78 posts categorized "Alternative Fee Arrangements"

July 09, 2014

Research update: What clients should do to increase value (Part 1 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.

Over the past year, I have interviewed managing partners, chairs, senior partners and executives from AmLaw 200 firms about how to meet client demands for greater value while protecting profitability. 

The 50 firms who were interviewed are listed on our web page, but I agreed to keep the name of every individual I spoke to confidential, and gave them complete editorial control over what appears in print. (In fact, participants are currently reviewing a Preview Edition of our final report, to insure its accuracy.)  This approach enabled senior decision makers to speak frankly and openly about highly sensitive issues. The research provided a platform that made it easy for firm leaders to say what they really think, since they would not be quoted by name.

Most of the book focuses on internal operations:  what has worked and what hasn’t in such areas as measuring and managing profitability, legal project management, software, new staff positions in pricing, contract attorneys and more.

But one chapter focuses on participants’ answers to this question:  “To maximize value in a sustainable way, do clients need to change the way they work with law firms?”  98% said yes they do. 

Today’s post describes the single most important thing clients should do to increase the value they receive:  Better define objectives and scope at the beginning of each matter.

However, before we begin, it is important to note that several participants noted an important caveat: the client is always right.  In fact, as one firm chair put it, these days,

Clients can do whatever the hell they want to.

A senior executive from another firm put it a bit more diplomatically:

If law firms are sitting back saying, “Well we’re in the right and we’re just going to wait it out, and clients need to be doing this or that,” I wouldn’t want to bet on that horse.

The underlying problem is that the legal profession is in the middle of a period of historic change, and both clients and law firms are still finding their way:

I think there have been some false starts in the in-house world, things that have been tried and have not really worked out.

The belief that clients have this figured out, and if these darned law firms would just get on board, everybody would be in a better spot, is, I think, a complete mischaracterization. Take a look at some of the RFPs. It’s just laughable, the questions that are being asked. We have to come together as an industry to do a better job of defining value and doing things that will help relationships on both sides.

In our view, this respondent really hit the nail on the head:

Clients only need to change if they perceive that a change is necessary for them to either reduce their cost or to improve their outcome.

That is the answer to the client-is-always-right quandary. Clients only need to change if firms can persuade them that it’s in their own interest. It puts the burden on firms to think through how to raise these issues diplomatically and persuasively enough so the client sees the benefit.

While no respondent claimed to have a roadmap for conducting these difficult discussions, the discussions below of problematic client attitudes, policies, and practices suggest that the best place to start is with this key issue: Define objectives and scope at the beginning of each matter.

In a previous post about this research, I quoted evidence that the most important thing law firms can do to increase efficiency is to start each engagement by getting a better sense of the client’s objectives and what is inside and outside the scope of a particular engagement.

The fault lies not just with law firms but also with clients who fail to spend enough time thinking through what they need vs. what they want, how much they are willing to pay for what they want, and communicating those decisions to their law firms.

As one chair put it:

If there was one single thing that clients could do to make it easier to assure their satisfaction, it would be to help me identify at the outset of the project what the client would consider to be success. What would make them smile? So many things evolve from that. How do I spend my time on that objective? How do we structure our fee arrangement so that we are providing value to the client? What sort of communication does the client want from me?

Many other respondents echoed this concern:

Often, what we’re hired to do is not clear, and so we have a lot of people sitting around, treating all of this as research of documents, and it turns out that’s not what the client really wanted. Then they change what they want.

We can certainly reduce the cost, but clients have to jointly work with us to figure out what it is they want us to do less of in order to meet their expense goals. You can’t do scorched-earth approaches to matters at reduced fees.

It’s important for clients to really understand upfront what they’re willing to spend and how far they’re willing to go. You can try to explain as things are going on, but if a client didn’t anticipate something would take so much time, it’s hard to explain it when you’re in the middle of the process.

Our biggest issues are in getting our partners and our clients to sit down to properly scope and budget prior to a project. Clients want lower cost, but they want to do it the way they’ve always done it. When you sit down and talk to a client about the practical nuts and bolts, things work out great. When our partners dismiss the conversation or the client doesn’t have time, that’s where we have some matter management issues.

Some clients understand that working with the lawyer in advance makes it easier to get what the client wants, at their price, time, and so on. Others are a harder sell. Some general counsel communicate better than others and know what outside counsel is saying. Others misunderstand, which can create inefficiency.

Next week, in Part 2, I will talk about two additional things clients should do: increase transparency about client needs, and improve in-house project management.

 

June 11, 2014

Book Review: Smarter Pricing, Smarter Profit

Six months ago, if you had asked me what book to read for a complete analysis of legal pricing, I would have said “Nobody has written that book yet.”  (At that time, my book Legal Project Management, Pricing and Alternative Fee Arrangements was the only one that even provided a 20,000 foot overview.)

But now there are two.  Jonathan Groner and I reviewed the first, by Toby Brown and Vince Cordo, last February.  Today’s review focuses on a brand new book by Stuart J.T. Dodds, director of global pricing and legal project management at Baker & McKenzie,one of the largest law firms in the world. 

