Keith Mayfield, chairman of an AmLaw 200 firm, is reflecting on a white paper about law firm change recently issued by the Association of Corporate Counsel. He has an idea about how to turn this new pressure from ACC into a business development project.
In the white paper the ACC recommends that law departments reach out to their law firms
- to ask specifically what firms are doing to improve their efficiency and productivity, and
- to partner with their law firms on a matter that involves developing a process improvement for the law firm that benefits the client and the firm and is, at least partially, paid for by the client.
Summary of the ACC white paper
The genesis of the white paper is the answer given in various surveys of law firm leaders to the question of why they aren't changing the way they deliver legal services: “Client's aren't asking for it.” The white paper is titled Unless You Ask – A Guide For Law Departments To Get More From External Relationships.[*] To its credit, the white paper takes the long view. It urges law departments not to seek increasing discounts, but rather to push for improvements in the delivery of legal services that will both be sustainable for the law firm and benefit the client in terms of improved service and value.
The white paper is divided into two parts. The first part summarized below, regarding the law department's partnering on law firm improvement projects, is novel, interesting and constructive. This kind of partnering is the subject of this blog post.
The second part of the white paper, regarding the law department receiving free or low-cost services from the law firm, is not novel. It is summarized at the end of this post.
Explore law firm progress on service improvements in listed areas, and partner on a law firm improvement project
The 84-page white paper lists the following illustrative topics that the law department could explore with a law firm. The paper also includes several pages of topic-specific questions for each topic that a law department could ask.
- Knowledge Management
- Process and Project Management
- Paper Intensity
- Expert systems
- Technology Training
The purpose of exploring these topics is at a minimum for the law department to understand, and be able to compare with its other law firms, the level of progress the law firm has achieved in the listed areas affecting the delivery of legal services.
The white paper makes the novel and intriguing suggestion that more ambitious law departments may want to choose one of these areas for a joint project with the law firm that will benefit both the firm and the client. That idea is explored further in this blog post.
The law firm chairman's idea
The need for change
Keith has been wanting for a while to improve the efficiency of his firm's practice groups. His partners resist changing the way they work, though. They're complacent because the firm's not imploding and clients aren't threatening to leave.
Still, Keith can see the writing on the wall. Each year discount pressures increase. Yet in the past few years the economy's been strong enough that the firm has even been able to slightly increase profits per partner. Keith knows that can't last, and he wants to get ahead of the curve. The profitability gap between his firm and the handful of very top firms is widening.
Keith's idea is to propose to a few key clients that they engage the firm to undertake a novel type of matter that will require the firm to improve the efficiency by which its matter team, or even an entire practice group, operates and to ask the client to pay fees commensurate with the new value they receive and that have the effect of subsidizing the firm's cost of re-engineering. He plans to use the ACC white paper, which suggests that law departments initiate exactly this kind of project, as support for the idea.
Keith hopes to gain major client points for bringing the idea to them first. This will make his firm stand out with the client vis-à-vis the competition. His firm stands to strengthen its relationships with these clients, obtain more business from them and become more efficient (and therefore more profitable) in the process.
Now what kind of projects would achieve this result?
How to identify projects to propose
An internal brainstorming meeting
Keith decides to hold an internal brainstorming meeting of client relationship partners for major clients and leaders of the practice groups that serve those clients. Fortunately, the reaction to the concept is generally favorable. The idea of getting first mover credit and the promise of additional work appeals to many of the relationship partners, and the practice group leaders generally fall into line.
Keith's strategy worked. He positioned the idea as a new business development initiative rather than an internal improvement project. That created a favorable reaction. He had each group brainstorm its own project and the client it would propose to work with, gaining further buy-in and mutual accountability within each practice group.
The resulting six projects
The brainstorming on project ideas results in the following:
M&A: The M&A group wants to suggest to a client that engages in many middle market acquisitions that the firm adopt many of the practices outlined in the recent report of the ABA M&A Legal Project Management Task Force and set forth in its book. The group has wanted to try some of these practices in any event, but partnering with the client to do so would be win-win.
The Task Force's recommended practices include a pre-deal checklist of tasks, a deal scoping discussion outline, a deal management outline, an early due diligence assessment chart, a deal issues drafting checklist, a roles and responsibilities communication chart, a post-matter assessment checklist, and the new M&A task code set created by the Task Force and approved by the e-billing community.
The client will benefit by experiencing smoother and more efficient deals, as the successful practices are integrated into the firm's workflow and the unsuccessful ones are abandoned; the firm will benefit by gaining experience with what works and what doesn't, so it can improve its M&A service delivery and fees to all clients.
Real Estate: The commercial real estate group wants to work with one of its clients to road test new software for lease due diligence. Currently a client's acquisition of a commercial building requires significant due diligence by the firm to summarize and review the building's leases for economic or other business issues. This effort is time-consuming and not profitable for the firm. In some deals the firm does the work as an accommodation; in others it excludes that work and the client must outsource to contract attorneys or others. The client has not been satisfied with the quality of the outsourced reviews, though.
New software, which is very promising based on the firm's initial testing, could greatly reduce the time involved. The firm's commercial real estate group wants to conduct larger scale testing on a real deal, running two teams: one team that conducts the lease reviews using the new software and the other conducting the review the old way. The group hopes to split the cost of the test with the client, then achieve a comfort level on the part of the firm and the client that allows use of the software on future deals.
The client will benefit from higher quality, faster and cheaper lease reviews. The firm will benefit because it will no longer lose money on lease reviews and will be able to keep more of the client's business.
Securities Litigation. The securities litigation group wants to work with a financial institution client to develop a formal process for early case assessment on significant securities lawsuits brought against the client.
