I feel like I am under assault.
Somebody else, who has never shown any regard for workers, has never fought on behalf of social justice issues … they don’t suddenly become a populist because they say something controversial in order to win votes,” Obama said. “That’s not a measure of populism. That’s nativism, or xenophobia, or worse. Or it’s just cynicism.
From Huffington Post:
Editor’s note: Donald Trump regularly incites political violence and is a serial liar, rampant xenophobe, racist, misogynist and birther who has repeatedly pledged to ban all Muslims — 1.6 billion members of an entire religion — from entering the U.S.
From a recent nomination for an innovation award (I was a judge):
Clients continually expect a more powerful value proposition from law firms. They want more for less. It’s not just about AFAs and creative pricing. It’s about a true partnership, one which transcends the provision of legal services to include a widespread offering of innovative tools founded on communication and collaboration to address specific pain points.
There are lots of articles about jargon. Apparently, people don’t read them.
There are lots of articles advising people to use short, simple words. People ignore them at their peril. Calling someone a xenophobe or a misogynist doesn’t hurt the target if the audience does not know what those words mean. Talking about populism or nativism doesn’t help a candidate or voters if people don’t know what those terms mean.
As for me, when I am reviewing award nominations, a nomination that sounds like it was written by a first year marketing student on steroids is going to start out behind the eight ball, er, with two strikes on it. Or maybe it will start out behind the other submissions.
Just read this:
MoFo, which submitted its first monthly fee statement earlier this week, is serving as special renewable energy counsel to the official committee of unsecured creditors. The firm is seeking $641,212 in compensation for work between April 29 and May 31.
MoFo’s attorneys billed more than 683 hours during that time period and charged a blended rate of $889 an hour.
Blended hourly rates of $889? I couldn’t say that to a client with a straight face.
I was having lunch with a friend a few days ago and we started talking about the legal industry’s move to pay starting lawyers $180,000 a year. Plus benefits. To me, salaries of this kind are the product of the criminally insane, but my friend said, “it’s only $10 an hour.” I knew what he meant. If an associate works 2000 hours a year, a generally accepted target, the $20,000 increase is paid for by charging $10 more for each of those hours. That is, charging a client $10 an hour more.
That doesn’t sound too bad at all.
But I asked my friend to think about that from the client’s perspective. Let’s say the client pays a firm $2 million per year in associate time. At large firms, this is a modest to small client. If the average hourly rate for all associates is $400 (which is a low estimate), the client pays for 5,000 associate hours per year. This means that without more, the client is paying $50,000 more each year for no increase in value.
And then I asked my friend if he had ever heard of firms raising their hourly rates only $10 per hour, and he acknowledged that he had not. Even during dark times, firms would raise rates 2-3%. But normally, firms aim for at least 5%. To put that in perspective, a 5% increase on $400 per hour is $20 per hour. So the client is paying $100,000 per year for no increase in value.
When I asked my friend how he thought his clients would feel about that, he hung his head and said “that’s not how we think about it.”
The problem is thus defined.
Seth Godin had an insightful post in his blog today, Bigger for?. He writes about the pains of checking into a huge hotel, where no one knows your name, there is always a line at check-in and the gym is full at 5 in the morning. Bigger helps the owner make more profit (at least the owner thinks it will make more profit), but it does little for the customer.
Law firms that merge always say the merger is in the best interest of their clients. “Bigger platform” is a phrase you frequently hear. But I have never heard, or even heard of, a client saying that they thought the merger or acquisition was in their best interest.
For clients, bigger law firms mean more conflicts, less flexibility in fee structures or other steps that provide real value to the client. It means even greater cross-selling (“let me introduce to my new partner–pssst, what’s your name–er, George, who is the greatest lawyer in the world in—pssst, what’s your practice area–, er, Tanzanian wildlife restoration”). Clients thrive when law firms design around the client, not from size. Size is an obstacle to being able to design around the client.
