« August 2012 | Main | October 2012 »

4 posts from September 2012

September 26, 2012

Using Alternative Fee Arrangements to Increase New Business

A few weeks ago, Bloomberg Law published this article, which I wrote with Jonathan Groner. To download a pdf of the complete article, click here. 

 

In a recent survey, ALM Legal Intelligence found that 62% of law firms had increased their use of alternative fee arrangements (AFAs) in the last year, and their top reason by far (91% of 194 firms) was to “attract and maintain clients.”

While some firms are just starting down this path, others have been using AFAs to develop new business for quite a while.  According to Peter Kalis, the chairman and managing partner of K&L Gates, a global firm with nearly 2,000 lawyers:

We have offered alternative fees for more than 20 years…We were dragged there kicking and screaming by a few key clients who led this trend, including DuPont and United Technologies. We found to our amazement that it was a really good way to do business, both for us and for the client.

Adams and Reese, a firm with 13 offices throughout the southern United States, began offering AFAs for the same reason. The firm encountered several situations “where we wouldn’t get the work unless we agreed to a flat fee or fixed fee,” according to firmwide managing partner Chuck Adams.  For example:

We work with one global company that requires standard trademark and patent services in a number of foreign countries, and we do all of their intellectual property work for a flat fee.  We trust them, at their full discretion, to pay us a bonus at the end of each year if they think they’re getting value. The agreement gets renewed every year, and they do treat us fairly.

In addition, Adams says:

We have relationships with some companies that have a large number of fairly similar transactions. We represent entities that buy hundreds of thousands of acres of timberland and they have a volume of fairly similar sales of smaller parcels. When there’s a closing, it becomes pretty much a commodity, a fairly standard transaction. We have arrangements with a number of clients like this to handle things on a pure flat fee arrangement.  

These types of arrangements work best when one “has a good prior relationship with a client.  We understand how they do business and what they need, and are therefore able to price it in a reasonable way.”

Joseph E. Mais, firmwide chair of commercial litigation at Perkins Coie, a firm with over 850 lawyers in 19 offices in the US and Asia, made a similar point in discussing his firm’s approach to AFAs: “They require a fair amount of trust. They also require significant knowledge of the client’s business to be priced and staffed appropriately.”  For this reason, Mais says, it’s easier to offer AFAs to existing clients when there is a mutual understanding than to new clients who are unknown.

Like K&L Gates and Adams and Reese, Perkins Coie first started offering AFAs due to client demands.  In fact, Mais identified two categories of work in which “if we weren’t prepared to offer AFAs, we wouldn’t be getting hired for a significant portion of the work” – the representation of policyholders in insurance coverage work, and patent work in which the firm represents defendants who are sued by non-practicing entities.  The coverage work is generally done on a partial contingent fee basis – a monthly rate with a success fee.  In the patent sphere, says Mais, “the predominant AFA model is a fee cap, hopefully coupled with success fees.” 

In some cases, AFAs have also proven useful in attracting new clients. For example:

In multi-party cases, one or more defendants might seek to join forces with a longstanding client, where everyone believes there can be efficiency in having a single law firm dealing with common issues. Here, we have had a fair amount of success bringing in new clients on an alternative fee basis when they weren’t our primary relationship at the start.

At Crowell & Moring, a firm with nearly 500 lawyers in eight offices, Kathy Kirmayer, chair of the D.C. litigation group and a member of the firm’s finance and AFAs committees, notes, “We have been using AFAs for more than a decade and don’t view them as ‘alternative’ because we think they provide value that far exceeds just the bottom line.” The firm has refined another innovative technique for using AFAs to bring in new clients with a type of antitrust proposal that is unusual for a large corporate firm.

When a corporation pleads guilty to some sort of antitrust violation, Kirmayer says, Crowell & Moring lawyers often identify not only firm clients that have purchased significant amounts of the product that has been subject to price-fixing or similar conduct, but sometimes companies new to the firm as well. Those purchasers will usually have the right to sue the antitrust violator for money damages, and verdicts or settlements can run into the tens or hundreds of millions of dollars.