This would start with developing criteria to select cases that would be part of the early assessment process, such as the laws on which the causes of action are based, whether brought as a class action, tribunal where brought, and damages amount claimed. The assessment process would involve early identification of the key factual and legal issues in the case, prioritizing discovery to focus first on those key factual issues, and conducting early research on the key legal issues, then undertaking an evaluation with the client of probable outcomes and amounts, as compared with the cost of litigation.
The client hopes to benefit by settling more cases early at a reduced overall expense as compared with pursuing the litigation. The firm expects to benefit by gaining experience in early case assessment that it can use to attract enough new cases from the first client and other clients to more than offset the loss of litigation work from early case settlement.
IP Litigation. The intellectual property group wants to pilot a matter debrief program with a pharmaceutical client. The group would engage in an internal matter debrief at key stages of intellectual property litigation for the client, addressing what went well, what did not and lessons learned. Then the group would have a similar meeting with the client.
The client and law firm each expect to benefit because it would improve its own performance through lessons learned assessments and would improve the way it works together with the other. Among other things, this should lead to fewer fee surprises, which also benefits both client and law firm.
Leveraged Finance. The leveraged finance group, which works for financial institutions on high yield loans and privately offered high yield bonds, wants to create a “what's market” database of key business terms and agreement provisions. The main effort involved is lawyer time to abstract the data from the underlying deal documents. The group will propose that a client pay the firm to create such a database using all the deals in which the client was involved for a recent period, whether as lead or other role and without regard to whether the firm's leveraged finance group was involved. The firm would charge a fixed fee per deal abstracted, based on a minimum number of deals.
The leveraged finance group also wants to apply, at its own expense, the workflow it develops to deals it handles for other clients. Details remain to be worked out regarding cross-licensing between the firm and the first client of their respective databases.
The client would benefit from the ability to more clearly identify current market terms in proposing deal terms to issuers and investors, reducing risk of being off-market and improving the success rate of its deals. The law firm would benefit by having access to a market terms database that is subsidized and can be used to improve its profile as an attractive advisor to other clients.
Employment Litigation. The employment litigation group wants to build a case status review system for employment cases being defended by a particular client. The system would allow the client to view the procedural and fee status of each case in near real-time. The group will propose that the client pay half the cost of developing the system and award the firm a portfolio of employment cases. The client would also be able to influence the design and features of the system. The parties would also consider the pros and cons of including in the system an up-to-date assessment of the likelihood of prevailing and the amount or other remedy likely to be owed.
The client would benefit from more timely and comprehensive information about its employment litigation, which will assist it in managing cases and possibly in recording financial accruals. The firm would benefit from having a subsidized system that it can use to attract additional business from the first client and other clients.
How to approach the clients
The client relationship partners and practice group heads agree on who will meet with each client. They agree on the outline for a conversation, which includes mention of the ACC white paper, together with a copy.
Part of the conversation also involves emphasizing to the client that the proposal involves more partnering than a typical engagement, and that the client needs to be committed for the long term.
How to structure the project with the client
The firm decides it will also propose to each client a formal structure for each of the six projects. Each side will appoint a senior person responsible for oversight. In order to maintain perspective, this person will not be involved in the day-to-day work. There will also be a basic schedule and key milestones for each side. The oversight persons should meet regularly with their teams and with each other. Their job is to identify and work together to fix rough spots that develop, to keep the project on schedule and to terminate the project early if it isn't working out for either side.
The structure will be discussed at the outset with the client, including the right of either side to terminate early. While the parties will not engage in formal documentation, it is important that their expectations align.
Keith's firm is taking a risk in proposing to partner with six clients on projects. He is banking on the fact that clients will appreciate his firm's initiative. Even clients that decline the firm's proposal will perhaps think about Keith's firm in a different and better way.
If oversight of the projects is done well, Keith also hopes that even the projects that terminate early will count favorably with the client. Perhaps other partnering projects will replace them. And the projects that do succeed not only will bring client and firm closer, but also will position the firm for more successful projects with other clients.
Addendum - Second part of the white paper – free and low-cost services from law firms
The ACC white paper also advocates that law departments ask their law firms for “value-plus services,” which for the most part means free or low-cost services. The white paper asserts that by providing this value the law firm strengthens its relationship with the law firm.
For the most part the examples are not new, and many firms have been providing these kinds of value-plus services for years. While the white paper asserts these services build a relationship with a client, many firm have found that providing these services is a necessary cost of maintaining the relationship. In other words, providing these services keeps a law firm at the table but does not distinguish it or result in more work from the client.
Examples given in the white paper are:
- free CLE training to the law department that piggybacks off the firm's internal CLE programs,
- low-cost or free compliance training to client business personnel,
- low-cost or free technology training to the law department,
- free advice from the law firm's pricing directors, project managers, knowledge managers and other “allied professionals” to aid the law department in analyzing legal spend, budgeting, re-engineering internal processes or organizing information,
- reduced cost or free secondments,
- advice hotlines – free or low flat fee service for an agreed number of hours to answer one-off questions,
- free client alerts and updates, and
- working jointly with the law department on a pro bono assignment.
[*] The white paper is authored primarily by D. Casey Flaherty, Principal Consultant at Procertas and former Corporate Counsel, Kia Motors America. The paper is sponsored by the ACC Legal Ops External Resources Interest Group, whose members are listed as:
- Diana Barlow, Voya Financial
- Vincent Cordo, Jr., Shell Oil
- Stephanie Corey, Flextronics
- Kurt Grasinger, March McLennan Companies Inc.
- Aaron Katzel, American International Group
- Lynette Lupia, Abbvie
- Nicole Rahimzadeh, Abbott Laboratories
[Photo credit: © Can Stock Photo Inc. / Andres]