Smarter Pricing, Smarter Profit is the only book on the market that goes step by step through everything lawyers need to know to survive and prosper in today’s rapidly changing marketplace.  It is divided into four main sections:  set the price, get the price, manage to the price, and review the price.  Until a few years ago, lawyers could make a great deal of money with only a basic understanding of these stages, so that’s what most did.  Since the dawn of the new normal of a few years ago, competition has gotten much tougher, and lawyers have learned that they must improve their business practices to remain profitable.  Several books have appeared that provide useful advice on the third stage of legal project management (LPM).  But Stuart’s book is the first to review all the practical steps a lawyer should take from the first moment she becomes aware of a new opportunity, through negotiating a deal and managing the work to the final post-matter review.   

I was particularly interested in the chapters on LPM, especially the ten steps which Stuart recommends at the start of every matter:

  1. Confirm what the client wants and expects
  2. Group the work into the main areas
  3. Agree how to address changes of scope upfront
  4. Develop and agree on the matter plan
  5. Agree on the fee and fee approach
  6. Agree on the engagement letter and share with the team
  7. Agree on the reporting format and schedule
  8. Establish your matter phases and tasks
  9. Approve new timekeepers
  10. Staff the core team and agree on client responsibilities

All this before you begin working on a matter!  While it is true that in some legal situations there is simply not enough time to accomplish all ten steps upfront, it is also true that in many matters there IS time, and a little initial planning can save a lot of  long-term expense.  At this moment in history, any lawyer that follows even a few of Stuart’s steps will be ahead of most competitors.  But as one managing partner said in my soon to be published research on Client Value and Law Firm Profitability:

Project management will probably have the biggest long-term positive impact [of all the things that are changing in law firms], but it’s been the biggest challenge because it’s something that hasn’t been easily absorbed by a lot of the lawyers.  When busy lawyers start scrambling around, the inefficiency creeps right up.

That’s why the key to success is changing behavior.  Stuart has been a panelist on several of my Ark workshops on “LPM:  Changing Behavior within the Firm”, and underlines a key lesson we’ve seen one law firm after another learn the hard way when he writes “Educating is easy (relatively), but changing behavior is much harder, and the change is especially difficult for lawyers.”  (p. 213)

In addition to all its business insights, there are also many small things to like about this book.  Stuart is based in Chicago but spent most of his career in London, including 14 years as a management consultant at Accenture.  (He often reminds people that he is actually from Scotland.)  Anglophiles will especially appreciate the references to UK research which has not been widely cited in the US, and the occasional British colloquialism.  For one example, read the story of a lawyer who put a procurement officer “on his back foot” (p 148) by threatening to walk out of a meeting about discounts, when the meeting should have focused on “protecting your company from losing a potential multi-million dollar claim.”

I’d love to keep writing about this book, but the best advice I can offer is that you stop reading this review and order a copy.  Read the book and act on it before your competitors do, and you will earn back the $169 price many times over.

Full disclosure:  I have worked closely with Stuart over the last several years, since he manages our LPM coaching program for Baker & McKenzie.  Whenever Stuart quoted me in this book, I smiled a little.  But to be honest, I also got a little jealous when I saw how well he presented some of the key concepts.  When I saw the title of Chapter 14, for example -- Thinking Big, Starting Small – I thought:  Why didn’t I think of that catchphrase?

 

May 21, 2014

The most important findings from Altman Weil’s new survey

What’s wrong with this picture? 

In the 2014 Law Firms in Transition Survey which Altman Weil released a few days ago, 304 managing partners and chairs of US firms with more than 50 lawyers were given a list of legal market trends and asked “Which do you think are temporary and which will be permanent?” 94% rated “focus on improved practice efficiency” as permanent, in a tie for the number one permanent change with “more commoditized legal work.”

But when the same survey asked “Has your firm significantly changed its strategic approach to the efficiency of legal delivery?” 35% said no and 26% said it was “under consideration” (code words for we have a committee that could decide any year now).  In other words, only 39% of US firms have started to take action to deal with the most important change in their profession.

If you read the entire 131 page report (which can be downloaded for free), the good news is that there are many signs that law firm leaders increasingly understand that the world has changed and they must adapt.  The bad news is that so few have started doing anything.

If you are a regular reader of this blog you will not be surprised to learn that the first section I turned to was on legal project management.  I LOVED Altman Weil’s conclusion (p. viii) so much that I will quote the whole thing:

Invest in Legal Project Management

Perhaps no other long-term initiative will do more to support staffing innovation, pricing innovation, efficient delivery of services, improvements in margin and reductions in overhead than true project management training. It’s important to distinguish between a one or two day seminar which will not produce much long term value, and a systematic, hands-on approach that instills fundamental operational change. Firms that give their people the right kind of tools and training in this area will create new efficiencies for clients, improve profitability of matters, and create significant competitive advantage.

This underlines a point we have been writing about for years: traditional training to educate lawyers to understand LPM will not change behavior, any more than understanding how to run a marathon will enable you to complete one.  Behavior change requires practice, whether it’s through the kinds of coaching programs we offer, or other real-life hands-on approaches.  The point is, you need to do it, not talk about it.

This conclusion has also been supported by our research on Client Value and Law Firm Profitability, which will be published in a few months.  When I interviewed managing partners, chairs, and senior partners and managers from 50 AmLaw 200 firms, here’s what the managing partner of one firm that invested heavily in LPM education had to say:

I think project management probably will have the longest-term positive impact, but it’s been the biggest challenge, because it’s something that hasn’t been easily absorbed by a lot of the lawyers. When busy lawyers start scrambling around, the inefficiency creeps right up.

