Legal Business Development

Progress report: Our AmLaw 100 survey of alternative fees

In the last few weeks, I’ve interviewed chairmen, chief executive officers, and senior partners at more than 20 of the largest firms in the US about how they are using alternative fees, and about what they expect in the future.  I have been absolutely amazed by the range of their opinions, and the variety of ways that AmLaw 100 firms are approaching alternative fees.

Some firms are preparing for a future in which fixed and contingent fees will radically change the way law firms do business, from staffing and project management to hiring and compensation.  Some are not. 

There was only one question that every single firm to date has agreed on.  When I asked whether the percent of revenue coming from alternative fees will grow in the next five years, everyone said yes.  They disagree wildly on what that percent is now, and on what it will be in the future.  But they all agree it is going up.  Way up.

I will review the exact figures in this blog in October.  I don’t want to get specific now, because we are still conducting interviews, and I don’t want to influence the results. 

On December 10, after we’ve had a chance to fully analyze all the data, I will describe our major conclusions in a West LegalEdcenter webcast, and I’ll publish a book with the complete survey results.  Between now and then, I will provide occasional updates in this blog, in talks at DRI’s “Best Practices for Law Firm Profitability” conference in New York, at the 4th Corporate Counsel Exchange in San Diego, and in a webinar soon to be announced by the Legal Marketing Association.

Now that the interviews are well underway, I must admit that when I announced the survey in June, I felt I was going out on a limb.  It was a little like announcing a party for Fortune 500 CEOs before I invited anyone.  How would it look if no one came?

These days, many surveys are based on questionnaires which are sent to hundreds or thousands of people, and filled out quickly on the web.  We wanted to accomplish something much more ambitious: to conduct in-depth interviews with some of the most knowledgeable people on the planet, leading experts on alternative fees at the largest law firms in the US. 

Many of these experts shun publicity, and don’t like to be quoted publicly.  So we promised to give participants complete editorial control over what appears in print.  After each interview, we send a summary or transcript.  Every statement is confidential and proprietary until it has been edited and approved.  All quotes are anonymous, and not linked to any particular firm.  This process has allowed people to speak frankly, and has revealed details of a number of significant programs that I had never seen mentioned in media reports.

When the time came to recruit participants, we started at the top by contacting the chair or managing partner of every AmLaw 100 firm.  We emailed an explanation of the survey, then called a few days later to ask for a 30 minute interview with the firm’s leading expert on alternative fees.

Have you ever tried to contact the chairman of an AmLaw 100 firm?  They are a little busy.  Their assistants are extraordinarily competent and helpful, but in many cases it still took weeks and months of gently persistent calls and emails to get a decision about participating.

Fortunately, the topic of alternative fees is on the front burner with many AmLaw 100 chairmen, and so far 32 firms have completed or scheduled interviews:

Akin Gump
Alston & Bird
Baker Hostetler
Bryan Cave
Chadbourne & Parke
Dickstein Shapiro
DLA Piper
Dorsey
Drinker Biddle
Fish & Richardson
Foley & Lardner
Goodwin Procter
Greenberg Traurig
Haynes and Boone
Jones Day
McDermott Will & Emery
McGuire Woods
Morgan Lewis
Nixon Peabody
O'Melveny & Meyers
Orrick
Patton Boggs
Perkins Coie
Proskauer Rose
Seyfarth
Sheppard Mullin
Shook, Hardy & Bacon
Sonnenschein
Steptoe & Johnson
Troutman Sanders
WilmerHale
Womble Carlyle

I’m still not sure what our final number of interviews will be.  Some of the top 100 firms have declined due to lack of interest in alternative fees and/or in our research.  (We’ll give them a chance to reconsider before our final interview deadline of September 18.)  The rest have not yet decided.

In October, I’ll publish the final list of firms in this blog.  More importantly, I’ll tell you what the world’s leading experts are saying about how they are using alternative fees, and what they predict for the future.

The course you should have taken in law school

If you think bloggers should avoid shameless self-promotion, please skip this post and come back next week.

This fall, I will be offering a series of five one-hour webinars to help lawyers improve business development skills and bring in new business.  If you take my course “Legal Business Development: Basic Principles And Best Practices” you will:

o    Learn what your competitors are doing to increase new business by reviewing data from LexisNexis, Hildebrandt, BTI Consulting, Incisive Media, the Legal Marketing Association, the Association of Corporate Counsel, and others. 
o    Discover the tactics that are most likely to produce results, according to our research and a review of empirical data from the Gallup organization, Neil Rackham, Steven Covey and others.
o    Review the best practices that other firms have found most effective.
o    Identify the marketing activities that are most likely to produce immediate and practical results.
o    Choose the activities the best fit your practice, your personality and your schedule.
o    Answer the question: “What should I do today to increase new business?”

