I recently read about a General Counsel breathing a sigh of relief regarding his ability to navigate the new economic reality by securing 25% discounts on hourly rates from his outside counsel. That sounds good, but there are two things that should temper that sigh of relief.  First, it is not sustainable.  At some point, the discounts will revert back, not just to what the rates where, but what they have been raised to during the discount period.

But more importantly, a 25% discount on hourly rates does not translate into a 25% reduction in fees.  The data supporting this are by now widespread, but I thought it would be worth illustrating why this is so.  The core reason is that GCs seeking discounts and firms offering them are focused on two different numbers.  We know that the cost of outside counsel billing hourly is calculated as:

Hours x Rate = Cost

And because the customer’s cost is the firm’s revenue, the firm looks at the same formula.  But while the GC is congratulating himself on securing the discount on hourly rates, the firm is focused on the revenue number. In troubled times, firms don’t care if revenue is achieved by more hours, higher rates, or both.  They just want the revenue number to be as high as possible.

Consider this example:

Bingo! The firm has turned a 25% discount into a roughly 10% discount, which most firms give routinely. And given that there is one less person involved, the 10% impact is lessened.

The moral of this story?  If you expect discounts in hourly rates to translate into like discounts in fees paid, you better be familiar with the staffing pre-discount and post, and the way work is spread among the staff.  Firms are really good at this type of analysis.  I want to emphasize that not every firm and not every partner handles matters in this fashion.  But some do. Many years ago, one firm encouraged its partners to “manage hours up” to cover the cost of a salary increase to associates.  The answer is to have your eyes open and look carefully to see the story your data tells.

Of course, the other approach is to fix fees for periods of time or milestones on cases.  That approach provides a great deal more protection for a budget under assault.

This is personal. It is has nothing to do with law, and nothing to do with customer experience. It has to do with my heart.  But mostly, it has to do with my soul. I write to assemble thoughts, to test the coherence of my thinking–an internal check–and to invite others to comment, dispute, debate, laugh at me, or teach me something I need to learn.  With that as backdrop, let me get to the point.

The death of George Floyd is tragedy. I hope no one disagrees.  His death, and how it was so callously caused, reveals what I believe is a systemic problem in police practices, not just in Minneapolis, but across the country. Chicago, where I work (and live in a suburb), is no stranger to police practices that target African-American residents. The stories and videos of policy cruelty across the country, of police practices that are abhorrent in every way. The casual tolerance of those abhorrent practices by fellow officers is a travesty, laying waste to the carefully cultivated “Officer Friendly” image  police officers so long propagandized. That acceptance of wrong-doing by fellow officers is a choice to side with the bad apples.  But that isn’t why I write today.

This past week, we have seen members of the US Military, state national guard units and federal law enforcement officials act against Americans exercising their First Amendment right to protest. To be sure, some of the activity of these men may have been focused on looters, but all too often it was directed against peaceful protesters (and anyone with eyesight can tell the difference) and members of the Media. Protesters and members of the Media enjoy First Amendment protections, and the actions of these military and law enforcement groups (including those who operate without insignia or any other manner of verifying their legitimacy or lawful authority) are an affront to the values on which the United States is based. But that isn’t why I write today.

I write today because I looked in the mirror this morning. When I did, I saw a man who has never feared for his life when a police officer pulled me over. I saw a man who doesn’t have to put my wallet on my dashboard before I leave my house in the morning so I would always be able to respond to a police stop, however unjustified, without having to move my hands out of sight. I saw a man who never had to have a talk with his children about why some people hate them only because of the pigmentation of their skin. I saw a parent who has never wondered if his kids where going to be shot dead because they mouthed off to a cop, the way many young people do, regardless of their color.  I saw a man who never once wondered whether people thought my achievements in life were due to some special treatment rather than my own effort. I saw a man who was never denied service at a restaurant, or never suffered the indignity of people refusing to sit next to me. I saw a man who when moving into a new home never feared the police were going to be called because some neighbor perceived me as a criminal. I could go one with one indignity after another routinely suffered by African Americans, including many who I am fortunate to count as friends and colleagues, that I have never once thought about, but if you don’t appreciate the point now, more examples will not open your mind.  I saw the face of someone who personifies white privilege. When I came to that conclusion, I was confronted with this harsh question: am I going to stand by and do nothing? Or am I going to be part of the solution? Would my conduct match the values I claim as my own?  What would conduct to match those values look like?  I readily acknowledge I don’t have an answer to this last question.  I do know I had to publicly acknowledge my complicity in the state of affairs to date and ask for guidance on what I can do to make a difference.  And I know

In the past week, I have watched the debate about Black Lives Matter, many responding with All Lives Matter.  Sure they do, but not all lives are treated equally and fairly, so the right thing is to say Black Lives Matter, which translates to “black lives matter just as much as white lives do.”  Surely no person proclaiming All Lives Matter would wish that his or her life, or the lives of their family members, would be treated with the brutality, unfairness and cavalier disregard for life and human dignity that so many African Americans, blacks and other people of color experience routinely.  Not one of you would change places with an African American. White Americans should count themselves fortunate they never have had to march in protest to convince people that White Lives Matter.  White people just take this for granted.  I read a simple illustration that I thought drove home this point.  If the fire department arrived to spray water on the burning house of my neighbor, no one would feel the need to say that water should be sprayed on all houses, even though everyone believes that all houses are worth saving.  You address the problem that exists by drawing attention to it, and trying to confiscate the message by watering it down to the point it means nothing accomplishes only the intended objective of shifting focus from the true problem.

