Managing Legal
A final installment in this three-part post.
What’s a practical basis for placing a value on attorneys’ work for the business?
In Part 1 I addressed the legal profession’s prevailing measure of lawyers’ work:
How long did the attorney decide to take doing the job?
Cost-plus. Bill the client company by the hour.
In Part 2 I addressed “data-driven” methods (with at least one present-tense exception that I’ve found, put this under the heading of maybe-in-the-future).
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Here in Part 3 I address:
A price agreed in advance — between lawyer and client.
An example:
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From Fred Bartlit’s April 5, 2010 Orr Distinguished Lecture at the University of Tennessee Law School:
In the early 1980’s Chicago trial lawyer Fred Bartlit was head of litigation at one of Chicago’s finest firms. He’d brought in a client whose big case was keeping 8 partners and 30 associates busy for months. “My partners loved me”, he said.
But Bartlit felt that this firm could deliver more effective legal representation to its clients for less money.
Barlit sketched for his partners what he thought was a better approach. He recalled that firm’s experience in the 1960’s and 70’s when its 2-partner and 3-partner trial teams went up against much larger New York teams – and won.
He reasoned that small, nimble and experience-heavy teams got more courtroom wins and better pretrial settlements – at less cost to clients – than the unwieldy, inexperience-heavy teams they were then fielding in an effort to have lots of associates bill lots of hours.
His partners’ response, according to Bartlit: How are we going to make money?
Specifically, how could billings of 2- or 3-partner teams match what we make with associate-to-partner ratios of 3:1 or 4:1 – with each associate billing hourly, and the excess of their hourly billings over their salaries going directly to the partners’ bottom line as profit?
Fred Bartlit left that firm in 1993 to found Bartlit Beck LLP. Where partners outnumber associates — inverting the conventional partner-to-associate ratio in other law firms — with five partners for every associate or counsel (according to Bartlit Beck LLP website March 17, 2019).
Experience-Heavy Teams & Charging for Results (Not Hours)
As Fred Bartlit put it:
“… Now that we have the higher quality and much greater efficiency driven by experience, the last thing we want to do is charge by the hour.
“Relying on highly experienced, highly trained, and highly motivated people means we want to be paid for results, not how long it takes us ….
“Our fee deals mean we share in a good result, and we share in a downside result. So in every single case, every fee deal is separately negotiated to address the unique facets of that litigation, but they’re all based largely on sharing in good and bad results.”
Bartlit Beck’s transactional, or corporate, practice is based on the same client outcomes-based pricing:
“We prefer to charge clients for the value we add to a project, not the number of hours we bill. Rather than charge by the hour, we work with our clients to establish fees on a matter-by-matter basis and thereby eliminate surprises on legal bills … Our goal is to align our incentives with those of our clients — in many cases, the bulk of our fee is paid only if the transaction closes.”
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Bartlit Beck LLP was the first major, elite law firm to follow this model.
Valorem Law Group (ElevateNext), founded by Nicole Auerbach and Patrick Lamb, is another prestigious example of this approach. I’ve posted about them here, here, and here.
Valorem’s (ElevateNext’s) Patrick Lamb “wrote the book” (two of them*) on how lawyers and client companies can agree on a price in advance — instead of defaulting to the billable hour.
Like Bartlit Beck LLP, they align the interests of attorneys and client.
Using fixed fees and outcome-based incentives in which law firm and client business share in the client’s outcome — the rewards of success — and the penalties of failure.
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Bartlit Beck LLP and Valorem (ElevateNext) demonstrate that — in defining the value of lawyers’ work — it’s possible to get reliable numbers for sound management choices.
By a price agreed in advance — between lawyer and client.
* Alternative Fees for Litigators and Their Clients, American Bar Association Law Practice Division, 2014; Alternative Fee Arrangements: Value Fees and the Changing Legal Market, Ark Publishing, 2010.