In 25 years of writing, I have interviewed thousands of lawyers, in private practice and in-house. What strikes me about in-house lawyers is they think differently than their private-practice counterparts.They see their primary task as risk managers and they ask two key questions: how can I help my company and what value does the legal department bring?
Law firms need to apply the same test to their relations with in-house lawyers and ask what value does our law firm bring to management’s table? Law firms that fail to ask that question will be increasingly irrelevant in a future where legal service is predicated on value.
In private practice, the focus is often placed on the law firm’s bottom line, not the client’s bottom line. If you need more money, simply raise your rates.
Law firms also focus on the process of solving client problems within the scope of how their lawyers conduct business. Rather, law firms should be asking what is the best way to partner with clients to solve legal problems taking into consideration possible resources outside the scope of the law firm’s operations — including legal process outsourcing providers.For example, does it make sense to staff a file with juniors when work can be outsourced to an alternate legal services provider at half the cost? Or why bill hourly when a project-management fee with incentives based on achieving results might be a better indicator of service delivery and more lucrative in the long run?
In Avoiding Extinction: Reimagining Legal Services for the 21st Century lawyer Mitch Kowalski writes the problem is that “protected by legislative monopolies, law firms have been allowed to grow complacent, fat, and inefficient.” Harsh but just criticisms that reflect the backlash to the way many law firms currently run.
However, change is afoot. A report from the Association of Corporate Counsel shows how in-house legal departments are driving change in the relationship between law departments and legal service providers. The report is a must-read for law firms struggling to understand what general counsel see as value-added services in today’s market. It lists a wide range of value-generating initiatives deployed in-house, covering everything from alternative billing techniques to ways that law firms are being asked to enhance professional development and knowledge management in their clients’ legal departments.
It’s a fascinating read and no doubt more than the top 50 corporations will adopt these practices. The criteria that general counsel valued most in law firms were the ability to create a partnership, understand their business, be responsive, provide quality work in a cost-effective manner, and be innovative and flexible.
General counsel say their legal budget spending is increasingly driven on a “value basis.” About 80 per cent indicated that one-third of their legal spend was predicated on value, with that number rising to as much as 75 per cent for some legal departments. A whopping 76 per cent expect the percentage of their legal spending tied to value to increase in the coming years.
Value, like it or not, is here to stay.
So where are in-house legal departments finding the most value? They are modifying e-discovery practices often with some type of in-house system. They also increasingly want flat or fixed fees for work performed. Additional practices include: outsourcing document review, using contract lawyers, implementing practices for managing outside counsel performance, implementing a commitment to diversity that extends to external law firms, and sending work to legal process outsourcers.
Figure out ways to incorporate these criteria into your legal offering and your law firm will be golden with general counsel going forward.
When it comes to value-based fee structures, the models range from flat and fixed fees to target or fixed fees with success bonuses, escape valves, and holdbacks. Contingent fees and retainers were also mentioned, so there is a definite move away from billable hours as a form of remuneration.
Law firms also provide value through soft services such as secondments, which were viewed as a win-win. One legal department imposed a flex-time requirement for their external law firms to match the legal department’s internal practices. Budgeting, e-billing, and data management around fee analysis were also important to distilling value. As were accessing a law firm’s knowledge platform and continuing legal education programs.
Interestingly, a growing number of corporations no longer pay for first-year associates to work on files. They are tired of paying to educate law firm lawyers.
Law firms need to remember that time spent on a file doesn’t equate to value — certainly not in the eyes of value-minded general counsel.
Jim Middlemiss blogs about the legal profession at WebNewsManagement.com. You can follow him on Twitter @JimMiddlemiss.