I believe we are at an inflection point in America, a point where we can step back from the political rancor and social divide and try to save our country and its soul, or a point where we miss that opportunity and continue to spiral downward into a place from which we will not recover.  I fear that too many people, on both sides, are refusing to recognize that there is no winner in a culture war. You cannot dominate the other side into behaving the way you think they should.  We have to fairly and critically identify problems and then work together to solve them.  Not everyone will be happy with the solution, but trying to solve problems together is how we heal and how we get better as a country.  And doing that starts with looking in the mirror.  It starts with listening, which is so much more than just hearing words spoken.  It means understanding the pain or fear with which they are spoken. It means trying to understand why people are crying.  It means looking in the mirror. There is too much wisdom in the old line “united we stand, divided we fall” to ignore it.

In my writings about Customer Experience, I am often challenging people to “walk the mile,” which is a reference to lyrics from a song written by Joe South. Those lyrics strike a poignant chord now:

If I could be you, if you could be me
For just one hour
If we could find a way to get inside
Each other’s mind
If you could see you through my eyes
Instead of your ego
I believe you’d be, I believe you’d be surprised to see
That you’ve been blind
Walk a mile in my shoes
Walk a mile in my shoes
Yeah, before you abuse, criticize, and accuse
Walk a mile in my shoes
Now there are people on reservations
And out in the ghetto
And, brother, there, but for the grace of God
Go you and I
If I only had the wings
Of a little angel
Don’t you know I’d fly to the top of a mountain
And then I’d cry, cry, cry?
Walk a mile in my shoes
Walk a mile in my shoes
Yeah, before you abuse, criticize, and accuse
Walk a mile in my shoes

Many people I have said that the first step to solving a problem is recognizing you have one.  I am recognizing today that I am part of the problem.  From today forward, I hope to be part of the solution, a solution that brings us together, without fear, without anger, without suspicion.

So please join me in doing two things, and, with me, try to make them a daily habit.  Take a look in the mirror, hard enough to see into your soul, and then go walk the mile.  And then, most importantly, when you’ve walked the mile, do something about what you’ve learned. Feel the pain.  Feel the fear. And do something to ease the pain and quell the fear. And I also ask you to join me in asking others for helping in learning what we can do that will make a difference.

When year need a reminder, listen to this.

We have to change the way we think about change. To get to the Next Normal and succeed in that new era, we are going to have to change. A lot. As a profession, we are, to be honest, not very good at change. We have to become better. How we do so is the question I want to address. But first, it is important to create some context.

Change is everywhere, every day, all around us. It happens, sometimes despite our best intentions. Yet despite its prevalence, our thinking about change is rather unnuanced. We present it as binary, yes-no, black-white. We tend to see it as only a matter of choice.  Sometimes it is, but often it is just part of the inexorable march of time.  And because of COVID-19 and the resulting economic fall-out, many people are talking about change, but the conversations tend to reflect the view that change is a binary choice.

This view is not new, certainly not in law. People have long discussed change as a choice between the status quo and an alternative. I am certain I have spoken and written in such terms, probably on many occasions. One reason may be that as lawyers or those involved with lawyers, we are used to the concept of legislative change.  Rules change as of a specific date.  “On January 1, this new law goes into effect.” By some kind of vote, something that is so on one day is no longer so the next.  Some change is like that. But most change is not.

Consider the pace and distribution of change on most things—the adoption of email; purchase hybrid or electric vehicles; use of social media; use of personal computers (this one is for those over 50 who worked during a time when no one had computers); use of cell phones.  The list of examples of such unevenly paced and distribution of change is too long to recount here.  But you get the point.

Change in the legal industry, at least the kind being addressed in the last 15 or so years, is almost exclusively the latter form.  When “legislative change” happens in the legal industry, it is almost always operating in arrears. For example, mandates for technological competence happened after almost every lawyer became technologically competent. The legislative change told the laggards it was time to catch up. So, for the rest of this post, I want to put legislative-type change aside. The more important concept at the moment is distributed change and how it takes place, especially inside organizations.

What do we do when change must happen quickly?  How does our experience guide a better change journey in the future? These are important questions because many law departments are facing demands for swift, material changes to the way they operate.

There are a number of truths that have been learned about the combination of distributed change and organizations such as law departments. Among them are that attempting to legislate change in a law department is hard because there is, practically speaking, no enforcement mechanism.  Employment for most who work in law departments is at-will, so enforcement could be easy, but it might be disruptive. Fear of disruption wins out.  Thus, those trying to lead change know they must confront and overcome the problems of outright non-compliance and the subtler, but more insidious and destructive MPR (massive passive resistance, a term coined by Jeff Carr). These behaviors prevent many change efforts from succeeding.

The challenge posed by insiders resistant to change may be the most important one a law department leader faces. The resisters determine whether a leader’s change agenda will succeed or fail.  To overcome the resistance, a leader should approach change systematically, in a way designed to overcome and, if absolutely necessary, overrun, bypass, circumvent, or if need be, eliminate, the resisters. In other words, change must be engineered.

What’s the starting point?  The vision.  Where you are going.  Think of it this way—you’re about to embark on a trip. Which of these is most helpful?