A few years ago, traditional training in LPM became the rage in a number of firms.  Several got to put out some great press releases describing themselves as leaders of the new LPM movement. But from everything we have heard, this education had little impact on the way anybody practiced law.  What has worked is one-to-one coaching, as described in my book Legal Project Management, Pricing and Alternative Fee Arrangements.  (A free copy of the chapter on LPM case studies can be downloaded from our web page.)

Does it matter how quickly firms move to increase efficiency and provide greater value?  In our study 85% said that firms that move more quickly in providing value will gain a competitive advantage.  Some respondents thought this was a life and death matter.  As one managing partner said:

I think the firms that are most effective are going to do well, and I don’t think everybody will survive. In the last several years, there have been several firms that went away. And I believe that’s going to continue.

A senior partner at another firm put it this way:

I think the market’s going to shake itself out. I think firms that can’t deliver more value will fail.

If that’s not scary enough, there’s more.  I have saved the most frightening news for last. 

In my opinion, the most revealing question in Altman Weil’s entire research was one that was just added to the survey this year for the first time: “Which of the following is a greater driver of decision-making in your law firm in 2014: Long-term investment in new pricing and service delivery strategies to lock in your most valuable clients or short-term profitability to lock in your most valuable partners?” An astonishing 44% are looking inward at their own partners rather than outward at their clients.

As Tom Clay, the primary author of the Altman Weil survey, noted in our research report:  “If a law firm cannot attract and retain good clients, nothing else matters.” At a moment in history when so many clients are demanding more value, it can be business suicide to focus on partners before clients.

The obvious explanation is that with all the lateral movement between firms, management is afraid that if they don’t focus on partners first, big rainmakers will jump ship and take their books of business with them.

But forward-looking firms are taking a longer view.  In our study, one chair noted that in his AmLaw 100 firm some rainmakers were the very people who were slowing down progress.  As he put it:   

To be perfectly honest, some of the partners in our firm who don’t get it, don’t want to get it. They’ve got a big book of business, and they would prefer us to just leave them alone. Law firms get very nervous about this, because they worry that these big, bad actors are going to take their big, bad book of business and go elsewhere. I say “Don’t let the door hit you on the butt on the way out,” because that’s not the culture that we’re trying to build. As long as we continue to reward bad behavior, we’re going to continue to get bad behavior.

Full disclosure: LegalBizDev is a strategic alliance partner of Altman Weil.  More disclosure: I began praising their annual surveys several years before we formed that relationship.

May 14, 2014

The most critical issues in legal project management (Part 3 of 3)

Assign tasks and manage the team

Like communication, management is not a strong point for many lawyers:

We did an internal survey where we asked, “How do you communicate caps and fixed fees to your team of associates?” Some said by email. I think only about 10% of them said that they actually talk to the group, get them together on a call, and explain the project. It doesn’t really happen. And when you don’t manage things well, it affects more than just the profitability. It affects the associate’s confidence in working with you in the future, because they get their time written off since they weren’t told the parameters.

Negotiate changes of scope 

In light of the problems with communication and management, it is not surprising that when the moment comes to negotiate a change of scope, many lawyers have problems:

We have people who recognize that the scope of a project has changed, but you would think they were 15 years old again and asking a girl to a dance. They never get around to making the phone call.

As far as negotiating changes of scope, there is enormous room for improvement. When something has gone bad, there is tremendous reluctance to have that discussion with the client.

When scope changes, the first thing you’ve got to think about is talking to the client and making sure that you’re on the same page as to what’s changed. That’s an area we still struggle with.

This widespread problem goes directly to the bottom line, as seen in these comments, the first from a managing partner, and the second from a CFO:

In the real world, almost no project is defined in advance so clearly that there is no need for changes. And it is in that need where the law firm’s expectations about profitability and return get thrown out the window. So if you’re not really careful on a management level about how the assignment changes, you very quickly go from, “Yup, we’re going to make money on this engagement” to “How much am I writing off again?” It is that time of year when I get the memos from people that say “Time for the write-offs.” And it’s astonishing to me, first of all, how many there are. And when you ask people why it happened, invariably, the answer is, “Well, we started out doing X, but really, it turned out the client wanted Y.” And unless you deal with the client up front about how those changes are going to be negotiated, you have that kind of mission creep all the time, and it’s costly.

We had a small criminal engagement on a fixed fee, and we went over it. I saw it and didn’t deal with it in a timely fashion, and we ended up with a lot of extra time. The original fixed fee was based on some local lawyer doing a lot of the leg work, which he didn’t do. We stepped in and did it instead. We won. But we never communicated that the other guy didn’t do his job and that we did the work, so we ate the money.

Identify and schedule activities

You can’t plan a project until you know exactly what needs to be done. One C-level executive highlighted the problem:

Identifying and scheduling activities: that’s where I feel like we immediately fall off a cliff. Even if we do the budget down to the level of timekeeper and task code, I know very few people who out of the gate start managing the case that way. Instead, people say, “I’ll monitor how we do against the overall budget, and if I start to see that we’re eating up too much of the budget too quickly, I’ll stop, and maybe I’ll go back and dig into this stuff.” A lot of it is backwards looking, where once they’re off track people ask what happened. And then we dig into the task codes and find a motion that they budgeted X hours for. We say, “Look at all the hours.” Then they realize the problem, but it’s too late because they’re not doing it in real time.