Crowell & Moring’s “recovery practice” represents purchasers for a contingent fee – a percentage of the amount it is able to recover for the client.  This has been very appealing for new clients of the firm, Kirmayer says, and several clients that established their relationship for this type of work later have grown their relationship with the firm in other practice areas for work on non-contingency matters.

This practice started more than a decade ago when some existing corporate clients sought counsel from the firm, saying they had been victimized by antitrust conspiracies, and asked the firm to represent them.  Then Crowell & Moring expanded the practice to serve existing clients and to cultivate new ones, which it sees as an investment in the future.

“We are really in this in order to solve the immediate problem for the client and then to develop them into institutional clients of the firm,” Kirmayer says. “We want to demonstrate what kind of lawyers we are, beyond these antitrust cases.” Although antitrust is the core of the recovery practice, Kirmayer says Crowell & Moring has expanded it for trade and customs duty cases, intellectual property, and tax matters as well.

Jonathan Cooper, a partner at the Cleveland office of Tucker Ellis, also reports that AFAs have been an excellent way to attract new business for his firm.

One technique that Tucker Ellis has used is to bill a fixed sum on a quarterly or monthly basis for all legal work of a given nature such as tort defense or employment litigation. These arrangements often include a risk collar.  If the actual hourly cost proves to be less than the agreed upon fee, the client and the firm split the savings 50/50.  If the actual hourly cost exceeds the fixed price, the client pays half of the overage, and the firm pays the other half. “This mitigates both risk and reward and provides incentives and openness between the lawyer and the client,” Cooper says.

For example, Tucker Ellis used this type of arrangement to get some mass tort work from one large state by agreeing to a fixed quarterly payment with a risk collar. “The client’s associate general counsel was dissatisfied with her previous law firm because of uncertainty about the fees,” Cooper recalls. “She loved this new approach. Many clients think lawyers are just trying to bill as much as possible to rip them off, and this clearly wasn’t the case with us.”

In another type of arrangement, Tucker Ellis approached a client that had been on the wrong side of a multi-million dollar verdict, and asked to handle the appeal in exchange for a percentage of the amount that the client would save if the appeal were successful. “This worked well. We thought there was a high chance of winning the appeal. The client got a top-flight appellate lawyer, and the incentive was running the client’s way,” Cooper says.

At Warner Norcross, senior partner J.A. Cragwall Jr. has found that AFAs have been equally attractive to their clients.  In one case, the Michigan firm was competing for a large chunk of national business litigation for a Fortune 500 manufacturer. Also in the running, Cragwall says, were other major firms from money centers such as New York, Chicago, Cleveland, and Milwaukee.

Cragwall reports that Warner Norcross was able to get the work, and develop an ongoing relationship with this major company, by “working up a budget, and then proposing to bill the client for a portion of the budget each month.” If the matter were resolved earlier than planned, the law firm would split the savings with the client. That way, Cragwall says, “the client may get a surprise, but it’s a good surprise.”

This particular client, Cragwall explained, felt that the best way to get a handle on spiraling legal costs was to “control cycle time – the time that it takes to finish a matter.” The firm’s alternative fee proposal responded directly to that concern.

At the Jackson, Mississippi, office of Butler Snow, partner Charles Johnson III says alternative fees “have become a standard way of doing business for us. We have some clients who prefer hourly billing, but more and more of our clients want and expect predictability.”

Johnson says that in the past five years, for example, Butler Snow has begun to do all the nationwide product liability work for a global top 20 pharmaceutical firm by offering alternative fees. In addition, the firm has been able to land a considerable amount of transactional and contract review work for that client by using its experience to accurately estimate how much time each task will take.

“For these deals, we are now able to offer a fixed fee for due diligence and advance work, another fixed fee for the drafting and negotiating process until closing, and another fixed fee for closing and post-closing work,” Johnson says.