Go.

Go east.

Go east for a little bit.

Go east along Interstate 80.

Go east along interstate 80 until you get to New York City.

Go east along interstate 80 until you get to New York City where you will be able to east some of the best food ever, see amazing works of art at the Met and hear music that defines will bring joy to your heart.

The latter instruction provides the greatest comfort. People want to know where they are going.  The same desire is why newspapers contain headlines or why paragraphs should contain a topic sentence. But they also want to feel where they are going, to get a sense on how their lives will be better. Make sure everyone knows the real destination of the change journey.

Next, tell everyone why you are making the change. State the business case, and whether it is a “nice to have” change or an existential one. Here’s why this is so important.  Change is really hard.  No, harder than that. Really, really, really hard. Even when people really want to change, it’s hard.  Think about changing your breathing pattern.  You can do it if you concentrate, but stop concentrating, and you’re right back to way you did it before.

So, understanding why change is occurring and the desired end-state helps people understand why they are being asked to be different and what different will look like. But those two things do not address the “change the way you breathe” problem.  One easy way to address the “breathing” problem is to apply the concept of poka-yoke to the new design.  Poka-yoke means “mistake-proofing,” an example being a key that only turns one way.  If people cannot go back to the old way, you’ve travelled a major distance on your journey.

In the legal world, a poka-yoke solution is not always possible. Sometimes, nudging is required. When we started Valorem and were looking for ways to cut fat out of litigation, we had to constantly ask each other “what difference does it make to the outcome?” That question forced us to think about why we were doing things and then consider not doing them.  And we were all motivated to change—doing less increased our margins—but desire alone was not enough overcome the habits of a lifetime.  Our approach to nudging worked, but our environment was small.

What other types of nudging should be considered?  For a period of months or more, the change journey should be the primary topic of all one-on-one meetings with direct reports, and those should be help weekly.  And that should cascade down, so information about the change journey can be pushed up. It should not be addressed in a cursory manner. Before starting the journey, metrics should be established by which progress is measured, and those metrics should be reviewed in detail in one-on-one meetings.

The last major issue to plan for is how to handle the resisters. It is almost inevitable in a large organization that there will be resisters, and it is possible or even likely they might exist in a smaller one.  Much has been written on this topic, but from my experience, here is the approach I recommend.

  1. The first sign of resistance must bring a response. If the resistance was public, the response must be as well because the target audience is everyone who saw or is aware of the resistance. But if the resistance is not public, the response should not be either. What might a response look like? For a private act of resistance, there should be a private discussion where the act of resistance is identified and discussed.  Was it intended to be resistance?  Why did it occur? At the end of the discussion, it must be clear to the resister that resistance will not be tolerated, and the repercussions should be clearly identified.  Perhaps the only difference between the public and private act of resistance is that the fact that a meeting with the resister occurred should be make known.
  2. Make change interesting and fun. If people know where they’re going and can have fun getting there, they are more likely to take the trip.
  3. If resistance persists, the person needs to have an HR response and be put on some kind of improvement plan with specific behaviors and outcomes that must be obtained. It is fair to give the person a chance to improve and succeed, but the cost of failing to do so must be apparent.
  4. If resistance continues, a choice has to be made. You can abandon the change journey or you can move on from the resisters. It is a hard choice, especially since personal relationships come into play and removing someone from their position is disruptive.  But that disruptive is only for a short period does not outweigh the objectives of the change journey.

Change is hard. Damned hard.  But the results of change, effectively engineered and rigorously managed, can be fantastic.  If you have a place you need to bring your team, tell them where that place is, what it looks like, and why it is important to get there. Make sure people understand how the change will help their lives.  And then commit to the journey. Give people every chance to make the journey with you, but if someone prefers a different destination, you owe it to them and your organization to off-load them and help them find a journey they will enjoy.

I am not an expert in changing, and I don’t play one on TV either.  But I have done a fair amount of changing in my legal career, including starting an AFA litigation firm in the Great Recession and joining Elevate a decade later.  So, for the last 13 years, change has been a daily part of my diet and in the air I breathe.  I’ve come to understand that change is a constant, but it can be designed, engineered and managed just like any other massive project. It needs to be approached with that level of commitment and focus, lest the obstacles to change seem insurmountable and over the journey.

Prior Posts in this series:

The Next Normal

The Next Normal: Law Departments Learn to Prioritize Spend Based on Fundamental Investment Analysis

The Next Normal:Prioritized Pricing

The Next Normal: Moving from “Just Lawyers” to Multi-Professional Teams

Guest post by Philip Harris

Perhaps by Memorial Day, college presidents and their leadership teams will face what will likely be the most important decision of their collective tenures: when to open the dormitories and classrooms on their campuses following the COVID-19 crisis.  Even though we are bombarded with new information each day, it is safe to predict that these decisions will be made with at best imperfect information.  And even with massive testing and an effective treatment, COVID-19 will continue to present a threat to campuses until there is widespread immunity that occurs naturally or from a vaccine. 

Higher education leaders are considering these issues now.  Even though no two campuses are the same, no university wants to go at it alone, especially because there will be nothing more chaotic than similarly situated institutions making different determinations.  When decisions are announced, they will be announced at roughly the same time.  Every single college will preface the announcement with a statement that no principle is more important than the safety of students, faculty, staff, and administrators.  But within the context of our legal system, what does that really mean? 