Assess risks to the budget and schedule

Lawyers specialize in assessing and managing legal risks, but when it comes to risks that affect time and money they are not nearly as effective. One senior partner used a football analogy to stress the importance of this type of planning:

Years ago, when Bill Walsh was still the coach of the San Francisco 49ers, he had his thing where he scripted out the first 25 plays of every game, which he stuck to no matter what. If they were down 21 to nothing, he still stuck with the script until he got through the first 25 plays, because he found that then people panicked less. Those were the Super Bowl years. I just think that in litigation sometimes we are much too reactive. A project manager would help us be much more proactive. They would allow us to resist the temptation to say, “Gee, we’re really busy on this case right now. Let’s just bring in another timekeeper to bill 40 hours,” and then that timekeeper falls off, all of which has inefficiencies.

Manage quality

If a client sees that the drive for efficiency leads to an unacceptable drop-off in quality, he will find a new firm. In the words of two managing partners:

Making sure we keep the client happy on quality is still, in the end, the highest requirement.

If you can’t manage quality, nothing else matters. But, it’s not sufficient. That’s the new paradigm that lawyers need to get through their heads. Quality is not enough, and it’s not a tool for getting better client value.

Meanwhile, many lawyers are still married to the perfectionism they learned in law school:

We’re focused on delivering the highest quality, and we are turning over every stone. I think it should be about delivering just enough quality. We’re not there at all, because we’re just trying to deliver the highest quality, at some level, without caring about the cost. We haven’t gotten to the part where we don’t turn over every stone.

It is going to take time for some lawyers to get the message:

I can’t believe I’m going to say this, but if anything we need to get better at focusing on what we need to do to meet the clients’ business objectives, not what we need to do to make ourselves feel good that we’ve just produced the greatest brief in the history of the law. And that is a monster hurdle to get over with successful lawyers at a top firm. Isn’t it amazing that you could produce a world class brief, and if it’s due at midnight tonight, you’ll work right up till 11:55, and you will be ready to file it and everybody will be high-fiving. But if at the last second, somehow there’s an extension for two days, you will work the next two days to try and make what was perfectly good, if not great, even better. That is what many lawyers do. It sometimes has absolutely no value to the client, but that’s what they’ll do.

April 30, 2014

The most critical issues in legal project management (Part 2 of 3)

Manage client communications and expectations

In the eyes of some, nothing is more important than communications. Consider these comments from an AmLaw 100 managing partner, and from an AmLaw 200 COO:

Client communication is the one that requires the most improvement and the one that has the potentially greatest impact for us. “Here’s what this should cost. Here’s how you can help us keep it within this cost. Here are the things that could really knock it off the rails. Let’s be sure we agree on the assumptions that are built into this budget or fix the arrangement. And then we’re going to talk to you along the way and tell you if we’re maybe getting off track.”

Communications between firm and client are very important. It drives me crazy when a lawyer says that the client’s going to be really shocked by this month’s bill. I then ask the lawyer, “When did you know the bill was going to be really high?” and they say they knew a while ago.

Why is communication so often delayed? In the opinion of one C-level executive:

There is just a dislike generally for lawyers wanting to talk to their clients about anything but legal work, so many lawyers just aren’t adept at it, and they don’t like talking business with clients. It’s not what they’re comfortable with, so they avoid it. And as a result of avoidance, by the time you have to do it, it’s too late. It’s a surprise, and the client really gets upset.

When communication is handled well, it can directly impact the bottom line:

We had a fixed fee a couple years ago on a $300,000 matter. The partner managed it very well and had continuing dialogues with the client’s GC. The $300,000 turned out to be closer to a million, and he got pretty much every penny of it. There were things that happened out of our control, but there was constant communication about what was going on, which is so important.

I have done many client interviews over the years, and I’m always amazed that I can have two lawyers in the same department, and servicing the same client, where one of them has fabulous relationships and the client never cares how much they charge, and the other one has a horrible relationship and the client wants them to budget everything they do. And the difference often comes down to how well the two lawyers are communicating with the client.

How can lawyers improve communication? First they must be convinced that it makes a difference. Then it’s “simply” a matter of support and practice asking the right questions, in the right way, at the right time:

I have a list of questions for AFAs and legal project management. At the top of it is, “Do you know who the attorney on the other side is?” And if I get a no, I say, “Well, then, how can you quote a price if you don’t know who your adversary is going to be?” There are opposing lawyers in one firm where if somebody comes to me and says, do a fixed fee, I won’t do it. Seriously. I think it’s that important.

Years ago I had a client whom I did a lot of work for. Early on in the relationship, I called the general counsel all out of breath one day to give him a blow-by-blow report on developments. He cut me off, and he said, “Don’t do that. You can call me when you’ve accomplished the project or you’ve screwed it up. That’s it.” I’ve had plenty of clients since where if I took that attitude with them, they’d fire me. If you tell the client you’re meeting with a regulator, and several days pass by and the client hasn’t heard from you, most are going to be annoyed. One thing to do, particularly with a new client, is to ask them how often they would like to hear from us on our progress. And then do it.

