Articles Posted in Cost Disciplines in Legal

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The Point

Over the weekend I heard a veteran of a Silicon Valley-based, Fortune 100 tech company say this:

“When I started, the legal department was 200 people … by the time I left it was 1500 people.”

This Matters

When its workload increases, the corporate law function has one primary, go-to move: add people to the team. But raising headcount does not create economies of scale.

When demands exceed budget, Legal’s standard response — “Bring more work in-house” — replaces high-cost specialists in law firms with lower-cost generalists on the corporate legal staff. But either way, it’s about adding people.

And that’s a big problem as the legal system’s demands on business continue to proliferate. Continue reading

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The Point

I’m qualified to discern fat-vs-muscle in Legal spending from firsthand experience on both sides of the lawyer / client table. I’ve practiced business law for 25 years, and I ran divisions as a general manager and then served as an M&A executive for 12 years.

This Matters

To cut corporate law function spending — and to do it safely — a company needs both an attorney’s technical grasp of the legal system’s demands, and a businessperson’s cost control and management savvy. Continue reading

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The Point

Corporate legal costs have risen steadily for the last 40 years (including 2020 — and excluding the Great Recession of 2008 to 2009). Meanwhile, the legal system’s demands on business increase relentlessly.

So, CFOs, or other business executives, need to step in and impose spending discipline on the corporate law function. Because lawyers in-house and in firms have not.

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THE POINT

Reports about pricing “compromises” between law firms and client companies in the wake of Covid-19 simply reflect attorneys’ intransigence about hourly billing — not a real willingness to remove that business model’s waste and cost uncertainties by agreeing in advance the value they promise to deliver for a predictable dollar amount.

DISCUSSION

An example:

The American Lawyer / Law.com, January 4, 2021 (paywall): “Constrained by Crisis, Law Firms and Clients Are Learning to Compromise on Pricing“:

“The pandemic and its economic fallout have driven legal departments to turn to their law firms for help. With a toolbox of old and new ideas at their disposal, firms are showing that they’re willing to listen ….

“The circumstances are giving rise to conversations about pricing and driving both sides of the law firm-client relationship to seek common ground ….”

But “common ground” between lawyer and client is precisely what the hourly billing model makes impossible. Pricing risk remains Continue reading

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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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Barlit Beck, LLP

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.

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In Part 1 I addressed the need for reliable numbers relating to the value of legal services.

If what gets measured gets managed — and if measuring the wrong thing is worse than measuring nothing at all — then client company executives need a reliable measure of the value of legal services in their budget.

Toting up hours billed gives “certainty” about the method by which attorneys came up with the price that they charge to a client company.

But that total tells us nothing about the actual benefit received by the business.

Hence our consideration of two alternatives: “Data-driven”, and a price agreed in advance.

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“Data-driven” calculation of the value of lawyers’ work for client companies.

I refer to “data-driven” in quotes because there’s (a lot) less here than meets the eye when you read legal profession headlines.

In fact, I’ve found just a single instance of data-gathering and analysis as the basis of determining the value of what attorneys do for a company. If I’ve missed something, I invite comment and correction on this point.

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“What gets measured gets managed.”
This proverb, widely attributed to Peter Drucker, presents a tough question in the context of a company’s legal budget:Measure what, exactly?The cost-plus pricing method of the legal profession’s business model — charging the client company according to hours billed — offers the following answer:You should measure the number of hours that the attorneys decided to take in doing a particular job.This total — according to the view prevailing in 2019 — will tell you what a lawyer’s work product is worth to the client company.
Which calls to mind another proverb, offered by Seth Godin earlier this week, in a different context:“… Measuring the wrong thing is worse than measuring nothing at all.”According to the measure given to client companies by most lawyers — and accepted by the majority of such client companies — a contract that took 20 hours to complete is worth twice as much as one that took 10 hours.

Most business leaders — accepting this time-the-attorney-chose-to-expend measure — manage their legal spending accordingly.

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Which brings to mind the experience of Patrick Lamb, who, along with Nicole Auerbach, founded Valorem Law Group (ElevateNext) — one of a tiny few elite law firms who never bill by the hour — in a June 20, 2018 presentation:

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This four-part post’s premise:

A company’s “legal” problems are likely to be — in functional terms — business problems that have a legal aspect.

The traditional impulse to call in a licensed attorney from a law firm or in-house counsel department doesn’t always lead client companies to the most practical choice for their needs.

Hence my introduction of “Alternative Legal Services Providers”, or “ALSPs” — and Georgetown Law Center’s recent, authoritative survey, “Alternative Legal Services Providers 2019” — in this four-part post.

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Here are four take-aways:

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OK.

Review of Part 1 and Part 2 of this four-part post:

1. In your company, many “legal” problems are more accurately viewed as business challenges that raise legal issues (as Mark Cohen put it).

2. Delivery of many of the legal services that respond to such business-challenges-that-raise-legal-issues now requires process management and technology skills that attorneys mostly lack (again, Mark Cohen).

3. “Legal services & providers of those [legal] services are ever more important — lawyers, however, are not.” (Jeffrey Carr’s tweet last Monday)

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For most of the past four or five decades, the phrase “legal services & providers” has meant one of two things:

1. Law firms, and

2. In-house counsel employed by companies as full-time employees.

Until — that is — a few years ago: With the advent of “alternative legal service providers” — or “ALSPs”.

“Alternative” to what? Alternative to law firms and in-house counsel.

Beyond that, the definition is pretty wide-ranging — except that all ALSPs embody the aphorism set forth in this post’s title: “Clients Need Legal Services But Not Necessarily Lawyers”.

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I interrupt my four-part post on how a company can achieve higher quality legal services, that are faster, more accurate — and cheaper — by “disaggregating” business challenges that raise legal issues into tasks that (often) someone other than an attorney can do better than a lawyer (“Clients Need Legal Services But Not Necessarily Lawyers”).

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I saw the following in this morning’s in-box:

“Want a Market-Sized Bonus? Better be Ready to Bill Your Butt Off at this Biglaw Firm”.

For avoidance of any doubt, this meant that a large and prominent law firm issued new, formal guidelines by which it will now require the lawyers they employ (associates) to charge a quota of specified hours in order to receive a particular bonus. I don’t know if this firm previously had such a quota — though they are common in the legal profession. My point here is simply that hourly billing quotas like these are very much a part of the landscape, and that they’re widely accepted among conventional law firms — and the in-house counsel who hire them.

Regarding this law firm and its employee-lawyers, the article included a chart with two axes.

The vertical axis denoted the “level” of the associate in question. “Level” was expressed in terms of years out of law school. Nothing about demonstrated skill or competence. Just: How long had it been since this employee-lawyer graduated with their J.D.?

The horizontal axis: Increasing dollars of bonus for “1,950 billable hours …”, “2,100 …”, “2,250 …”, and “2,400 …”

Raising the question — as use of the billable hour invariably does:

Was this hour billed for the client’s good? Or for the lawyer’s good?

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I always do a double take at such a headline.

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