At the outset, there will have to be some (and perhaps extraordinary) risk tolerance.  No matter what decision is made, there will be litigation—with claims from parents who want partial or full tuition refunds (several class actions already have been filed) or from students who become physically or emotionally ill on campus. In this regard there are some obvious rules that the chief legal officer on each campus must follow.  One is be involved in the decisionmaking process.  No decision should be made without a careful consideration of all of the legal risks, which includes the risk from defaulting on obligations in contracts the school may have.  Colleges could be entering one of the most litigious periods in their history.  Second, don’t make the mistake of having your usual litigation firms conduct the analysis of what constitutes “compliance” with the standard of care on your campus.  Whoever does that work is likely to be a witness in litigation. 

But back to the question that I pose above: what does safety really mean? 

I spent thirty years as a trustee and general counsel of a leading research university.  (Before that, I spent seven years as a student on two college campuses.)  As a trustee, I spent over 20 years as a chair and member of the committee responsible for the oversight of student life.  What I learned from that experience is that up to this point, the student experience on campus has been about everything other than social distancing.  Students are forced to be in a crowd—whether in class, theater, musical performances, intercollegiate/intramural/club sports, the dining hall, and dorms.  And whether it is on or off campus, there are weekly parties that often take place in crowded spaces and without the kind of sanitary practices that are being demanded now. 

If college administrators, acting on the advice of health and environmental safety experts, can design an effective process for social distancing on campus, the first hurdle is how such rules are enforced. But for the sake of this discussion, assume that administrators can be successful in implementing a social distancing plan that will change in a matter of weeks the nature of engagement for decades on college campuses.  

The issue that should come to mind is whether students will be happy in this new environment.  Stated otherwise, what will the impact be on their mental health?  Administrators will have to decide whether the activities outside of the classroom that have been said to drive student satisfaction, but might now be put on hold (or eliminated altogether), are necessary to the students’ emotional well being.  Further, they must rethink the value that is implicitly expected as part of the room and board experience—for which, of course, students are paying.  

As they address that issue, the second question will be what safety precautions need to be taken in order to comply with the standard of care.  There has been, and will be, a variety of standards and opinions on best practices. The standards are likely to be issued in the form of guidance, which means that administrators will have to decide which ones best fit their campus profile.  This reminds me of my 30 years as a tort and product liability trial attorney:  evidence of the standard of care might meet a preliminary burden, but it generally is not conclusive.  Thus, it is inevitable that even the most careful and thorough process will leave colleges open to risk. The best way to deal with risks are to prepare for them—engaging as necessary with skilled professionals who know what you are dealing with. 

The list of practices that might lead to the reopening of campuses and dormitories includes the following: 

  • Students required to produce negative test results before coming to campus. 
  • Students required to take daily (weekly?) temperature checks. 
  • Students required to wear face masks on campus. 
  • Class sizes reduced and class times staggered so that the flow of students and faculty in and out of classrooms will create less traffic. 
  • Study abroad programs eliminated. 
  • International students not allowed to travel home during the academic year. 
  • Strict limitations on the size of gatherings on campus. 
  • No intramural or club sports or pickup games (or students participate only after signing releases—take a look at whether those releases can be enforced). 
  • A reconfiguration of dormitory space so as to enable social distancing (consider the limitations in terms of facilities and the economic impact). 
  • A reconfiguration of dining hall space or staggered schedules so as to enable social distancing (consider limitations and economic impact). 
  • A reconfiguration of lecture halls and classrooms to enable social distancing. 
  • The elimination of service in dining halls; dining halls provide take out services only, giving students the capacity to order online. 
  • An enhanced schedule of cleaning and disinfecting of dorm rooms (don’t rely on students to do this) as well as all common areas on campus.  
  • Stagger the return of students to campus, beginning with students for whom online education does not work—for example, students who need access to labs.  
  • Create a hybrid of live and online classes, perhaps with students whose id’s end in even numbers attending live on one day, while those ending in odd attending on another. 

These are only some of the possibilities. Taken individually or as a whole, what will be the impact of these new practices on the quality of the student experiencestudent satisfaction, and student health? The demand for psychological services on campus, which has increased dramatically in the last decade, is likely to become even stronger. And what about the strain on the service providers? 

The nature of the challenge here is clear. Although testing can in theory be mandated, social distancing is highly dependent on voluntary compliance.  And even a robust testing protocol will not ensure the absence of new exposures because students (and others) cannot be contained on campuses.  It seems unlikely that colleges are going to track the movement of students on and off campus. And, of course, the students are far from the only source of infection on campuses.  There are professors and visiting scholars, staff members and their families, administrators and their families, contractors, and visitors from other campuses.  Indeed, the freedom to move on and off of campuses has been a key feature of higher education in this country. 

There are so many other issues that will arise depending on the decisions that colleges make, and so many additional changes to come. For example, will insurance companies create a new form of insurance that schools can purchase to offset some of the risk of re-opening before things are totally settled? Are there actions colleges can take to stave off the litigation that has already started?  

In addition to the issues addressed here, there are other legal issues that might arise if a campus employee contracts COVID-19 in the work environment.   

Feel free to reach out to me to discuss any of these ideas further.  While these are truly uncertain times, informed collaboration and experience will navigate your campus through them successfully. 