The course will include five Wednesday sessions, 12:30 – 1:30 PM Eastern Time:

September 23, 2009 - Six ways to increase results from your limited marketing time
October 21, 2009 - How to protect and increase business with current clients
November 18, 2009 - How to find new clients: From prospecting to closing
December 16, 2009 - How to increase results from speaking, writing, and networking
January 20, 2010 - Seven steps to your personal action plan

All you need is a PC connected to the internet and a phone.  Set up a PC in your conference room, and your entire practice group or office can take the course for no additional cost. 

The best business development webinar in the world will accomplish nothing unless lawyers follow up. That's why we give you proven tools to help translate good ideas into action. Each of our sessions ends with a series of steps to identify the action items that are most likely to produce immediate and practical results for your practice and personality. Handouts will help lawyers review best practices from other firms and other professions, including checklists and quick references in The LegalBizDev Success Kit.

The program includes a copy of The LegalBizDev Success Kit, a multimedia reference guide you can use long after the webinars end.  The Kit comes with:

o    an A to Z encyclopedia of advice for common legal marketing situations
o    three audio CDs that summarize the material from the webinars
o    a book describing the approach
o    and much more

The LegalBizDev Success Kit has been purchased by firms with a total of over 17,000 lawyers, and is also available from our web page or from the American Bar Association.

If the program produces a single new engagement, it will pay for itself many times over.  And if ten or twenty lawyers set up a PC in a conference room to listen to the webinars at the same time, the cost per person will shrink, and the return on investment will grow.

“When LegalBizDev offered business development webinars through the International Lawyers Network, about 500 lawyers from firms in the US, Canada, England, Denmark and Italy attended the series. These were the most popular presentations we have ever offered, and many of our members offered extremely positive comments on how useful the approach was.” – Alan Griffiths, Executive Director, International Lawyers Network

For more details, or to register, Download LegalBizDevWebinars2009b.

Alternative Fees (Part 22): More recommendations

Last week’s post listed the first five recommendations from the new third edition of our free LegalBizDev Guide to Alternative Fees.  Here are the rest of them:

6. Define and measure success

Some alternative fee projects will be much more successful than others.  You need to be able to quickly identify the winners and losers, so that you can refine your tactics and increase your success rate.

This starts by defining clear measures of success for financial results and for quality, to facilitate comparisons across projects and lawyers.

Measuring the profitability of each matter would be ideal, but may be much harder than it sounds, depending on your accounting system, and especially your treatment of partner compensation.  (For example, what percent of partner compensation should be considered a fixed cost of doing business, and what percent should be considered shared profits which are at risk?)

For many firms, the simplest financial measure will be the actual revenue received from each alternative fee matter, divided by the income that would have been received for the same work if it had been billed at standard hourly rates.  Some firms may prefer to measure the realization rate or another metric.  The important thing is to choose a single measure that everyone will use, and get on with it.

Quality should be measured first and foremost from the client’s perspective, not from partners’ perspective.  The client is always right.  This report describes both simple and complex ways to measure quality, including FMC Technologies’ ACES approach.  This is another topic I will be writing about in my blog, and another area that is likely to evolve as law firms get more sophisticated in their approach.

7. Evaluate results regularly, and learn from mistakes

Once standards have been set, key people within the firm can evaluate results quarterly or on another schedule, to see what works and what doesn’t.  In this new more challenging world it is not possible to avoid occasional failures.  But it is possible to learn from mistakes and to improve results. 

Exactly how this review should be conducted will again vary depending on each firm’s culture.  While many firms have a tradition of extreme confidentiality, the rest of the world is moving in the opposite direction.  Transparency is on the way.  The only question is, how fast will you get there?

8. Tie results to compensation

The hardest part of working with alternative fees will be making money.  The second-hardest part will be splitting it up.

After several decades of working with different systems for compensating my own employees and studying compensation systems at other firms, I believe that there is only one sure fire way to make someone happy with any compensation system: pay them more than everyone else. 

This is especially troubling in partnerships where relative contributions are controversial and where it is very easy for unhappy rainmakers to take their clients to other firms.

So it is easy to predict that compensation will remain a source of controversy, especially for firms whose total revenues are shrinking.  But as the world becomes more competitive, it will become increasingly important to assure that the greatest rewards are given to the people who are most responsible for the firm’s success, and that people understand how such decisions are made.

9. Don’t be penny wise and pound foolish

As the owner of a firm that provides consulting to law firms regarding alternative fees, I can hardly claim to be an unbiased observer on the matter of law firm spending.  But we started offering consulting in this area for a reason: we believe that the decisions law firms make on bidding, managing profitability, and managing quality area will have implications in six figures, seven figures, eight figures, and more.  Some decisions may affect the very survival of your firm.  Therefore, prudent firms will recognize the need to invest in this area, whether in terms of outside consultants or internal staff.

