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May 06, 2009

Alternative Fees (Part 12) – What’s different for Big Law?

On April 15, I moderated a panel discussion for West Legal Edcenter on alternative fees at large firms.  Some of the discussions were similar to those in a related panel on alternative fees at boutiques.  But there were also important differences at large firms.

Harry Trueheart, the Chairman of Nixon Peabody (over 800 lawyers), noted that large firms have several advantages:  they can take greater risks if a client wants contingent or other fee arrangements, and they have a larger knowledge base.  This can lead to greater efficiency and better estimates of what things should cost.  But Trueheart and other panelists also talked about the special challenges in changing the mindset at large firms.

Fred Bartlit noted that at Big Law “there’s no such thing as a dry hole.”  Large firm lawyers expect to make a profit on every single matter, because every hour is billed to the client.  Clients may win or lose, but lawyers always win. 

At 70 lawyers, Bartlit’s firm does not fit the traditional definition of Big Law, but it IS the largest firm in the world that refuses hourly work and works exclusively on an alternative basis.  Bartlit & Beck structures every fee so that the law firm and the client win together, or lose together. 

Just as oil companies must accept the fact that they may invest millions drilling for oil where there is none, Bartlit says that law firms must accept the fact that in order to win big you have to be willing and able to sometimes lose.  This is such a fundamental change in mindset that he thinks it will work best in “greenfield” operations, where a new law firm is started from scratch to focus strictly on alternative fees.

But some large firms are beginning to embrace this philosophy.  According to Rob Fields from Womble Carlyle (over 500 lawyers), “The client needs to win on every fee, every time, even though at larger law firms, it’s difficult to wrap our minds around this.”  He described a large project Womble Carlyle recently started in which the client can choose whether to pay by the hour or to pay one of several predetermined fixed fees.  At the end of each matter, the client gets to pick the lowest price.  Of course clients love this, but it imposes significant demands on the firm. “We have to manage our staff closely and focus our resources on what the client values.... It gives you incentive to focus.” 

Richard Rosenblatt at Morgan Lewis (over 1400 lawyers) agreed that the key to success is “managing the work.  Everyone has to keep an eye on the budget weekly or even daily.  It requires a new level of discipline and rigor... And we also have to constantly ask are we doing enough?”  If a client feels that a firm is cutting corners to save money, the entire effort can backfire.

Harry Trueheart explained that as legal clients move in this direction:  “A lot of education will go into this and it’s not cheap.  Law firms will pay dearly as we as a profession learn to do this.  There will be winners and losers on the economics.  But many contractors manage their business this way and lawyers must learn this too.”

For firms that do invest in mastering these new ways of doing business, the payoff could be enormous.  When clients leave the billable hour behind, they are more willing to pick up the phone to ask for advice because they know it will not increase the cost.  “It invites the client to engage with us and increases the ties that bind,” said Rosenblatt.  “We’re now on the same team, and more likely to get the next engagement.”  The implication is obvious: “This is an opportunity to get a bigger share of a shrinking pie.” 

For a summary of this series and more, see the second edition of the free LegalBizDev Guide to Alternative Fees, in the Alternative Fees section of our web page.  The third edition will be released in July. 

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Comments

Hi Jim,

Wachtell, Lipton, Rosen & Katz is another large law firm that does not price by the hour. I believe they are larger than Bartlit.
Ron Baker


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