Note: Philip Harris can be reached at philip.harris@elevateservices.com.

 

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Guest post, by Philip Harris

The current environment is spawning conversations about reducing costs as a means of responding to the loss of revenue that many businesses are experiencing. Many businesses already have laid off and furloughed employees and cut their compensation. No one seems to know how long this will last.

The pressure to reduce costs now and in the near term will affect all businesses and institutions in this country, whether they are for profit or non profit. And that includes higher education. Already, experts in higher education are predicting that there will be significant cost reductions because of the loss of revenue from tuition (including from declining enrollments), room and board, endowments, philanthropy, athletics, and media deals. Just last week, for example, the NCAA announced that it will reduce its June distribution to Division I members by $375 million. That will have an enormous impact on many universities and raises the specter that the conference media deals will generate less revenue than expected.

The loss of revenue will impact more than the Power Five schools. Division II and III members will be impacted as well.

Based on my nearly 30 years of experience in higher education, including as a general counsel at an elite private university, I believe that a demand to reduce costs will materially impact legal departments in colleges and universities across the country.

This raises a question that is of fundamental importance to us all: Can legal operating budgets and budgets for outside counsel be lowered enough to meet expense reduction targets without painful layoffs, furloughs, and compensation cuts?

Obviously, it is difficult to answer this question without evaluating each specific situation. But there are a number of ways to reduce costs dramatically. Here is a partial list:

  1. Rethink your process for reviewing contracts.Technology is available that makes it unnecessary to have attorneys review many written contracts. If your office is reviewing thousands of contracts, that could be a sign of inefficiency rather than usefulness.
  2. More aggressively explore early resolution strategies before litigation becomes too expensive.
  3. Evaluate whether routine work can be performed on a contract basis at a substantially lower cost—which frees up members of your team to work on more pressing and complicated matters.
  4. Seek an independent review of your outside counsel spend: are your attorneys following your guidelines for outside counsel with respect to budgeting? How are they performing against your budgets?
  5. Use technology to reduce costs.
  6. Triage work so that you can better prioritize the utilization of resources.
  7. Develop metrics that show your direct report that you are managing your office efficiently and effectively. And lowering costs!

When I was in private practice, I often heard partners say that there were too many variables to provide meaningful budgets. Or else they would say that certain tasks needed to be performed to “educate” the judge. My partner Patrick Lamb, in a recent blog post, observed that lawyers often file motions to dismiss when they have a zero percent chance of being dispositive. I am not convinced that they educate judges any more than they educate your opponent about how to replead. But even if that virtue was realized, is it worth the cost when resources are limited? The answer is rarely, if ever.

These seven recommendations are only some of the things that you can do to reduce costs. And to prove to your direct report that you can reduce costs. In my experience, maintaining the status quo from an operational perspective and asking outside counsel for bigger discounts will not do the trick. You will need to do much more.

Law departments are not immune from the exceptionalism that pervades much of the legal industry. Lawyers, generally, think they are special. See here and here. And the problem is worse as lawyers get both older and more successful. I was fortunate to early on have an experience that vividly proved to me that despite being a lawyer, I was not special.  I had prepared really hard for a deposition. It was a complicated chemical exposure case, and the medicine was daunting, but I had mastered it.  Because I was a lawyer and that’s what I did, right?  Well, I got to the deposition and another lawyer, about my age and experience, took the lead in examining the witness.  He was fantastic, proving his mastery of the medicine was well beyond anything I could have hoped to accomplish. At a break, I asked him how he had prepared. He told me that he never could have mastered the medicine, so he had an experienced nurse that he regularly hired to investigate and prepare. The nurse knew more than he did, so he just took her notes and suggestions and turned it into an outline.  Lesson number 1–I wasn’t special. I was arrogant and stupid. And I was saved from hurting my customer only because this other lawyer was smart enough to engage someone who was smarter than both of us. I wasn’t saved from spending more of my customer’s money on the preparation, however. The nurse billed her work at a fraction of my and the other lawyer’s hourly rates.

My second, related lesson was a win, built on the first lesson. In dealing with a financial fraud case, I immediately engaged a former FBI financial fraud investigator. He uncovered the fraud in days when I had been predicting months. The right expertise, applied in an exacting manner, can achieve superior outcomes at lower costs.

You notice how neither of the heroes of these stories were lawyers?

While I was lucky to have these viewpoint-shaping experiences at a formative stage of my career, not everyone is as lucky. Indeed, most law firms, clinging to the partnership model that is designed to reward the “exceptional, do-it-all-and-charge-for-it” approach vigorously oppose any change that would open the industry up to people who did not graduate from law school. They continue down this path despite the overwhelming evidence demonstrating the value of a multi-disciplinary approach to solving business problems.  This legal-centric world view leads some law departments, for example, to have only lawyers review contracts and have those lawyers focus on the business terms of contracts even though lawyers do not perform the contracts.  And it has caused law departments to fail to determine the best skill set for most efficiently executing many jobs that are routine parts of corporate life.

