less discussed concept that there is no logical basis for attorneys to bill all of their work at the same fixed rate. I came across the latter concept – which in hindsight seems so obvious – thanks to the insights of Mitch Kowalski:
Sadly this “lost art of pricing” was thrown overboard by the ease (and feigned business-like process) of simply billing for every minute spent on a manner, despite the fact that not every minute spent on a file was equal in value.
As a result, the billable hour has created a false reality for lawyers; that a lawyer’s mere presence, or activity undertaken by the lawyer, no matter how mundane, is worthy of compensation at a very handsome rate.
Mitch’s insights led me to examine this concept further here. In his spare time, Mitch also managed to publish a very well-received book, Avoiding Extinction: Reimagining Legal Services for the 21st Century.
♦ WiredGC’s “Legal Costs: Here Comes the Sun“: Like Susan Hackett, John Wallbillich is a GC who understands that it is the client who increasingly will determine the future shape of the legal industry. This great article notes that “the genesis and urgency behind legal cost control” actually predated the Great Recession. Companies began bringing work in-house to “take equity partners out of the equation.” The new challenge for GCs is to now re-transition some of that in-house work to the new players emerging in the market:
Most law firms understand that they aren’t at the center of the corporate legal universe anymore. It took about 200 years for the new view of Nicolaus Copernicus to take hold in astronomy. Hopefully the legal industry can change just a bit faster than that.
And for those law firms that cannot adapt fast enough. Anyone seen a Dodo recently? You can find my summary of John’s article here.
♦ For my third recommendation, it is only fitting that I present a trio of articles debating the same subject matter, i.e., the relative merits of using time or value in determining fee structures. Throw in some spirited comments, particularly those from the value pricing guru, Ron Baker, and you have some great fireside reading:
- Law 21’s “Time out: Removing time from pricing and compensation“: Jordan Furlong explores a hypothetical “tear in the fabric of the space-time continuum” that results in a world where “you could no longer price using time or compensate using time. Once the shock wore off, Jordan believes a new system would develop around factors more beneficial to the overall health and welfare of the firm and its’ attorneys. Work would be accomplished more efficiently and effectively.
- 3 Geeks and a Law Blog’s “Logic and Value of Time: Another Counterpoint“: Pipe dreams, counters Toby Brown. Using his Spock-like logic, Toby posits that “value” is still measured by “the time and effort required to deliver that service.” Totally taking time out of the equation as Jordan hypothetically explores, “would have disastrous consequences for the legal market.”
- LEL’s “Sugar and Salt: Perfect together!“: Come on, boys, can’t we all just get along. Susan Hackett points out that both Jordan and Toby are looking at this from the perspective of the lawyers. She then shifts the focus (and one whole-heartedly supported by myself!) to the client’s perspective:
It will be clients who dictate what prices they pay and what firm business models they trust (even if we all agree that most of them don’t currently exercise the power of their purse to do much more than demand discounts).
Susan then makes a very important point:
Clients don’t care much about how firms price the work: they simply care that the firm can price the work…What clients want most is for firms to be able to deliver work for the price they are quoting.
In other words, clients want predicability and certainty. The firms that deliver this will thrive. Be sure to catch Ron Baker’s illuminating comments to Toby and Jordan’s articles, and his superb book, Implementing Value Pricing, if you want to really explore the next frontier.
♦ Validatum’s “‘Value Pricing’ – Capitalist Acts Between Consenting Adults“: Richard Burcher persuasively argues that it is not so much the fee structure, i.e., hourly vs. fixed vs. hybrid, that determines whether a fee is fair, but whether both the client and the attorney feel they received fair value. Richard posits:
Modern legal services pricing should be about the optimal alignment of the fee and the clients’ perception that they have received fair value and the lawyers’ perception that they have been paid properly (which, to state the obvious, has absolutely nothing to do with arbitrary and homogenous hourly rates).
- A must-read from Richard that if properly applied will result in long term relationships – a definite win-win – for both clients and attorneys alike. I discussed Richard’s post here.
♦ Adam Smith, Esq’s “Growth is Dead: Parts 1, 2, 3 and 4“: Any review of 2012 must begin with Bruce MacEwen’s 12-part “Growth is Dead” series, which looks at, and analyzes, the monumental effects of the Great Recession on the legal industry. As I’m only honoring 12 articles for the year, I am treating the first four installments of Bruce’s opus as one entry. In Parts 1 through 4, Bruce reviews and diagnoses the problems now facing BigLaw after enjoying “an unprecedented run of growth in revenue, profitability, and headcount” from around 1980 until the “Great Reset” in late 2008. Hopefully with a little extra time around the holidays, all of you can find the time to start reading these excellent installments.
- And for those of you without the time, but interested in a “Cliff Notes” version, I have previously summarized Bruce’s first four installments here.