Last week, BTI Consulting reported that alternative fee arrangements have “soared to an all time high,” noting that AFAs generated savings of nearly 14%, or an average of $2.7 million for law departments. These savings are significant, but as I have often said, much greater savings are possible if AFAs are deployed with other important tools.
As part of BTI’s research to develop the data on AFAs, BTI identified 22 law firms that are “best at delivering Alternative Fee Arrangements.” The 22 firms were identified by corporate counsel “in an unprompted manner.” Here is how BTI described the 22:
Clients identify 22 of the 650 law firms serving Fortune 1000 and large clients as absolutely best at developing and implementing alternative fee arrangements. Clients share 6 reasons these firms stand out:
Partners have authority to enter an AFA quickly. These partners do not have to wait for committee meetings or partner reviews of agreements. The negotiating partner also knows the parameters the firm will accept and approval is all but assured, and swift.
Confidence, comfort and enthusiasm in pursuit of the AFA. The firm’s enthusiasm and commitment to AFAs is contagious.
Flexibility. The firms who stand out listen to the objectives and offer to change the approach as the objectives evolve and are agreed upon by all concerned.
Willing to take some risk. The outstanding AFA firms have convinced clients they have skin in the game. Clients love the idea of risk sharing they can see and understand.
Focused and efficient. The firms have learned to make a beeline for the client’s goal. Much of the strategizing and planning has been done as the fee is negotiated—and clients see their law firms operating like an Olympic swimmer—no wasted strokes.
Stick to the agreement and never complain. The law firms don’t go back and ask for changes and live with whatever outcomes occur. Apparently many law firms ask for changes when things don’t go well—the best don’t. And the best have tight project controls to ensure they don’t need to ask.
Here are the 22:
Law Firms Best at Delivering Alternative Fee Arrangements:
Bartlit Beck Herman Palenchar & Scott
Blake, Cassels & Graydon
Covington & Burling
Fish & Richardson
Foley & Lardner
Kirkland & Ellis
Lee Tran & Liang
Orrick, Herrington & Sutcliffe
Quarles & Brady
Schwartz & Ballen
Simmons & Simmons
Valorem Law Group
Wilson Sonsini Goodrich & Rosati
We feel pretty good today, thrilled to be in such elite company, one of the 3% of the 650 firms to be recognized by the clients we are so fortunate to partner with. This recognition is particularly satisfying given the incredible leap of faith we took 8 years ago to build a new firm model to deliver AFAs that work for clients while providing unwavering client service in the process. We look forward to continuing the leap.
Michael Rynowecer of BTI Consulting had a great, must-read post today on his Mad Clientist blog. In the post, which I strongly recommend, Michael makes these points:
- Spending on AFAs is way up—nearly 20% CAGR over 4 years
- Outside counsel spend under AFAs jumped to over 35%
- Almost 70% of companies
- The reported savings from AFAs are 13.9%
- The savings from AFAs add $2.7 million to the average client’s legal budget.
- The AFA-of-choice, by a wide margin, is the fixed fee.
I get a picture of Samuel L. Jackson staring out from the TV saying “What’s in your wallet?” Except he is saying “Why aren’t you using more AFAs?”
I have two points to add to those made in Michael’s post. First, what has taken so long? Just kidding, the last 8 years since we launched Valorem and became “the alternative fee firm” have flown by. Ok, mostly flown by. But it is gratifying to know the market is moving decisively to where we thought it should be when we started.
Second, there is room for so much more savings. AFAs are not the end game for delivering value. They are but one of a serious of tools that combine to deliver the greatest value. Think about a Swiss Army knife. If you just use the short blade and none of the other tools, you are not getting the most value from it. As clients focus on these other tools, some firms will do so too, or at least say they do. Which leads to the second reason there is significant room for more savings: Most AFAs are still calculated based on estimate hours x hourly rates, so the AFA is really a wolf in sheep’s clothing, or as a friend from Australia prefers, hourly billing in drag. If firms are not radically reducing their cost structure, basing fees on cost of production rather than the amount they would earn if billing hourly, they are not doing the things that create real savings for clients.
What firms say and what they do remain very different things, and clients must insist that firms do the things that create savings. Or vote with their wallet.