Let me offer an example. Company A engaged outside counsel to monitor annual filings required to maintain trademarks globally and engage local counsel in countries as needed to accomplish the necessary paperwork filings. Outside counsel was supervised by an in-house lawyer. When asked about this structure, the explanation was “well, what if there is an opposition filed to one of our filings.”  A follow-up question revealed that in the known history of this company, no such opposition had ever been filed. The company had simply defaulted to having lawyers perform what is essentially a routine clerical function. When light was shone on this process, it was quickly changed to align the skill set needed with the skill set of the new person responsible for executing it. For this company, that netted annual savings of over $500,000.

The Next Normal will not permit lawyer-centric systems to survive. The Next Normal will cause law departments to ruthlessly disaggregate work, define its purpose, analyze whether that purpose is essential, and determine what type of resource from its mutidisciplinary pool of talent can most effectively and efficiently operate the processes to accomplish the needed end. Doing so will be disruptive of the status quo. But that is precisely the point. The Next Normal will be different than the status quo.

 

Prior Posts in this series:

The Next Normal

The Next Normal: Law Departments Learn to Prioritize Spend Based on Fundamental Investment Analysis

The Next Normal:Prioritized Pricing

I was born in Detroit and grew up in the heyday of the auto industry. So, when I first heard Ron Baker speak about Lee Iacocca, I listened with great interest. Iacocca was a Detroit icon, first for his trailblazing work for Ford and later for saving Chrysler. Ron set the stage: Chevrolet had created the Corvette. It was very expensive, relatively, but it was the first real sports car.  Ford needed to challenge it. Iacocca came up with the idea of the Ford Mustang. Baker picks up the story in The Firm of The Future: 

When Lee Iacocca developed the Ford Mustang, he reversed the order of the usual car-making pricing up to that point. Rather than giving his engineers carte blanche to develop a sports car and then marking up the resulting costs—as GM did [with the Corvette]—he solicited the opinions of potential customers as to what features they would want in a sports car and what price they thought they would be willing to pay. He then went to his engineers and asked if they could manufacture a sports car with the desired features and sell it at this price and still turn a profit for Ford. The engineers developed the Ford Mustang (based on the platform of the existing Falcon), and it was launched in April 1964 at a price of $2,368. In its first two years, net profits were $1.1 billion, in 1964 dollars, far in excess of what GM had made on the Corvette.

This form of pricing is known as price-led costing. It has been widely used by many businesses. But not law. That needs to change.  Read the quoted paragraph and substitute the “lawyer” for “engineer” and “handle a matter” for “develop a sports car.” There is the germ of really important idea in this concept, and I’d like to play it out in the setting of a law department getting a new matter, say a lawsuit, though this approach works for any issue.

A new lawsuit is served on the company. The first reading makes it clear that the pleading is defective, but the defect is curable. The complaint is also filed in the wrong state. It is a garden variety claim that poses no material risk to the company.  In other words, it has “routine” written all over it. The law department, like all other parts of the business is under orders to cut costs.  So, what does the inhouse lawyer do?

One possible response is the typical one. The inhouse lawyer sends the case to an outside lawyer, who analyzes the claim and recommends filing a motion to transfer the case to the right state (meaning the case is in Federal Court) and to simultaneously file a motion to dismiss because of the defect in the complaint.  Based on counsel’s recommendation, that plan is approved. Two motions are briefed and argued, the matter is transferred, the complaint is dismissed and an amended complaint filed that cures the defect.  Back to square one, with a 5-figure fee already incurred.

Or there is this alternative. The inhouse lawyer, realizing the features of the case, calls an outside lawyer and says “I want this case permanently dismissed or more likely settled and I won’t spend more than $25,000.”  Stop here: would the lawyers recommend the same plan as in the typical scenario?  Of course not. The 5-figures spent on the two motions is almost certain to have had no impact on the outcome. Here’s how it would play out: The lawyer’s first step would be to determine the Expected Value of the case, based on information available at that time. That analysis would be submitted for approval to the inhouse lawyer. Once approved, the lawyer would develop an approach to get to resolution because dismissal on the merits was unlikely.  The lawyer may decide to file some limited, targeted discovery requests. Or not. The lawyer may call the plaintiff’s lawyer and initiate dialogue to lead to resolution.

The point of this is not to decide which strategy the lawyer should follow. The point, instead, is to identify a different approach to pricing that can be highly effective for many matters. It forces the lawyer to ask “what difference does it make to the outcome?” for every step, every action.  And if the answer is “none,” then not performing the step should be proposed to the inhouse lawyer who should approve it if she concurs in the analysis.

I’ll end with a personal story to reinforce the point.  My wife and I had purchased a piece of property on the Lake Michigan lakefront. We wanted a weekend getaway.  We had a budget. The architect designed first and presented us the design, which we loved. When we asked about the price, he then got estimates from 3 builders. The best price was twice our budget. Needless to say, that design was scrapped and we went to the builders and said, “what can you build within our budget?”  The house we ended up with was simple, functional and like the style of other homes in the area.  We didn’t get everything the architect tried to sell us, but what we got was perfect given our budget.

The Next Normal is going to force law departments to look at pricing and matter handling much differently than we have until now.

The Next Normal is also going to require law departments to ask whether a matter even requires a lawyer at all. That will be discussed in my next segment.

 

Posts in this series:

The Next Normal

The Next Normal: Law Departments Learn to Prioritize Spend Based on Fundamental Investment Analysis

Every day, businesses prioritize. They invest in one thing, not another. They fix one problem, but defer fixing another. The build one facility, but not another. They pursue one strategy to the exclusion of others. These decisions are almost always made based on some form of return-on-investment or cost-benefit analysis.  ROI is coin-of-the-realm for operating a business.