All of the firms described in this article, and many others, have found that AFAs can help bring in new business. 

Some firms aggressively promote AFAs.  Others, like K&L Gates, describe their approach as “agnostic.”  According to chairman Peter Kalis:

For some clients, it’s a requirement to use AFAs.  For others, it’s an arrow in our marketing quiver.  We shoot it a lot, and some clients duck and others welcome it…We’re happy to offer AFAs and happy to go hourly…We truly don’t have a preference…Our historical client base consists of extraordinarily sophisticated consumers of legal services.  When they are able to engage in an informed dialogue with a provider of legal services on a subject near and dear to them, that is always a positive step in the relationship.

In general, Kalis says that the AFA movement has been “a healthy development in our profession. I think it’s a sign of the maturation of the industry, that law firms and clients are having more informed discussions about the cost of legal services than they did ten years ago.”

In addition, “AFAs are a great tool for helping law firms meet client needs in a way that furthers the relationship,” according to Chuck Adams of Adams and Reese. 

But the most successful ones develop from existing client relationships because clients and lawyers must be in synch. It is critical to understand clients’ expectations, their philosophical approach.  Do they want to turn over every rock, for example, or just the basics?  Lawyers can eliminate inefficiency, and staff and price AFAs best when they understand this and there is a relationship of mutual trust.

“It can be complicated to work these things out,” according to Perkins Coie’s Mais. “But my guess is that AFAs will grow as big companies continue to converge on using fewer law firms and developing deeper relationships with their lawyers.”

The 194 law firms in the ALM Legal Intelligence survey agree: 82% expect the volume of AFAs to increase over the next five years. 

To assure that this trend works out for both clients and their firms, Mais says: “The most important core principle for AFA success is to align the firm’s interest with the client’s interest.”


September 19, 2012

Business development: What’s different for litigators?

When I spent nearly two decades training and coaching salespeople, I often said that selling is the hardest work you can do in a suit. It can take years to close large complex sales, and the salesperson’s day-to-day life throughout that period is a roller coaster of near success, delay, confusion, and rejection.

Then I started working with lawyers, and learned that their marketing challenge was even greater. The professional salespeople I had coached spent 40 or 60 or 80 hours per week living, breathing, and acting on sales. The lawyers we work with these days often struggle to find a few hours per week that they can devote to business development on a consistent and predictable basis.

Legal selling is the hardest job around, and litigators face the hardest challenge within this group. The time demands of an active case can be overwhelming. Far worse, for many types of litigation there is no repeat business. As one consultant put it, a litigator is like a person whose job it is to remove thorns from a lion’s paw. First they have to find a lion that stepped on a thorn. Then they have to pull out the thorn without getting mangled. Then the lion walks away, and never looks back. The litigator needs to somehow find another lion that stepped on a thorn.

It all starts with strategy, focusing on a manageable sub-category of clients to pursue. (See the section on Planning on page 146 of my Legal Business Development Quick Reference Guide.)  In all honesty, this is a problem for many litigators. As consultant Ross Fishman, a former litigator himself put it:

Litigators often have trouble identifying specific audiences or targets, because almost any company could get sued, and for anything. Therefore, they tend to market broadly. “General commercial litigation” targeting almost any company is inefficient. It’s so unfocused that it doesn’t work, and gets frustrating quickly.

Once a litigator identifies her particular specialty, the next challenge is to gain visibility within that audience, so that when people need a lawyer, they will think of you. (See the sections on Speaking p. 176, Publishing p. 155 and The Zen of selling by not selling , p 188.)

According to Natasha Chetty, a legal marketing consultant and former Marketing Director at Harper Grey:

Sometimes litigators can benefit from having a lot of promotional tools working for them in the background while they are in trial. It doesn’t replace the hard work of building client trust and face-to-face business development, but it can help sustain their reputations. If litigators enlist their marketing department’s help, promotional tools can keep the firm and the lawyer top-of-mind with a larger audience and enhance name recognition when opportunities arise.