Plan and manage the budget

Anyone who has spent time working with lawyers knows how important budgets are, and also knows that most lawyers have problems establishing realistic budgets and even bigger problems living within them. Some of the problem has to do with the unpredictability of legal work, but many improvements could be made with simple changes, like this one described by the CFO at one AmLaw 100 firm:

I was formerly in public accounting, and I would tell my assistants, “You have 12 hours for this account. If you’ve gotten halfway and you’ve used more than six hours, come and tell me to try and figure out what you’re doing wrong.” I’d be surprised if more than a handful of lawyers say to the people working on their files, “Here’s how much time it’s supposed to take, and if you disagree or if something goes wrong, let me know at point X.” I have to do write-offs around here, and every day somebody’s got to write something off, because somebody else ran away with the amount of time. I always have the same question: “Who was supposed to manage them?” And they say, “I was. I’ll do it better next time.”

There are signs that many firms are improving on budgeting:

We’re evolving to a system that provides better real time monitoring, both for the lawyers responsible for the engagement and for management as well. Someone must be able to send an inquiry: “Wait a minute, this is tracking way out of line with what we understand the engagement to be.”

In the eyes of one managing partner, it all comes back to defining scope:

I’d say the most critical issues are setting objectives and defining scope, and then planning and managing the budgets. That’s where things go off the rails, when clients expected you to be doing one thing and we understood we were supposed to be doing something else. Then the budgets get out of whack. If you define the scope up front, that helps, and then you’re monitoring the budgets and you can see if you’re getting out of line with your expectations.

The chair of another firm had a different view:

If I had to pick one as a starting point I would say planning and managing a budget is probably the most important task. I started off by thinking that setting objectives and defining scope would be more important, but it turns out that planning and managing a budget actually subsumes a lot of the other items on the list. Even if your budget turns out to be terrible, and you didn’t manage it well, the fact that you started off with one will make you better the next time. And I think that none of these other elements have quite the same residual impact as planning and managing to a budget. It’s not what I would have expected if you had asked me this question a year or two ago, but I’ve come to believe it’s all about getting people to just sit down and think about what they are doing, who’s going to do it, and how many hours it will take. And it’s important that they do that in the present. You don’t really learn anything from taking a look at the last 15 deals that didn’t have a budget.

The remaining five issues will be described in Part 3 of this series, which will appear on May 14.  Next week’s May 7 post will be a “Tip of the Month.”

March 26, 2014

Preview of a Loeb & Loeb budget template from our May workshop

At Ark’s Legal Project Management Showcase & Workshop in Chicago on May 22, David Schaefer, Deputy Chair at Loeb & Loeb, will describe several tools his firm utilizes to make it easier for lawyers to provide clients with more accurate and reliable budgets, including the sample template below that the firm has customized for a sell-side M&A transaction. They have created similar customizable templates for other matters, including a variety of corporate, finance and real estate transactions, and commercial, IP and class action litigation. In addition to helping establish and manage the budget, the templates create a consistent approach to gathering data for historical comparison of matters. Mr. Schaefer will also discuss innovative procedures Loeb & Loeb has developed to improve the efficiency of lawyers’ budgeting time by providing staff support and combining the power of ENGAGE with the simplicity of Excel.

Panelists from four additional firms that are national leaders in the movement to provide more value through legal project management will also describe the tools, templates, and approaches that are being used at their firms:

Sari M. Alamuddin, Partner, Morgan Lewis
Vincent Cordo, Global Director of Client Value, Reed Smith
Stuart J T Dodds, Director of Global Pricing and Legal Project Management, Baker & McKenzie
Donald R. Ware, Partner, Foley Hoag

For more details, see the Ark Group’s web page or contact Ark’s Peter Franken at pfranken@ark-group.com or call (312) 212-1301.  A 15% “early bird” discount is available if you register by April 4. 

 

Budget template for sell-side M&A transaction

 

F71   Pre-Acquisition

 

F71-01 

Pre-Acquisition

 

 

Assemble Team

 

 

Retain and negotiate engagement agreements for consultants and experts

 

 

Structure transaction and analyze tax issues

 

 

Prepare organizational chart

 

F72   Term Sheet/Letter of Intent

 

F72-01 

Term Sheet/Letter of Intent

 

 

Term Sheet/Letter of Intent

 

F73   Due Diligence

 

F73-01 

Due Diligence

 

 

Draft and negotiate confidentiality agreements

 

 

Review organizational documents

 

 

Review material agreements and correspondence

 

 

Review intellectual property documentation

 

 

Review consent requirements

 

 

Review industry specific statutes, regulations and applicable law

 

 

Review corporate statutes and applicable law

 

F75   Purchase Agreement

 

F75-01 

Purchase Agreement

 

 

Review and negotiate Purchase Agreement

 

F78   Ancillary Agreements (as applicable)

 

F78-01 

Ancillary Agreements (as applicable)

 

 

Review Employment Agreements

 

 

Review Noncompetition Agreements

 

 

Review Escrow Agreement

 

 

Review Bill of Sale and Assignment and Assumption Agreement

 

 

Review Assignments of Copyrights, Trademarks and Patents

 

 

Review Promissory Note(s)

 

 

Draft and review Opinion of Counsel to Seller

 

 

Review Opinion of Counsel to Buyer

 

 

Draft Indemnification Contribution Agreement

 

 

Other Agreements

 

F79   Disclosure Schedules

 

F79-01 

Disclosure Schedules

 

 

Disclosure Schedules

 

F80   Consents and Notices (as applicable)

 

F80-01 

Consents and Notices (as applicable)

 

 

Third party consents

 

 