10. Act like an entrepreneur, not like a lawyer

It is a mistake to approach alternative billing like a lawyer, trying to craft perfect agreements and close all the loopholes.  Approach it like an entrepreneur who is willing to do whatever it takes to bring in new business and can’t wait to get started.

Fixed price agreements should always define the scope of what will be delivered.  But I have been working on fixed fee contracts for nearly 25 years, and cannot remember a single case where something did not change somewhere along the way.  If you hired a contractor to build a new kitchen, and he raised the price every time some minor factor changed, would you use him again?  Most successful businesses ignore minor changes in scope, and  provide plenty of warning if there is any hint of major changes.

Alternative billing works best in a true partnership, where the parties are willing to work together for their mutual benefit.  Lawyers who try to get paid more every time the situation changes will have a hard time keeping their clients.

No one knows how alternative billing will affect law firms in the next few years.  The only way to find what works for your firm is to try it.  When you win some, do more of that.  When you lose some, accept it as the price of doing business.  Learn and adapt. 

The sooner you start, the more likely you are to beat the competition.

Alternative Fees (Part 21): Recommendations

The new third edition of our free LegalBizDev Guide to Alternative Fees ends with a series of recommendations.  Here are the first five:

1. Don’t over analyze; just do it

Law firms tend to make decisions by committee, which is a great way to delay decisions.  In the current economic environment, the firms that act quickly, take risks, and learn from experience will win.

The best way to get started will vary from firm to firm, depending on their culture.

One approach is to publicize short, clear and simple policies from the top.  For example:

We will be very aggressive in using alternative fees for defensive marketing to protect relationships with top clients.  We will also be moderately aggressive in using alternative fees for offensive marketing, to find new clients.  All proposals over $x that include a non-hourly fixed or contingent component must be approved by ____.

Other firms may need to plan how to drive change and build internal buy-in before making any announcements.  Some may be able to make faster progress by simply giving leeway to a few key partners who are enthusiastic about this approach.

However it is accomplished, the important thing is to get started, as quickly as possible.

2. Ask clients what they want

Get out of the office, and talk to your top clients.  Listen.  Give them what they want and need.  That will be a good idea even if the economy improves.  And if it doesn’t, communicating better with top clients could become a matter of life and death.

If you don’t talk to your clients about alternative billing, someone else will.  Remember the case of Pfizer which awarded all of their 2008 and 2009 labor work to Jackson Lewis on an alternative fee basis, as described above.   The other law firms that had worked with Pfizer for years lost substantial revenues because Jackson Lewis was the first to offer an alternative fee arrangement.

And as Steve Barrett, the former CMO at Drinker Biddle put it, “once you lose the trusted advisor role, you are on the outside, and it could take five years to get back in.”  If you have any doubts about what happens to law firms after they start losing large clients, just ask lawyers who used to work for Heller Ehrman, Thelen, Wolf Block or Thacher Profitt, four AmLaw 200 firms that were dissolved in the last year. 

3. Identify internal champions

Some lawyers will be more enthusiastic than others about this approach, and some will be better than others at planning bids and managing projects.  They should be given the support they need to succeed.

A small number of people can make an enormous difference.  As mentioned above, at the 70 lawyer firm Bartlit Beck all decisions about pricing and staffing are made by a single person.  In my own experience owning and operating a training and consulting firm for 25 years, I have experimented several times with delegating the authority for bidding to others.  I don’t do that anymore.  Some critical tasks are best handled by a single person.

4. Get off to a good start

Kristin Sudholz, the Director of Practice Development at Drinker, Biddle & Reath, recently suggested several approaches to get off to a good start and sell the concept internally:

1. Work with a practice group that has more routine and regular work where the lawyers feel confident of the skill and effort needed, and develop a fixed price.

2. Do a historical analysis of past matters that might be similar to the matter for which you want to propose an alternative fee.

3. Pick a matter and develop and test a fee structure for it and monitor it for profitability.  Test on other matters, then share your approach with the lawyers.

4. Develop a desktop handbook for the lawyers on alternative fees that lays out the argument for them, best practices, types of fee structures with examples, worksheets, approval process and ideally, a list of people in the firm who can assist them with developing a fee structure...

What is most important is to create a comfort level for the lawyers by increasing their sense of certainty that an alternative fee arrangement will work for the firm and the client.

5. Increase efficiency by adapting tools from other professions

Other industries and professions have an enormous amount of experience bidding fixed price work, managing projects, and completing work within budget.  Many of their best practices have been refined over decades and can be adapted to help law firms increase profitability.  I will be writing about exactly how to do this in this blog Legal Business Development over the next few months, especially about bidding tactics and project management.