Many litigators get much of their business through referrals, so that is another tactic that applies to all lawyers, but is especially important for litigators. (See Referrals, p. 163.)

These days, there is also more emphasis on providing value in litigation than in other specialties. Predicting and controlling costs are important to clients, so it also makes sense to put effort into this area.  (See Project management, p. 153.)

The time demands on litigators also vary more widely than for transactional lawyers, so in terms of free time it is much more “feast or famine.” This makes it more of a challenge to follow up consistently, and makes it more desirable to have some sort of system in place so that your assistant can maintain regular contact in your name, even when you don’t have time to think about exactly what to do. (See Follow-up p. 102.)

Note that these ideas apply to all lawyers, as do the basic principles of marketing. What’s different is the way litigators need to prioritize tactics, and what comes first. For transactional lawyers, strengthening relationships with current clients is usually at the top of the marketing list. For litigators, the highest priority is typically on referral sources, and on visibility.

This post was adapted from the Legal Business Development Quick Reference Guide.

September 12, 2012

New legal project management survey provides data on the best way to make progress

You know a topic is important when people start selling opinion surveys about it.  That just happened in our field when ALM Legal Intelligence released a $499 report entitled Legal Project Management (LPM):  Much Promise, Many Hurdles.  The report includes data on software, training, pilot programs, firm culture, influential stakeholders, staff and much more.  In this post, I will review their data on how much progress has been made to date, and the best way to keep moving forward.

ALM emailed survey invitations to managing partners, attorneys and staff.  236 answered the initial screening questions, and 108 said they were involved in applying LPM at their firms and filled out the entire survey.  About half were from firms with more than 500 lawyers, and half from smaller firms.

The percentages reported below for this self-selected group are likely to be different from what one would find with a random sample of law firms.  But the survey offers the best data yet on LPM, including important insights into what is working, and what is not.

The first question they asked was “Does your firm employ legal project management processes to its casework?”  51% said yes, 26% said no, and 22% were not sure. 

Is the glass half full or half empty?  By the glacial standards of law firm change, this sounds to me like significant progress.  Before 2010, if you asked this question, most lawyers would probably have replied:  What is “legal project management”?  The fact that a majority of this group is using LPM in casework reflects a significant change in two short years.

In my opinion, the most interesting question in the survey was: 

The following are some key tenets which should be regularly practiced as part of LPM.  How well would you say your firm adheres to each of the following: 

  • Setting objectives and defining the scope of a project
  • Identifying and scheduling activities
  • Assigning tasks, managing the team
  • Planning and managing budget
  • Assessing risks
  • Managing quality
  • Managing client communication and expectations
  • Measuring ROI

That list may sound familiar to regular readers of this blog.  Several years ago, we published a list of the eight key concepts in LPM which we use in our training and coaching programs.  It has since become widely accepted, and the first seven tenets above are virtually identical to our original list.  (Our eighth item is “negotiate changes in scope”; we consider measuring ROI to be part of managing the budget.)   

When 108 survey participants who were involved in LPM were asked to rate their firm’s adherence to each tenet on a scale from 1 (does not follow) to 5 (firm completely adheres to it), the average scores fell between 2.2 and 2.9, leading the authors to this conclusion (p. 12):

Law firm LPM efforts on the average adhere only moderately… [which] suggests at least one of the following conclusions:

  • Law firms are confused about what LPM entails
  • A lack of resources has pushed firms into implementing only parts of a full LPM package
  • Firms prioritize what they see as most important
  • The firms think that other systems handle some aspects

I suspect all four of these are true to some degree, but I think the most important explanation is a simpler fifth factor:  LPM requires fundamental changes in the way law firms do business, and lawyers change very very slowly.    Glacial progress can equal success when the other alternative is no progress at all.