Government regulatory consent

 

 

Board consent

 

 

Shareholder consent

 

 

Notice of Appraisal Rights

 

F81   Filings (as applicable)

 

F81-01 

Filings (as applicable)

 

 

SEC

 

 

State/Blue Sky Filings

 

 

Special Regulatory Filings

 

 

Antitrust filings and notifications

 

 

Press Release

 

 

Qualification to business

 

 

Articles/Certificate of Merger

 

F82   Closing

 

F82-01 

Closing of Transaction

 

 

Closing of Transaction

 

F83   Post Closing

 

F83-01 

Post Closing

 

 

Post Closing



 

March 12, 2014

Research update: Contract attorneys and outsourcing, Part 1 of 2

This two part post previews results from my book Client Value and Law Firm Profitability, which will be published this summer.  All quotes are from managing partners, chairs, and other senior decision makers at AmLaw 200 firms.  Each participated in 30-minute in-depth interviews and spoke freely based on the understanding that they could review their quotes before publication, but they would not be quoted by name.

One tactic that many law firms are experimenting with to lower cost is simply to pay less to get the work done. This can be accomplished by directly hiring lower-cost contract attorneys or by outsourcing this function to a growing number of legal process outsourcing firms such as Axiom, Pangea3, and Novus Law.

There is considerable evidence that this trend is growing. In their 2014 Client Advisory, Hildebrandt Consulting and Citi Private Bank reported that in the 10 years from 2002 to 2012, the percentage of “temporary/other” lawyers in large firms grew from 2.4% to 6.1% (p. 7).  The report also noted that “In the Law Firm Leaders Survey, 82% of respondents answered that they are using temporary or contract lawyers. Additionally, 70% responded that they are using permanent, lower cost, non-partner track lawyers” (p. 6)

In our sample, 97% of the firms who discussed this issue had used contract attorneys who were paid as little as $30 per hour, and 59% had experimented with outsourcing, which can be even cheaper. About one-third of the firms are planning to increase the work done this way (31% for contract attorneys and 36% for outsourcing).

Some successes

These experiments have taken a variety of forms, some more successful than others. Here are a few of the examples mentioned by our participants:

Our staff lawyer and e-discovery business has been very successful for us, and very, very profitable.

We’ve had a discovery center alternative staffing model for a number of years. It used to be just for litigation. Now we probably have over 300 clients that run through there. It’s used for everything from government investigations to contract reviews, real estate projects, and M&A due diligence. One of these days, we’ll probably open a second center somewhere else, because we’re at capacity.

We have a contract counsel manager in our firm. We have both direct hire and indirect hire contract counsel. For indirect hire contract counsel, we have relationships with various staffing firms, for large due diligence document review and e-discovery type projects. But we also have our direct hire contract counsel program, where we hire principally alums: people who have dropped out of the regular work force to raise a family or for health or other reasons, but want to do some work. They’re fine lawyers. We developed what we call our “law firm in a box.” We can drop an office into their home. It has a voice over internet phone with a black box computer attached to the back of it. All they have to do is plug the keyboard, terminal, mouse, and printer into the phone, plug the phone into a high speed internet connection outlet in their home, hit a button, and they are a firm office. They can work from home with full functionality.

We have implemented what we call staff attorneys. We are crawling before we walk. We have probably hired eight staff attorneys over the last two years. We really want it to succeed, and so we’ve been careful. Ironically, we’re probably more careful in hiring those people than we are with our full-time associates. But I think we’ve had a good success, and relatively good acceptance among the partners of the concept, such that we will continue to roll it out over time.

We were recently involved in a large project where there were probably 40 to 50 contract attorneys. They were paid $30 an hour. But it is a challenge to align these lawyers’ expectations with reality. Not everybody is going to be on a partnership track, even if they’ve done extraordinarily well in law school, and even if they do very, very well in the law firm. Our goal will be to assure people that they have a future, set expectations, define their career path, and deliver on it. All of these goals will need to make sense inside each firm’s model. Figuring out the correct model for your firm will help in delivering value to clients, but it will be one of the toughest challenges the industry is going to face going forward.

We have non-partnership track associates who have a flexible schedule. They are employees, but they bill at a lower cost. Economically, this is incredibly sensible and works well. But one of the challenges of having non-partnership positions of people who are paid at a lower salary and having them housed in the same place as people who are making high salaries, is that you have some retention issues and morale problems.

You have to manage it properly. As with all tools, it’s not right for every job. But we do use them in areas where the work is more repetitive, and in the areas where I’m sure everybody uses contract lawyers – for outsourcing, for discovery review, electronic discovery, management, all that sort of thing.

Next week, in Part 2 of this post, we will quote some senior managers who have been less enthusiastic about this approach.

 

February 26, 2014

Book review: Law Firm Pricing

In the current competitive environment, many law firms are struggling with three key questions:

  1. Pricing: How do I bid high enough to make an acceptable profit, but low enough to get new work? 
  2. AFAs: When are non-hourly alternative fees best?
  3. Managing: After I set a price, whether AFA or hourly, how do I manage the work to make a profit?

Based on the data we are currently analyzing in our study of Client Value and Law Firm Profitability, most firms are making a lot more progress on the first two questions than on the third.