I wrote my first blog post on April 10, 2005, and I have published 968 posts since then. To be candid, not all of the posts related to client service issues, the blog’s name notwithstanding. But a good many of the posts have addressed client service. It has been a passion of mine since long before I even heard of blogging, let alone actually did it. When that passion is recognized by those at whom and for whom it is directed, it is a very special moment. Actually, it is quite humbling.
I am honored and humbled to have been recognized as a Client Service MVP All-Star for 2016. The MVP designation is for those who have earned this distinction multiple times. I have been fortunate to have been named a Client Service All-Star in 2012, 2014, 2015 and now in 2016. The MVP bar has been set by H. Rodgin Cohen, the Senior Chairman of Sullivan & Cromwell, who has been named an All-Star 14 times, a truly admirable accomplishment.
What makes this recognition truly special is the way in which BTI Consulting about identifying the All-Stars> From the report (available here):
No attorney or firm can self-nominate, self-refer nor pay to be included. The only possible avenue for becoming a BTI Client Service All-Star is for corporate counsel to identify an attorney who stands out—above all the others—for delivering superior client service, in an unprompted manner. Only clients select and decide.
Clients are the ultimate, indeed the only, judge of value and service quality. I am privileged to represent great clients, and this recognition means that I now have to set the bar higher.
Great article by Sara Randazzo in today’s Wall Street Journal, Legal Fees Cross New Mark: $1,500 an Hour. Set aside the wisdom of such rates when firms provide discounts on demand and realization rates average near 80%. What stands out for me is the utter hubris of this statement by John Altorelli, previously of Dewey fame and now speaking for DLA Piper:
We just raise them every year.
There must be a law somewhere that requires firms to do this. I missed that day in law school, apparently. But again, set aside the wisdom of increasing rates every year.
It makes on wonder whether lawyers understand the concept of public relations? Does DLA understand that many clients don’t like the “we just raise them every year” mantra they hear from outside counsel and instead think they, the client, get to decide whether rates increase or not?
I used to ask why clients didn’t say no to rate increases. Now, more and more clients are doing so. I wonder how many more will do so when they see rates like these.
Most complain that their law firms are not meeting their needs. Some law departments bring work in-house. Some change law firms. But the problems persist.
Outside the law department, companies solve this kind of problem by creating a solution. Often, the company’s engineers work with a willing vendor to find the right solution.
Is the time coming when an innovative law department will choose to follow this path?
I recently read the 2016 Report On The State Of The Legal Market by Georgetown Law and Peer Monitor. I was struck by the clarity of the message being sent by clients, and equally struck by how law firms seem not to hear it. Consider these messages.
- More work is going places other than law firms.
It is not as if the amount of work inside law departments is less or even the same. The amount of work is greater than ever and increasing every year. Where is that work going? Certainly not to law firms.
2. Law Firms keep raising rates. Clients refuse to keep paying.
Notice how the gap between standard rates, billed rates and collected rates is increasing. That is a reflection on client pressure to reduce spend and their refusal to “go along” with regular rate increases. This message is made crystal clear here:
Law firms are collecting a decreasing percentage of their standard rates every year. What message to they believe is being delivered? The fact that the percentage of billed v. standard is declining so precipitously means law firms know that clients won’t tolerate being billed higher amounts, but the continual rate of decline means firms are not addressing the fundamental problem or are doing so ineffectually.
At the same time, client satisfaction with law firms’ client service is declining. From a recent post on the Mad Clientist (BTI Consulting):
56% of corporate counsel issued RFPs for law firms in 2015, up from 45% in 2014. We now face a majority of clients using RFPs to hire new law firms. The increase is due directly to the rock-like drop in client service performance clients are experiencing.
What does it all mean?
It means the greatest revenue opportunity for law firms is not raising rates. The greatest opportunity is increasing realization rates. Perhaps the road to doing so is by improving client service. The combined data certainly suggest that clients are delivering a clear message.
I wonder if law firms need to have their institutional hearing checked.