Except in law.  At least until now.

Most law departments now operate in a world where they must budget. But the sophistication of the budgeting process varies considerably.  But even the most sophisticated tend to look at cases as similar cost items, rarely making anything other than the most generalized prioritization decisions (“yes, this bet-the-company piece of litigation requires a larger budget than does this routine employment case”).  This rudimentary approach to budgeting is almost certainly going to be a casualty of the recession caused by the coronavirus.

This conclusion begets the question what will the future of law department budgeting be?

We must begin with the proposition that no law department has a budget that allows it to spend unlimited amounts on all of the matters for which it is responsible. That proposition is destined to become even more profound as businesses grapple with the global economic fallout of the coronavirus crisis, which is predicted to be profound. According to Fortune (2020-03-23):

            Morgan Stanley and Goldman Sachs Group Inc. economists said the coronavirus will inflict greater economic pain than they previously expected as they warned of a record plunge in the U.S. output in the second quarter and a deeper global recession.

Morgan Stanley’s U.S. economists led by Ellen Zentner told clients in a report on Sunday that they now see American gross domestic product falling 30.1% in April-June. That will drive up unemployment to average 12.8% over the period, they said.

At Goldman Sachs, Jan Hatzius’s team said in a report that they now expect the world economy to contract about 1% this year, which would be a bigger decline than even that witnessed in 2009 amid the financial crisis. They were already projecting a 24% drop in U.S. output in the next quarter.

These numbers are staggering. There will be demands on every department in every organization to cut costs, and the amount to be cut will be material. So, having to do the same with much less (even though everyone knows demand on legal is likely to increase as a result of corona-related issues) will necessitate a need to engage in a disciplined prioritization process to allocate scarce resources.

There are several concepts that most of us are familiar with—return on investment (ROI), expected value (EV); sunk costs; opportunity cost; cost of doing nothing; strategic value; and risk. Each of these concepts plays a role in determining how spend should be prioritized.

Let’s define the concepts, which apply to every matter handled by the law department, whether by internal or external team members, and regardless of subject matter:

Risk to the company: how and how much is the company hurt by a negative outcome. Is the outcome necessary for the company to achieve a strategic outcome?  In other words, is this matter something to really care about. Determining the worst outcome and scoring it in relation to its probability of occurring.

Expected Value:  Based on knowledge available at the time of the estimate, what is the estimated cost or benefit to the company of the outcome.

Sunk Costs: sunk costs are amounts already spent on a matter. In determining priorities, these are to be ignored.

Opportunity Cost: what benefits and opportunities will we not be able to take advantage of if we allocate resources to a particular area.  An example would be allocating resources to handle matters A and B will prevent us from investing in matter management and e-billing software that is estimated to reduce the amount of our external legal spend by 10%.

Cost of doing nothing: literally what it means. An example is what is the increase in the expected value of Matter A if we do not take any depositions?  This concept capsulizes the answers to the question “what difference does X make to the outcome?”, which should be asked on every task on every matter.

Strategic Value: Is this matter core to our business, does it raise reputational issues, or for some other reason justify special treatment unrelated to the basic economic analysis.

Return on investment: What is the predicted change in EV if scarce resources are allocated to this matter? A simple example would be I could allocate $100,000 to a matter with a negative (loss) EV of $1,000,000 with a prediction that the $100,000 investment would lower the EV to $800,000. This represents a 100% return. If the alternative was to invest $10,000 into 10 matters which each had an EV of $100,000, and the prediction was that the investment would lower the negative EV (loss) to $70,000 in each case, the savings to EV would be $300,000, representing a 200% return.

Few law departments currently require Expected Values to be created, and certainly not at the outset of cases. Outside lawyers recoil at the notion of predicting an outcome based on such incomplete knowledge. The truth, however, is that there is always ample basis for developing an EV. The lawyer’s experience, informing her that cases like this are very hard to win in a given jurisdiction allows a basis for a more informed estimate of EV than the alternative, a coin flip. One can determine the reported outcome of similar types of cases. While this information ignores private settlements, it is a useful input. And so on.  The process will yield an outcome that is most likely inaccurate, but is directionally correct.  And that expected degree of inaccuracy, while accepted as normal in business, drives lawyers crazy.

Businesses operate with a high level of uncertainty. Decisions are made based on limited information, because the decision has to be made and there is either no time or no capability to obtain more robust information. Law departments will be forced to learn to operate in the same uncertain environment the rest of the company routinely operates. Just like there are unknowns in investing your IRA, there are unknowns here.  That does not, however, reduce the value of the investment exercise. The act of creating Expected Values forces a discipline in resource allocation that otherwise is impossible to achieve.

There is, to be sure, no ready formula to plug into a spreadsheet.  Each of these items needs to be weighted in accordance with the Company’s manner of operating.  But this approach produces principled basis for determining which matters merit investment and which ones should be handled without any or all the needed investment.

In the next of this series of posts, I will address the concept of determining how to handle a matter on which investment is limited.

Prior posts in this series:

The Next Normal

 

From 2010 until 2016, I was a columnist for the online ABA Journal’s The New Normal column.  I was invited to start the column as a result of the creation of Valorem Law Group in 2008.  We started a law firm just before the Great Recession and because of the novel model and approach, we thrived because of the Recession.  We pioneered and shaped the significant changes that were to become an eventuality as the New Normal. The term stuck.

