A few weeks ago, after I wrote Why has change been so slow?, I saw some fascinating comments on the post from leaders in the profession. But you probably missed them, because the exchanges were on Legal OnRamp, a private website for in-house counsel and others, accessible by invitation only.
I felt the remarks were so important that I wanted to share them with a broader audience. So I contacted each person, and got their permission to reproduce the edited comments below.
Pat Lamb, co-founder of the Valorem Law Group, kicked off the discussion:
“The reasons clients have been slow to move to alternative billing are complex. Inertia is a factor, as is fear of the unknown, and the fact that alternatives typically require a bit more upfront investment of time. It's easier, in some respects, to just send someone a copy of a complaint and wait for the bills to arrive than to work to find out how serious the matter is and work out an appropriate fee (an exaggeration to be sure, but it illustrates the point). But these obstacles are being surmounted more and more, with push coming from the CEOs and CFOs of the corporate world. One of the things they are finding is that performance actually improves when the payment scheme values experience and results rather than body count. This, more than anything, provides the comfort inside counsel are looking for. So does the fact that most lawyers who use alternatives as the core of their model are typically willing to trust the client when it comes to determining the final fee amount.”
The next comment came from Caren Gordon, Executive Director of the Legal and Governance Practice of the Corporate Executive Board:
“Alternative fees have been slow to catch on for a number of reasons. The most dominant drivers from my observation are that they require more time to set up, more internal research into historical expenditures or conversations with outside counsel about what a matter truly costs, monitoring to ensure that they work, and final determination at the end.
That said, when the structures are perceived by both parties to be more easily deployed (i.e., 'We have a method for calculation. This is the way we do business. We provide transparency to you as to up and down side.' etc.), we see them gaining traction. The critical component is having aligned incentives, making sure that both parties have the same stake in achieving positive and/or quick, optimal outcomes.
Given the recent downturn, General Counsel are under much more pressure to manage cost with a discipline that re-opens the investigation into how and why alternative fees might work.”
Jeffrey Carr, General Counsel at FMC Technologies took a stronger view
"Despite constant whining and complaining from the client, not much has changed. In my view, the reason for inside counsel's resistance is really rather simple -- the in house community has abdicated its responsibility to drive efficiency as well as effectiveness because of the widely held belief that law and legal services are somehow 'different'. Whether fear, complacency, risk aversion, inertia, lack of creativity or vested interest in the status quo has gotten us to this
heinous place doesn't really matter. The question is have we really decided to move?I submit that we have and that a growing number of in-house counsel are joining the effort. The ACC Value Challenge is perhaps the most visible and important manifestation of that effort and movement -- but it's not the only one. Each GC needs to make a focus on value the driving force
of the legal function and each and every in-house lawyer needs to engage in open, honest communication with their outside firms about expectations, performance, value and compensation. Absent those actions, the more things change, the more they'll stay the same."
Advice on breaking the logjam was added by Robert Badal, a partner at WilmerHale:
“I think two things would help enormously in breaking the client-dependency on the existing billable structure (even as clients condemn that structure). 1) Stop comparing the alternative fee structures to what the company would have spent on a regular billing basis. By using the normal billing structure as the measure of comparison, you import into the calculus the very thing you're trying to avoid and you lose the potential for creative billing solutions. (2) Really commit to long-term relationships with outside counsel so that price inequities can be worked out over time.”
But will the switch come soon? Casey Flaherty of Holland & Knight says:
“There are numerous reasons [that progress on alternative fees has been slow], but to me the biggest seems to be the understandable focus on the short term (this case, this quarter, this fiscal year) by both clients and law firms. Immediate needs are, well, immediate. Alternative fees, by contrast, recommend considerable long-term structural changes. Such changes are often incongruent with the focus on immediate needs. Thus, they get pushed till ‘later’.
Law firms, like most institutions, are given more to punctuated equilibrium than gradualism. Now may in fact be ‘later’ - a moment where stasis gives way to radical change. We shall see.”
There is no doubt this discussion will be going on for a while. In December, I will be moderating a panel discussion on alternative fees by inside counsel at the Corporate Counsel Exchange. I can’t wait to hear what inside counsel are saying about this by December.
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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