Client’s Guide to Legal Spend Management: First Steps
Just in case you missed it, there is a no-holds-barred cage fight going on over in the “comments” section to Dr. George Beaton’s lightning-rod of a post, “The rise and rise of the New Law business model.” A veritable “who’s who” of legal thought leaders have taken sides in the “Great BigLaw vs. NewLaw Debate.” In my own recent post, I argue that regardless of who ultimately wins the war — BigLaw, NewLaw, or a combination of the two — the real winners are clients, who because of the fierce competition, now have more and better options to meet their legal needs.
But with a multitude of options comes uncertainty, and if we know one thing about BigClients, its that they loathe uncertainty. Combine this with the power of the status quo, and far too many BigClients continue to fall back on the “tried and true,” rather than bravely forging ahead into the New Normal of 21st Century Law.
The BIG problem, however, with that “tried and true” method, i.e., continuing to blindly use the same ol’ BigLaw firms and their best friend, the billable hour, is that clients are likely overpaying by at least 30% to 60%. Now, if you are okay with that, no need to read any further; instead you may want to skip to my post discussing the “Battered Client Syndrome.” For the brave clients still reading, I realize that you have many pressures making change difficult, so I will offer a few “baby steps” that can be accomplished at little or no cost, and that carry very little risk. For, as the ancient Chinese Taoist philosopher Lao Tzu famously said:
A journey of a thousand miles must begin with a single step.
Step One – Educate Yourself
Here are three quick steps that will get you up to speed in the least amount of time.
- Read “Tomorrow’s Lawyers” by Richard Susskind and “The Lawyer Bubble” by Steven J. Harper. You’ll see the future and understand “the horror, the horror,” of the BigLaw world.
- Get acquainted with a couple of key blogs/sites:
- Get on twitter. Follow @ronfriedmann. Great curator of timely information. If Ron’s not tweeting it, it’s likely not important.
Step Two – Kick Your Old Habits
Repeat after me. I will not blindly hand over any new legal matter without requiring proper scoping, legal project management, and legal process management. Say it over and over until you have broken this highly addictive, dangerous and expensive habit. If you need liquor and cigarettes to help you conquer these demons, just remember that you are temporarily accepting the lesser of two evils. A little bender on booze and the tar sticks will hurt you far less than continuing to write blank checks to your outside counsel. Besides, you’ll have saved a ton of money by kicking your BigLaw habit, so you’ll have plenty of cash for a quick stint at the Betty Ford Center.
Step Three – Take Action, Any Action
Okay grasshopper, take a couple of deep breaths, and channel your inner Lao Tzu, because you are about to leave your comfort zone. I know it’s going to feel sketchy at first, so we we’ll start with some easy lifting and slowly work our way up from there.
a. Choose a progressive BigLaw firm for your next new matter
- This is a BigClient’s “safest” choice as you get the CYA of BigLaw with the not-so-BigLaw-like use of LPM and LPO.
- The problem here, of course, is that trying to find a progressive BigLaw firm is about as hard as getting to see a wild Kiwi in the New Zealand rainforest. I’ve been looking hard for a while now and can count the contenders on one hand.
- My first choice here is Seyfarth Lean. They’re way ahead of the competition (program started in 2005) and by using their substantial tools and experience, they can deliver a great outcome at a better price than the majority of their BigLaw competitors. Once you see what LPM and process optimization can do, you’ll be far less likely to relapse into your prior bad habits discussed above.
- Chief downside: You’re likely to pay a premium for all those fancy downtown offices and highly-paid lawyers, who still have big billable hour quotas to hit, but at least your in the game. Go ahead, pat yourself on the back, you’ve just taken your first step to legal enlightenment.
b. Rethink your current firm selection process for new matters
- Prior to engaging a firm for any matter, sit down and determine what you value and develop a simple and straightforward Request for Proposal. This doesn’t have to be complicated rocket science, just a common sense, client-based, value determination.
- Invite 3 to 5 firms to bid, including at least one new firm offering upfront fixed fee pricing, like Valorem Law.
- Any firm that does not offer hard budgets and LPM/LPO should be immediately eliminated.
- Once a firm is selected, write a win-win fee agreement, including success bonuses and/or holdbacks. Better yet, make it an upfront fixed fee (which you would get from Valorem).
- Other options:
- Consider AdvanceLaw, which helps its client GCs match their matters to select firms that it has vetted for quality, client service and efficiency.
- Another “safe” option with big returns would be to require any of your current firms to use Novus Law for all the document discovery and management work, as discussed here.
c. Tweak your panels
- Most larger companies have favored firms/panels they work with. Many times the 80/20 rule applies. If you have 5 firms doing 80% of your work/spend, it’s likely that 1 firm is great, 3 are good, and 1 is lagging somewhat behind. Slowly move work from the bottom to the top. Just concentrating on these top five firms is manageable and can deliver a major return on investment.
- Other option:
d. Stay in-house
- One of the best ways to optimize legal spend is to keep as much work as possible in-house. This option has become much easier with the emergence of new firms that provide any type of specialized expertise on an “as needed” and/or secondment basis. Examples include, Axiom Law, Conduit Law, Bliss Lawyers, Lawyers on Demand, etc. Almost all of these (if not all) offer fixed pricing, without BigLaw overhead and/or company overhead.
e. Hire a legal spend strategist (or team, depending on the size of your legal spend)
- The four action plans outlined above are just the tip of the iceberg of ways clients can bring about better outcomes at the right price. Changes in the legal field are moving incredibly fast, and no legal department can be expected to keep up with this change while simultaneously doing their “day jobs.” Simply put, legal spend management is a full-time job. Further, every dollar wisely-spent on LSM will be rewarded with a large return on investment. As a general rule of thumb, spending 1% of the total legal spend budget on LSM should deliver at least 10% of total savings. Thus, a company with an annual legal spend of $100 million, who invested at least a $1 million in legal spend management, should be able to lower overall spend by $10 million. $10,000 spent on a $1 million case should save at least $100,000. If anything these numbers are conservative at present, because of BigLaw’s almost pathological refusal to adapt to the post Great Recession environment.
There is simply no excuse not to take action to capitalize on the current client-friendly changes sweeping the legal industry. Each of the actionable steps outlined above can be implemented by any client, at very little cost and with little risk. All of them will deliver a substantial return on investment and will result in better outcomes at a far better price. Time’s a-wastin’, grasshopper, take at least one of the above steps today.