The New Normal is now over. I write this post from my home office, joining workers from across the country, from many industries, who are sheltering in place. In our homes, we wonder how long before we return to our offices, how long before things return to normal. Some things will return to normal. We will again dine in restaurants or have a beer with friends in a pub. The commuter trains will carry commuters instead of looking like ghost cars.  People will return to their offices.

But not everything will return to normal. The economic shock and after-shocks of the coronavirus crisis will be profound, global and long-lasting.  Already businesses are feeling the pain and we are just weeks into a crisis that will last much longer.  Even when the health crisis abates, businesses will find it difficult to return to normal. Supply chains will have been disrupted and may not be easily rebuilt. Customer demand will have been eviscerated. Some businesses will be in bankruptcy. Others simply will have closed. Each of these is a pebble that creates a ripple, and these many ripples cross each other in ways we cannot possible know.

But even though much of the future is unknown, there are things that are certain.  There is a future.  This crisis will end. The road to the future will be strewn with debris and those businesses that emerge will be different. What will be normal after the crisis will not be what was normal before.  Among the things we know will be true are some things about law departments, the businesses they serve, and the law companies and law firms that serve them. Law departments will be different than they are today. They have to be; the businesses they serve will be different. Change is certain.

When change is certain, there are only two fundamental responses.  One is to wait and see what the change is, to wait to see what becomes certain. And then, once you know where things have gone, to attempt to adjust quickly to the new.  That is how most respond to change. It is a fine strategy if you believe hope is a good strategy. The strategy of hoping you can adapt to the new terrain quickly enough to survive the fall-out that comes from not already being in the new place may work for some but it tends to fail for most.  That is why the truism “hope is not a strategy” is so widely known. The other strategy is to try to shape the change, to lead it, to prepare for it. Sure, you might have to make a course correction along the way, but such course corrections tend to be minor, like changing from the center lane to the left lane while operating at speed.  That maneuver is much easier to execute than trying to start from a dead stop and merge into a highway full of vehicles moving at warp speed. Those that try to shape change usually do, and they thrive.

There is a great deal to think about as one begins planning for the future and executing the changes needed to shape it.  Now is the time for those discussions–everyone needs to walk and chew gum at the same time in this crisis. In the next several posts, I will identify a number of things law departments and those that serve law departments should be thinking about now to prepare for The Next Normal.

The goal of this series of posts is to generate discussion. Working together–dare I say, collaborating–we can accomplish great things in The Next Normal.

 

You know what happens when a rubberband is stretched too far. It snaps. The surge in just the past week is stretching many law departments. And there is more to come.

To recap. In the past few days, SXSW canceled the iconic tech and music festival. Facebook canceled its annual F8 Developers Conference. Google canceled its Cloud Next Conference. TED canceled its TED2020 conference. The Ultra Music Festival has been canceled. Some sporting events are being played without spectators.  Schools have converted classes to online only.  Many businesses have canceled large or company-wide meetings. Many tourist attractions in Italy, Japan, China and other countries have been closed. The list of events, meetings, and attractions canceled or closed is expected to continue to grow.

The cancellation of events does not even begin to address the economic impact of the virus. Apple announced it would not meet its current quarter revenue projections. Fortune magazine reports that “[a]ccording to Amenity Analytics, a natural language processing company, references to “coronavirus” have been made over 8,000 times across over 1,000 companies on earnings call transcripts, as of Feb. 26.” Major stock indexes have declined as much as 12% since their high on February 19.

The virus is hitting something even closer to home for many business–their supply chains. And disruption of supply chains often results in failure to meet sales obligations.

I could go on, but I don’t think anyone believes that, health risks aside, the coronavirus is not a significant threat to businesses.  There is going to be a lot of new, virus-driven and virus-related work that will end up with law departments.  Force majeure will go from drafting afterthought to a clause discussed in boardrooms. HR departments will need to be advised on policies regarding health and safety.  There will be negotiations with suppliers and also with purchasers. Calls may pour in. Some companies will need to have their in-house teams pay close attention to virus-related issues, meaning other work does not get done. Some issues are not manpower issues, but data-extraction issues–how many contracts of a certain type has the company entered?

Each business will have its own set of problems.  While some of the problems are not legal ones per se, most have at least a legal element or feel like they are legal.  When no one else is equipped to handle problems that require multi-disciplinary talents, most businesses send those problems to the law department; the law department that already, in all likelihood, is at capacity or stretched thin with inadequate budgetary resources.  The challenge will be daunting.

This need for multi-disciplinary resources to provide solutions to customers’ business problems is precisely why Nicole Aurebach and I took the lessons we had learned as founders of Valorem Law Group and joined Elevate Services and created ElevateNext Law just about two years ago. The heavy lifting of data extraction from contracts (just how many of these contracts do we have?) isn’t effectively handled by lawyers. Such tasks can be handled more effectively and faster by a computer. Are temporary resources needed to analyze contracts to identify recourse if suppliers can’t ship their product to us? Are we being flooded by inquiries who have bought something from us that we may not deliver? Traditional law firms might provide an answer to some of these questions, but we joined Elevate because it has the depth of resources to help customers solve their business problems.

If we can help, contact us.