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July 16, 2014

Research update: What clients should do to increase value (Part 2 of 2)

This post previews results from my book Client Value and Law Firm Profitability, which will be published in October, and can be pre-ordered now for a 25% discount.

 

The second most important client issue raised by research participants was the need for more transparency and better communication. Lawyers are trained to hold their cards close to their vest, and there are many situations where that is exactly the right thing to do. But when clients are trying to establish a long-term partnership with a law firm, secretiveness does not help.  Here are quotes from five different firms highlighting the problem: 

The pricing and delivery process needs to be transparent. Clients and firms need to be forthright when they come to the table. The client needs to declare what they’re trying to achieve and how they want to achieve it and the law firm needs to be transparent about what they can do and how much they need to charge. It’s too often a negotiation when it should be a collaboration. You need to figure out if you can service the work in an economically meaningful way… so that we’re not trying to squeeze the last nickel out of each other.

The more information the law firm has, the better their budget, the better the flat fee. If we get really spotty information, then we’re grasping to come up with something. And sometimes you know clients have the information, they’re just not sharing it for whatever reason.

Clients have to communicate with us about what’s important to them, what they want us to do, what they don’t want us to do. Otherwise, alternative pricing becomes impossible.

I don’t hear a lot of partners or clients initiating honest and open conversations with each other. Most in-house counsel are former law firm counsel and they’re reluctant to have a candid conversation about the relationship. Not enough of them talk about their challenges and the pressures on their department, or explore openly with their law firm partners how they could work more effectively. It’s almost easier to avoid that conversation and instead get fed up and switch law firms.

Clients are as afraid as we are about bills. They have budgets and they’re worried we’re going to blow them. But they’re like us in thinking that if they don’t talk about it, maybe it will go away. When they’re willing to say up front, “Give me a scope on this. How much are you thinking?” they get better value.

A previous post about this research emphasized the importance of better project management by law firms. However, to maximize results you must increase efficiency on both sides of the table. Greater value demands that in-house departments, too, embrace legal project management.  Below are unusually frank comments from four firms that made this point (anonymously):  

When you’re working on a fixed fee or a sophisticated alternative fee, clients have to change how they deal with their outside counsel. If you’re going to do all their work for a million dollars and they keep you on the phone every day for hours with questions, they’re going to burn up all the value they could get and we’re going to be unhappy. So those kinds of things need to be real partnerships. Some clients get it and other clients don’t.

Clients, too, have to shed the restraints of thinking in billable hours. They want a deal, cost certainty, the best value. That doesn’t mean throwing everything you can think of into the shopping cart. If the client wants to micromanage and review drafts and revise drafts and do it again and get it to somebody else for revision, it makes the AFA much more challenging.

We get clients who don’t give the appropriate time for a matter, and there are a bunch of clients who are just managing the matter to reduce the fee, like insurance companies. They say they’re not going to pay for an internal meeting, which is pretty short-sighted. You need people to talk. I think some people are just trying to show their bosses they beat up their lawyer…. Clients have to work more as a team with their lawyers and not make it as adversarial as they sometimes do. It doesn’t engender loyalty either way.

Like firms, clients too can be inefficient. They can be bureaucratic and take a long time to make decisions. If it takes them 90 days to decide about a settlement, a lot of fees may have been incurred. You may have a trial date in six months, and you can’t say we’re going to take 90 days off while the client is deciding.

Similar issues came up several years ago, when I published the LegalBizDev Survey of Alternative Fees and the chair of one AmLaw 100 firm remarked:

It is very difficult for a law firm to tell a client that a matter is not going well because of what is going on in the legal department. I think we’ve all had experiences over the years with in-house counsel who are just not good managers. A lack of skills in project and relationship management on the part of either in-house counsel or the project leaders in a law firm can increase cost and reduce the quality of outcomes. I believe both sides could use more training in these areas.

After reviewing a draft of this report, Michael Roster, co-chair of the ACC Value Challenge Committee, had some related advice for clients:

The most important thing clients can often do to increase value is to get out of the way. Stop micro-managing. Stop insisting on memos that aren’t important to the ultimate client, that is, the relevant business unit. Harness firms more effectively for their legal expertise. One of my former partners confirms that client cost could easily be reduced at least a third if both sides simply focused on what matters.

Each of these issues – better definitions of scope, increased transparency, and improved in-house LPM – reflects the need for clients to consider ways to improve their role and their relationships. They may also represent an opportunity for law firms to start some of the difficult discussions mentioned above. Outside counsel should try to be a little more courageous and assertive in raising these issues tactfully and repeatedly, rather than rely 100% on in-house counsel to get it on their own.

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