We were reminded of this when a client contacted us two years after we offered a just-in-time training workshop at her firm.  She reported that they had just won some new business as a result of using LPM.  She went on to say that she had been frustrated by the slow pace of change in her firm, but in this case it did not matter because their competitors were even slower. “If you move like a turtle but you're racing a bunch of snails,” she said, “it all works out in the end.”

The survey’s conclusions about the best way to implement LPM are consistent with this view (p. 16):

The most important principle is to implement LPM in an incremental manner.  "You’ve got to introduce one element of change at a time and work that," [said Christopher Spizzirri, e-discovery counsel at Morris James].  "I learned early on that if you try to change too many things at once, you get a lot of resistance.”

Of course, that is exactly the approach that we have been using for years, and that we first published in AmLaw Daily in March 2010.  It is worth noting that two weeks after our AmLaw Daily piece appeared, Law.com shook up the LPM world with an article that announced that every partner at Dechert had completed project management training.

Our phones started ringing the morning that article appeared, and over the next several months we talked to many firms who wanted to take the same approach.  We did our best to discourage them.

I particularly remember one case where we got an RFP which asked us to bid on training over 500 lawyers at an AmLaw 100 firm. We had a spirited internal discussion about whether we should bid.  If you multiply 500 by a reasonable cost per lawyer, you get a big number, and this was a serious test of how strongly we felt. 

We asked the client if they would consider our just-in-time training process instead, and focus their efforts on a smaller number of lawyers, the ones who were motivated to change.  The client said no, they wanted to train everyone.   In the end, we declined to bid.  We explained that while we thought the top-down “train everyone” approach could have limited success, it would be a very expensive way to get modest results and it could even backfire by increasing resistance among some lawyers.  

In the quarter century that our team has been developing and delivering award-winning training programs, we have found that the single most important factor in success is selecting the right people to be trained.  This is particularly critical in an area like legal project management, where there is resistance and skepticism about the behavior changes, not to mention more than a generation's worth of inertia.

We recommend starting with lawyers who are open to new ideas and who have the most to gain.  That could be the key partners who are responsible for new alternative fee arrangements.  It could be relationship partners who are worried about protecting business with key clients that are looking for greater efficiency and increased value from their outside counsel.  It could be an entire practice group that is considering new checklists, templates and processes to improve its competitive position.

The exact individuals and groups will vary from firm to firm.  But in every case, the best lawyers to start with are those who are open-minded about change and efficiency, in a position to benefit when LPM makes a difference, and influential enough to quickly spread the word of their success. 

The good news in the survey is that even though LPM change is slow, firms are already seeing benefits.  When the survey asked “which of the following benefits has your firm realized from its project management effort?” every single one of their 13 benefits was realized by at least 20% of the group.  The most common benefit – “More productive relationships with clients” – was achieved by 62%.  (In our standard list of benefits we prefer to focus on the results of these enhanced relationships: protecting business with current clients and increasing new business.)

The survey concludes that (p. 17): 

LPM can help bring increased effectiveness, reduce wasted time, and manage client expectations… Law firms can overcome [the] hurdles by targeting initial efforts in areas that would be most receptive, incrementally rolling out initiatives, and getting experienced help.  Those that can successfully implement LPM will find over time that they gain a competitive advantage.

If we had hired a survey company to prove that our approach to implementing LPM works, we could not have come up with more convincing data.

 

September 05, 2012

Project management tip of the month: Delegate to the right person

It’s easy to hand off work, but delegating efficiently can be difficult.  If your goal is to reduce the cost of a single isolated matter, you will need to delegate it to someone with the experience and knowledge to finish it quickly.  But if you have repetitive tasks, pick someone who is likely to be available when the task comes up again, and accept the fact that the first time you delegate it may take longer than doing it yourself. 

 

The first Wednesday of every month is devoted to a very short and simple tip like this to help lawyers increase efficiency, provide greater value to their clients and/or develop new business.