The new book Law Firm Pricing: Strategies, Roles, and Responsibilities provides a guide to this progress.  It was written by two of the leading pioneers in this new field – Toby Brown of Akin Gump and Vincent Cordo of Reed Smith – and provides an excellent overview of the current state of this rapidly evolving area.  (Full disclosure:  Vince has been a LegalBizDev client for the last few years.)

This book should be required reading not just for pricing directors and their staffs but also for managing partners, executive committee members, and pretty much anyone who wants to understand how large law firms are changing the way they price both hourly and AFA work.

In 2012, we wrote an article for Bloomberg Law Reports entitled “The Rise of the Pricing Director.” At that time, despite extensive networking we were able to find only a handful of people who held the title of pricing director in a law firm, or performed that function. Law firms generally move a little more slowly than glaciers, but the growth in pricing directors in the two years since has been meteoric.  There is now even a blog site that tracks the names of senior managers at large firms with the word “pricing” in their title.  The total stands over 70 as this is written, and may be higher by the time you read this. 

With 20/20 hindsight, it is easy to see the reason for the rapid growth of the “pricing director” title and function. The well-documented changes in the legal profession over the last few years have placed intense pressure on profits. It is therefore not surprising that a new host of high-level executives has emerged to help law firms set their prices in a way that will help them to maintain and grow profitability.

This book is quite well written, with a notable absence of legal and business jargon. Brown and Cordo discuss, clearly and thoughtfully, the responsibilities of the pricing director; the director’s multiple roles, both internal and client-facing; the crucial importance of pricing strategy to long-term profitability; the need for data-based solutions in all contexts; and the frequent resistance of law firm partners to many of these developments.

The authors are especially incisive in their analysis of the behavioral incentives and factors that affect law firms, which are after all made up of human beings:

Lawyers live in a reputation world, and [financial] monitoring exposes that reputation to risk. Once lawyers realize that others in their firm can see their financial performance on matters, their behavior often changes. In one example, a lawyer was losing money on the first phase of a fixed fee arrangement. Once a monitoring program was put in place, performance on the second phase dramatically changed – leading to a reasonably profitable result. (p. 39)

They are also extremely thoughtful about the role of technology in today’s law firm and about its limitations:

The core systems of a law firm – the client database, document database, financial database, and people database – all stand alone. Getting data from one to another is very difficult. Therefore, understanding which clients are buying specific types of services, the staff resources committed to resolving the legal challenges, as well as the profitability of the effort, is a significant challenge. (p. 50)

This wouldn’t be much of a review if we didn’t find something to criticize, and there are a number of places where we wished the discussion went deeper.  For example, Chapter 3 – Pricing and Profitability – begins with a two page introduction to how profits are defined differently by different firms, a topic that we think requires far more detail, including the implications of different definitions of realization (which many lawyers confuse with profit) versus cost accounting and other models.  Lawyers will never agree on how to become more profitable if they don’t first agree what the word means.

Another problem can be seen in the book’s discussion of “four drivers of profitability”:  rates, realization, productivity and leverage.  Leverage is defined “as the percentage of partner time worked per matter or per client” (p. 18).  The authors go on to argue that:  “The basic economic concept of leverage is that the more workers work, the more owners (partners) benefit. Workers generate the profits that pay partners. Therefore, the more work is pushed down to them, the better leverage you have and the more profit is generated (p. 19).”

That is certainly how firms thought about profit under the “old normal” pyramid model, but the world has changed.  For example, in a fixed price environment, efficiency is king, and leverage can lead to higher costs and more unbilled time.  Suppose a $1,000 per hour senior partner can solve a problem in one hour, but a $300 per hour associate will require ten hours to come to the same answer.  If the firm is paid the same fee regardless of who does the work, it is obvious that solving the problem at the unleveraged partner “cost” of $1,000 is more profitable than at the leveraged associate cost of $3,000.  (Of course, billable rates are really not a cost, but let’s keep it simple.) 

In a post I wrote in 2009 entitled the “Law Firm of the Future,” I quoted Fred Bartlit, founder of Bartlit & Beck, as noting that to maximize leverage “some big firms traditionally hire over 100 new associates per year, and that most leave within a few years.  This means a significant portion of the firm’s workforce is inexperienced.  ‘Who cares? Their inefficiency is billable,’ he said.  ‘In the future, the ideal firm will be underleveraged with about 50 partners and three associates in training.’”  Thus, in Bartlit’s view of the future, leverage is not a driver of profit, it is a driver of loss.

But enough quibbling.  Discussions like this can get very complicated very fast, and it may be years before law firms reach a consensus.  So this criticism of the profitability chapter says more about the state of the art of pricing than it does about the book.  I am hoping that in a few years Toby and Vince will write a second edition with the expanded explanations we are waiting for.   

In the meantime, the practical experience of these two industry leaders places them in the forefront of critical changes in the legal industry, and they have written an extraordinarily valuable book.

As they summed it up: “From the authors’ experiences, the pricing director role has been very challenging, but quite rewarding. It exists at the vanguard of change for an industry in desperate need of it. . . . The last word on legal pricing is that it is a roller coaster ride and nobody is sure yet exactly how it will end.” (p. 2)

 

This post was written by Jim Hassett and Jonathan Groner.

February 19, 2014

The most successful business development program we’ve seen: The case of Adams and Reese (Part 4 of 4)

To fully understand the success of the Adams and Reese coaching program, there is one more factor that cannot be ignored: the firm’s ability to deliver the kinds of legal services that clients are looking for these days.

