The “Law Firm of the Future” is open for business

For years, I’ve been reading about the changes we will see in the law firm of the future.   But until I spoke to Fred Bartlit, Pat Lamb, Bruce Raymond and Jay Shepherd during a recent West LegalWorks webcast, I did not realize that several “law firms of the future” are already open for business.

When I asked the panel what advice they would give to lawyers who are considering alternative billing, all four emphasized that switching to alternative fees is not a small step or an easy one.  Jay Shepherd, founder of Shepherd Law Group, said lawyers find it particularly hard to accept the fact that “Pricing is an art, not a science.  You learn from your mistakes... Think of alternative billing not just as a change in your billing,” Shepherd advised, “Think of it as a fundamental change in your business model.”

With traditional law firms, whether clients win a case or they lose, the lawyers always win by billing more hours.  But the law firms on this webcast are working hard to align their interests with client interests.  And that means that sometimes, as Valorem Law Group founder Pat Lamb put it: “If you lose the case, you’ll lose money.  You’ve got to accept that.”

This leads to a totally different mindset in which Valorem lawyers constantly look for ways to provide services more efficiently.  They even “police each other,” and openly discuss tactics such as who really needs to be deposed, and who doesn’t?

Fred Bartlit, founder of Bartlit Beck, said that there is no simple formula for setting alternative fees, and that “every deal is different.”  But his firm structures each fee to maximize the incentive to be efficient.  “If I lose, it comes out of my pocket.” 

This mindset is familiar to plaintiffs’ lawyers who live and die on contingencies.   They’ve learned to be hard-headed business people, and won’t accept a case unless they think they can win.  But elsewhere in the legal world, the billable hour model has inevitably led to inefficiencies, because the more hours you bill, the more you make.

In an economy that has clients screaming for lower prices, lawyers would be wise to lower costs.  And that means more than just reducing the number of billable hours.  When Bruce Raymond founded Raymond & Bennett, he decided to adapt the Walmart model of cutting out steps throughout the process of service delivery including “becoming a fully digital, paperless office,” eliminating support staff, and hiring a mix of virtual associates who work from their homes and traditional “brick-and-mortar” associates. “You have to get a firm set up for alternative fees,” he said, and that starts by cutting costs to the bone. Being scalable with professional and support resources introduces a lean “just in time” concept to law services delivery.

At Bartlit & Beck, there is no management committee, and “One guy (Skip Herman) runs the entire firm, from deciding which cases to accept to setting the price and staffing each matter.  We have no firm meetings and no conferences; Skip runs everything.” 

Bartlit noted that some big firms traditionally hire over 100 new associates per year, and that most leave within a few years.  This means a significant portion of the firm’s workforce is inexperienced.  “Who cares? Their inefficiency is billable,” he said.  “In the future, the ideal firm will be underleveraged with about 50 partners and three associates in training.”   

How fast will this future arrive?  When Bartlit started his firm in 1993 he thought change was coming quickly, but “I quit talking about this five or six years ago because nobody listened.”  In the last six months, however, he’s been getting lots of calls as a result of the economy.  He quoted management guru Peter Drucker’s belief that a shift to a new paradigm is almost always driven by an outside event.  And in 2009, you don’t have to look far to find dramatic outside events changing the legal market.  “Clients must cut 25% of their legal budgets,” Bartlit said. “Fewer lawyers are needed.  We have to write off all these assembly plants just like General Motors did.”

Exactly where this will lead the legal profession, and when and how, is still a matter of some debate.   If you would like to hear these visionaries discuss the details, I will be moderating a rebroadcast of this session on April 8 (12:30-2 Eastern) and answering questions online.   After that date, the recording will be available on demand at the WestLegalEdcenter.

In addition, on April 15, I will moderate a followup webcast on “How large firms are delivering greater value with alternative billing.”  Fred Bartlit will re-appear on that panel. With 70 lawyers in Chicago and Denver, his firm was small enough to earn the American Lawyer’s title as 2009 “Litigation Boutique of the Year.”  But it is also the largest US firm to work exclusively with alternative fees.  He will be joined by lawyers from two mega-firms:  Robert Fields, a leader in the Products Liability group at Womble Carlyle (over 500 lawyers), and Samuel Goldblatt, chair of the litigation department at Nixon Peabody (over 800 lawyers).

Of course, no one really knows how fast this new model will spread.  But make no mistake:  Right now, today, competing law firms are offering your clients more value and better service at lower prices.  What are you doing?

Comments

[Patrick J. McKenna]

Hey Jim:

I LOVE your postings on alternative fees. Kudos in providing some very practical counsel on a very timely issue.

I am curious at the extent to which some firms think that the ONLY answer is alternative fees and that the 'law firm of the future' is all about fees.

As one GC reported to me - this fixation on AFA's isn't in and of itself a complete answer. His very strong view was that a 'truly 21st century model' would focus on proving transparency (remember the old adage from law school: "inform as you perform"), proving efficiency in reducing the number of hours on a project (through sophisticated techniques designed to leverage knowledge, skills and prior work product) and providing preventative counsel (our friend Susskind's old story about how most GC's would rather have a strong fence at the top of the cliff, then an ambulance at the bottom).

Jim, keep up the great work. Your blog is one of the very few I read on a regular basis.

kind regards,
Patrick

[Ron Baker]

Patrick,

The Firm of the Future is about far more than alternative pricing. It's about a business model change, from selling time to selling intellectual capital.

Also, from efficiency to effectiveness (huge difference between these two concepts). Do you want an efficient or an effective heart surgeon? Please don't answer both, because they are mutually exclusive beyond a certain point. With knowledge workers, effectiveness trumps efficiency every time. Lawyers aren't factory workers, it's almost impossible to measure their "efficiency" since there is no such thing as generic efficiency. It depends on what your objectives are, and what you are willing to pay for.

There is nothing less transparent than hourly billing. Value Pricing is full transparency, which is why clients love it.

To the extent both firms and clients are still measuring things in hours, they are missing the point entirely. It's not about inputs, it's about results, output and value. We have to start focusing on what matters.

Regards,
Ron Baker, Founder
VeraSage Institute
www.verasage.com