Fewer than 30% of companies made their law firms set a budget for tasks assigned to them.
Let alone manage their actual performance to such a budget. 2023 Thompson Hine survey (p. 10 of 16).
What other corporate function or business unit gets away with not having budgets for what it spends? Continue reading
Tis the season to discuss next year’s law firm rate increases.
In the American Lawyer’s entry on this topic two days ago, legal industry experts cited a multitude of factors that could drive 2024’s pricing.
Except one: Clients’ purchasing power. And clients’ willingness to use their purchasing power.
And the fear that constrains almost all general counsel and chief legal officers from robustly leveraging that purchasing power in rate discussions with outside counsel. Continue reading
A judge’s ruling last week* illustrates which of the above two alternatives is better for the client company.
The court, after reviewing a law firm’s bill in a bankruptcy case, found that AmLaw 100 firm Pillsbury Winthrop Shaw Pittman LLP** had overcharged its debtor client by about $1 million. On a $6.3 million bill†.
Lessons for a client company engaging a law firm:
1. Define the task and sub-tasks before work begins, to maximize the likelihood that the lawyers will understand exactly what you want — and that you will be able to make them accountable for following your wishes.
2. Identify by name or by experience-level which attorney will do what part of the task, to assure promised quality of representation, and to avoid paying partners and other senior attorneys for simple tasks.
3. Make your legal costs predictable by agreeing on the total fee in advance rather than agreeing to pay by the hour (perhaps with a bonus formula based on results). Continue reading
When should your business pay the exorbitant prices of a major law firm?
When you need the full attention of the best attorney available for the task presented.
But something else is happening.
The data say that in 2022 corporate clients were paying proportionately more for the total hours of junior lawyers, and getting less attention from their most proficient, experienced colleagues.
How did that happen? The data indicate that law firms “mitigated individual attorney rate increases by adjusting staff mix.” What does that even mean? Apparently it means the appearance of cost control on law firm charges by making less use of higher capability (higher priced) partners, while making more use of lower capability (lower priced) associates. Continue reading
From the tenth consecutive year of LexisNexis CounselLink® 2023 Trends Report: In-depth Perspective on Rising Outside Counsel Billing Rates:
1. Law firm lawyer and paralegal (“timekeeper”) rates increased in 2022 at the highest levels since CounselLink first produced the Trends Report, in 2013, with the average partner rate increasing 4.5% (relative to 3.4% last year and 3.5% the year before).
2. These record-high average rates of hourly rate increases were higher than in the previous year “in all tiers of law firms and in all practice areas“.
3. Keeping track of the proliferation of lawyers that outside counsel assign to a matter is a big challenge in managing outside counsel — the finding: “High numbers of billers are performing minimal work on matters.”
4. Alternative fee arrangements (AFAs / capped charges with related terms on success fees, etc.), if they were used, would be the chief antidote to the prevailing billable hour: but only an average of 12.4% of matters made use of AFAs last year. No growth from previous years. Continue reading
1. Legal media, and conversations with my personal contacts, are replete with stories of attorneys in law firms and in-house counsel who are being brutally overworked by hourly billing quotas, and by strained law department budgets with significantly increased workloads (e.g., here and here).
2. This to an extent that substantially jeopardizes those attorneys’ wellbeing. (“Mental health initiatives aren’t curbing lawyer stress and anxiety, new study shows,” May 2023, American Bar Association Journal.)
3. Thereby placing at significant risk the business clients of those lawyers. Continue reading
The business press and specialty legal press are replete with speculation about how “Generative AI”, ChatGPT, GPT4, and other AI developments might change law firms’ delivery of legal services. Most center their discussion on functionality: How well will they work?
But the likelihood, and pace, of adoption will depend on the answers to two other questions:
1. Will law firms apply such exciting new technology to significant portions of their work now performed by junior associate lawyers at hundreds per hour?
2. If so, will law firms share with clients — by reduced charges — the resulting efficiencies?
Based on my career as a practicing lawyer, and my 12 years as a business executive at Whirlpool and GE (where I worked with and supervised law firms), I believe that the answer to each of these questions is more likely to be “no” than “yes”. Continue reading
This week a strategy consultant sought my advice about engaging counsel on the legal implications of a project. I explained that her project was in an area where governing law was relatively straightforward. Though attorneys need to do lots of expensive work to address some situations, this project was not one of them.
I cautioned that too many firms incentivize lawyers into framing business issues so as to insert more complexity, more complication, and more uncertainty than the situation warrants. And then bill accordingly. So she needed to carefully select trustworthy, client-focused counsel.
From my email later that day:
” … In connection with my apologies earlier for possible cynicism about having to carefully manage one’s lawyers, the linked tweet from an attorney and technology expert I admire (Alex Su) illustrates why I am so cautious … The law can be an honorable profession, but clients need to be realistic about the perverse incentives their lawyers are working under.” Continue reading
Why don’t law firms use a software-enabled platform to automate transaction processes that attorneys typically carry out themselves? For less cost, with more accuracy, and faster than those attorneys can do manually?
Last month Gartner analyst Ron Friedmann put the question this way:
“Over the last 5-7 years, we’ve seen the rise of deal platforms. Have these helped address this problem? I thought this class of LegalTech would sweep the market because it can reduce coordination. But my sense is it has not. Is this read right? If so, what went wrong?” Continue reading
The above from a headline in Corporate Counsel (subscription required) last week.
Nathan Cemenska is an attorney who is Director of Legal Operation and Industry Insights at Wolters Kluwer ELM solutions. In a report issued earlier this month, LegalVIEW Insights volume 2023-1: Law firm rate increases, he contends that intimidation confines corporate Legal’s negotiation efforts to “where it matters least”:
“In smaller, less expensive firms where both rate increases and the underlying rate tend to be lower, limiting opportunities for savings …
“As long as corporate law departments continue to stand in awe of their largest firms and steer away from the application of any serious pressure to rates at the biggest firms, hourly rates at those firms will compound year over year and become outrageous by any definition.” Continue reading
Managing Legal