An extremely important ingredient in sales success is having a product that people want to buy. You’ve probably heard the cliché that a great sales person could “sell ice to Eskimos.” But when the Gallup Organization reviewed 40 years of research on sales (in the book Discover Your Sales Strengths), they found evidence that “a good salesperson can sell anything” is a myth. No matter how talented the sales person may be, or how well they are coached, they will not get rich selling Betamax recorders or 3.5-inch computer disks.

These days, what most legal clients want to buy is value, They want the same high quality legal services they have been getting for years, but they also now expect firms to be creative, transparent, efficient, and cost-effective. As a regional firm with more than 300 lawyers but significantly lower overhead than name brand firms based in cities like New York, Chicago, and Los Angeles, Adams and Reese is in a very good position to offer the kind of value that many clients are looking for.

A few months ago, the Wall Street Journal blog posted an article with the headline “Smaller Law Firms Grab Big Slice of Corporate Legal Work… Midsize Firms Nearly Double Share of Big-Ticket Litigation.

The data behind the headline is described in a Harvard Business Review HBR Blog Network post which was co-authored by Firoz Dattu, the founder of AdvanceLaw, “an organization helping its general counsel clients identify top lawyers at firms vetted for quality, innovation, efficiency, and client service.”

AdvanceLaw clients include companies like Google, Deutsche Bank, NIKE, Nestle, Starwood Hotels, 3M, Mastercard, eBay and McDonald’s, all of whom are looking to lower costs and increase efficiency.

At this time, only 10 law firms in the United States have been vetted to belong to this value providing network. Adams and Reese is at the top of the list on the AdvanceLaw web page. (All right, it’s in alphabetical order, but still…)

So you could say that another reason for the success of this particular coaching program was that as a growing regional firm, Adams and Reese was well positioned to provide the high value services that clients are demanding these days. (Not all firms are so lucky, which is one reason legal project management has become so popular as a way to increase efficiency.)

At the end of the day, developing new business ultimately comes down to understanding what clients want, and giving them just a little more. Derek Anchondo, an Adams and Reese special counsel who does transactional work for oil and gas clients in the Houston office, agreed. As a former in-house counsel himself, he often sees things from the client perspective. Business development coaching helped him sharpen this perspective and frame it in a way that gained the trust of prospective clients.

“When you go into a client meeting, you need to be totally prepared to hear the client’s point of view,” Anchondo said. “Just listen. Don’t go in with a forceful sales pitch right away, just let them talk. You can learn so much by listening.”

Anchondo learned that sales progress is possible only after learning the prospective client’s needs. Then – and only then – can he decide which members of his firm might best meet those needs

“We wanted to build work from one particular client, and we realized that our challenge stemmed from their existing relationship with a different law firm,” Anchondo said. “My coach and I brainstormed ideas. We had four or five meetings, and I familiarized them with our fees and services available in the Houston office. Now they are thinking of expanding their work with us to include tax and OSHA work. It took that many meetings to swing the pendulum, but the approach worked.”

No matter how you do it, business development simply takes time. Many law firms have strategic plans that call for growth, but Adams and Reese is one of the few we have seen that is investing the time and money needed to achieve their goal. The investment has already paid for itself and is continuing to produce ever higher returns.

Adams and Reese plans to continue business development coaching with appropriate lawyers in the firm.

This series was written by Jim Hassett and Jonathan Groner.

January 28, 2014

My upcoming Ark Group workshops on Alternative Fees and on Legal Project Management

On March 19, I will be in New York to chair the Ark Group’s Fifth Annual AFA Forum.  There are plenty of conferences about AFAs these days, but the title of this one suggests how it is different:  Sustaining AFAs Through Collaboration and Trust.  Law firms and their clients will talk candidly about how they have negotiated and managed AFAs in a way that has been beneficial and sustainable for both sides.  Participants include in-house counsel from GlaxoSmithKline, Pitney Bowes, Harley-Davidson, and other major corporations, as well as the lawyers they work with at Foley & Lardner, Reed Smith, Greenberg Traurig, McKenna Long & Aldridge, Faegre Baker Daniels, and McCarthy Tetrault.  You can download the agenda and registration form from our web page, or go to Ark’s page for additional information. 

Then, on May 22 in Chicago, I will be chairing an entirely different kind of event entitled the Legal Project Management Showcase & Workshop: Changing Behavior within the Firm.  I conducted this workshop three times in 2013, making it Ark’s most popular program last year.  I wish I could say it was so successful due to my contributions, but the value was in the frank discussions between panelists about what worked and what didn’t when they established LPM programs.  The Chicago panel will include some panelists who appeared on last year’s programs, and some who didn’t, namely:

Sari M. Alamuddin, Partner, Morgan Lewis
Vincent Cordo, Global Director of Client Value, Reed Smith
Stuart J T Dodds, Director of Global Pricing and Legal Project Management, Baker & McKenzie
David Schaefer, Deputy Chair, Loeb & Loeb
Donald R. Ware, Partner, Foley Hoag

I’ll let you know when the brochure for the Chicago workshop becomes available in a few weeks.  In the meantime, if you’d like a preview of how the event will be structured, take a look at the similar workshop I offered last November with a different panel. 

I hope to see you in New York, or Chicago, or both.

For more information on either event, contact Ark’s Peter Franken at pfranken@ark-group.com or (312) 212-1301.