March 2012

Corporate Counsel is out with a fascinating article, Bye-Bye Big Firm.  The article focuses on disaggregation as a disruptive force in the change cycle.  And while this is true, it is only part of the story.  The unbundling of services has allowed new entrants into certain markets, particularly in the process and content buckets (see here for explanation).  While everyone acknowledges that these specialized service providers (Novus Law, Integreon, being  good examples) can provide their services at lower prices, the real key is that they provide better quality.  Because they specialize in what they do, these firms hire people with different career paths than most biglaw associates have in mind, and they develop highly specialized systems to allow quality to be measured, managed and improved.  They are light years beyond at least most law firms in terms of the quality of services they provide, and they provide these superior services at a fraction of the cost.  As more clients move to these specialized providers, word will spread and only those still pining for rotary phones will expect their law firms to provide this type of service.

These service providers compete with many law firms, who like billing big bucks for process-rich work, whether document review or due diligence.  And many law firms are hesitant to rely on the work product of these service providers and so they find ways to “check it” that amount to a do-over on the client’s dime.  But as things evolve, law firms, at least those that want to thrive instead of fighting just to survive, will make the adjustments to work seamlessly with these subcontractors, just as a general contractor with good subs works seamlessly with those sub-contractors.  In the meantime, clients will have to be wary of the do-over tendencies of many firms.

The Corporate Counsel article ends with some interesting observations by Peter Zeughauser, with whom I agree.  But I would add that the number of large law firms is likely to decline at an accelerated rate until the equilibrium of the new normal is reached.

My partner Nicole Auerbach received word last week that she has been elected a fellow in the College of Law Practice Management.  Way to go Nicole.  A well-deserved honor.  Here’s why:

The College Law Practice Management was formed in 1994 to honor and recognize distinguished law practice management professionals, to set standards of achievement for others in the profession, and to fund and assist projects that enhance the highest quality of law practice management. The College and its Fellows inspire excellence and innovation in law practice management by:

  • Honoring extraordinary achievement
  • Developing, exchanging and disseminating knowledge
  • Stimulating innovation in the delivery of legal services

On every one of these criteria, Nicole has shown herself to be worthy of the honor.

My friend Mark Herrmann of Aon writes for Above The Law, sharing his insights as an inside lawyer. I read his post religiously because I learn a lot.  Today, Mark wrote Inside Straight:How I Learned To Stop Worrying And Love The Ignorance about the fact that in his new job, he doesn’t know as much about cases as his did when he was an outside lawyer.  I thought this illustration of his new life was  illuminating:

If you’re an in-house business lawyer, an executive may give you a five-minute summary of a situation and ask for your legal advice. You can ask a couple of questions, but then you owe an answer. You typically can’t tell the executive that you’d like to gather all of the emails, review the contract language, interview the witnesses, and give the executive a precisely accurate answer six weeks from now. Business moves quickly; you must, too.

Sometimes when your in-house client contacts, she is moving at the speed of business and needs you to do the same.  Do you?  Do you even know how to?

My friend Pam Woldow of Edge International writes a fantastic blog, At the Intersection, “where General Counsel and Law Firms connect.”  It is a must read, most recently shown by Pam’s post, The Low Delta Firm.  Pam writes:

Client demands for better efficiency, predictability, cost-effectiveness and communication are being translated into a new set of selection criteria for outside counsel.  Chief among these is the ability to deliver the goods, consistently, as and when promised.

For in-house counsel, a single metric now rules supreme: Actual to Budget.

For years, it has been a standing joke in the legal world that when asked to propose a budget in order to get a case, firms play “low ball” on the old “it’s better to ask forgiveness than permission” approach to life. As with so many things, the law of unintended consequences comes in to play.  As Pam notes:

For the client, the problem, of course, is that this practice produces huge variations between projected budgets and final bills.  Obviously, blown budgets and constant overruns play havoc with a General Counsel’s ability to forecast budgets for outside legal spend and make a mockery of the predictability of a legal department’s budget.  All too often, it causes the GC to lose face and credibility with the company’s management: Our other departments manage to their budgets.  Why can’t you?

According to Pam, the reult in a fast-increasing focus on “delta,” the difference between budget and actual.  The result, according Pam:

High deltas mean a firm is not consistently delivering on the promised budget.  Perhaps the firm is low-balling estimates and ratcheting fees later, or gaming the relationship. Or maybe they simply don’t know what matters cost and are making“wet-finger” guesstimates.  Whatever the cause, these budget-busting practices illustrate the maxim: “To guess is cheap; to guess wrong is expensive.”

Pam ends her fantastic post with this query:

So expect to begin hearing a new phrase that more clients are using to praise outside counsel: The Low Delta Firm. This phrase signals a shift toward greater client vigilance regarding what is promised and what is delivered.  Being “Low Delta” denotes a firm that can provide accurate and realistic budgets and then manage to those budgets. It suggests a firm that is willing and able to be held accountable for both efficiency and consistency.  Is your firm a low delta firm?

From painful experience back in the early 1990s, I can tell you that the best way to learn how to budget accurately to have a budget “with teeth.”  A budget with teeth means that if you exceed the budget, there is some unpleasant, generally expensive, consequence.  Like not getting paid or getting paid only 20% of the amount over budget.  If you have a client as I did in the early 1990s who refused to pay for any expenditure over the budget (unless there was an approved change order), you soon realize that there is really very little distance between a budget and a fixed fee.  If you operate on fixed fee arrangements, there is no reason you can’t be a zero delta firm.

Can your firm be a zero delta firm?

I just received a bill from my local counsel on a very small case.  The bill is less than $200, but I am annoyed.  Why? Because I am getting billed (in 3 separate entries) for reviewing an order granting our pro hac vice motion (.1), drafting a letter to me forwarding the order (.2) and drafting a letter to our opposing counsel forwarding the order (.2).  That’s the bill.  In real time, what should this have taken?  Say, 30 seconds to glance at the order, but be charitable and say 1 minute.  Assuming you have no staff and scan the document yourself, another minute for the scan.  Two separate emails (one could have done) at two minutes each (really slow typist).  In real time, this should have taken 4 to 6 minutes.  In truth, it all should have been handled by a secretary at no cost.

Moral of the story?  Even if you bill by the hour, exercise some judgment in what you bill for.  Every minute of what you do is not entitled to be billed.  Clients remember stuff like this–I surely do–and THEY WON”T HIRE YOU AGAIN when they believe you are nickel and dime-ing them.