The value (and profit) of relationships

In early May, this headline from Australasian Lawyer arrived in my inbox (and I wasn’t terribly surprised): “Alternative fees ‘a failure,’ say in-house lawyers.”

It’s not that I think AFAs can’t work, but more because it seems there is still too much that hasn’t changed between the law firm model and what in-house clients are dealing with internally.

In fact, according to the 2015 “In-house Report: Benchmarks and Leading Practices,” conducted in Australia and New Zealand, the disapproval rating for AFAs was on par with hourly billing. Ouch.

Could it be that it’s the human side of this that still isn’t computing? The relationship component in which the law firm partner understands wholly the challenges of the in-house client and tries to act accordingly, instead of trying to maintain billings?

The sentiment was reinforced during our 10th Annual Canadian Lawyer InHouse General Counsel Roundtable held in Montreal this spring (see page 18). All the participants said they have dabbled in alternative models, but none seemed too keen about any of the outcomes.

What I thought about most after our discussion was something L’Oréal general counsel Nadia Petrolito said. I have heard others say it before but it seems to be an elusive magic bullet for many: “I think the best cost-saving method is to pinpoint the right lawyer. Forget about RFPs, or all these alternative ways of paying and retaining lawyers. If you can pinpoint the right lawyer to help you, that’s the best cost saving method I’ve ever had.”

Sounds simple, right? Perhaps, but those lawyers are golden to someone like Petrolito. The relationship is probably also highly valued by the law firm lawyer she calls.

Understanding the demands of business has to be the primary focus for law firms. Why do law firms still think they don’t have to act and serve the way their clients do to their own customers — with the customer and budget in mind?

Roundtable participant Daniel Desjardins, SVP and GC of Bombardier Inc., drew the comparison between Bombardier developing 30-year maintenance contracts for train systems and the need to budget for those contracts. The customer asked Bombardier for a fixed price with only an increase to reflect inflation over the 30 years.

That means Bombardier has to price today the cost of maintaining that train over time with no scenario for unforeseen circumstances. So imagine his frustration when he asked one law firm to produce a budget for a matter and their response was: “It’s very complex to do a budget,” it was absolutely the wrong thing to say.

“Let me talk to you about complexity,” he replied. “I don’t buy this. I mean, what we’ve got to price is way more complex than what they have to price.”

While he concedes some law firms are “getting really good” at handling this, others clearly are not. His suggestion is law firms should stop chasing the next file and take a hard look at the ones they have solid work with and how they can improve the relationship. After all, if you take Petrolito’s example the best model for everyone is a relationship that delivers value on both sides.

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