Law Firms, Make Changes or Get out the Way!

This post is in response to the American Bar Association's roundtable discussion: What Should You Do Now? A Roundtable Discussion on Law Practice in a Time of Great Economic Turmoil


Hundred fifty year old landmark financial institutions going out of business, others owned by taxpayers, Detroit on the rocks, two wars dragging on, stock market down, $700 billion in taxpayer money out the door and perhaps down the drain, stock markets halved, retirement plans decimated, bankruptcies on the upswing, new president with zero administrative experience, law firms closing doors, late-pay on the upswing, legacy clients closing doors. What, us panic?

I guess it's normal for commentators to advise "dont panic." But with all of these signs afoot, how can anyone working in a law firm not do so? Telling lawyers not to panic is like telling a defendant in a capital case to think positive. Just words. Lawyers everywhere are losing sleep, developing ulcers, and frenetically trying anything and everything to change the trajectory.

All the effort is not going to create a positive result unless we first recognize that just as the world has changed forever, the business of law has changed forever and the traditional law firm model is instantly obsolete. Fact one: except for the most crucial matters (where the billable hour will remain king), inside counsel will seek and easily find scores of alternatives to Big Law -- ranging from new-age law firms, contract lawyers, overseas outsourced lawyers, and more. These solutions are in place, and they will gain credence and market share instantly. Speedboat law firms offer a blended solution -- new, facile business models like the law firms 2.0 are offering combined with deep benches and expertise.

Even before the meltdown, The Association of Corporate Counsel's Value Challenge was a harbinger of the business model of the future. Before the meltdown, inside counsel and their first-cousins, the sourcing professionals, had established a significant intellectual leg up on the sellers (aka law firms) which have clung on to an ancient business model. The meltdown transports us instantly into an economic slowdown where capacity (lawyers in private practice) vastly exceeds demand. This is particularly true in transactional law, especially in the real estate sector. Law firms seeking to survive will have to make the changes that inside counsel have been demanding or get demolished by law firms who will make the changes.

Three forces that will drive legal practice are clear: legislators and administrators who will be driving new regulations and compliance; law enforcement, which eventually will seek to find and punish the errant who have wrought havoc with the world; and the plaintiffs bar, which will be capitalizing on whatever is available. As they design their new business models, law firms need to watch these segments for clues about the help that businesses will need....and then get there quickly with an efficient, affordable, scalable solution.

To the extent that panic brings about these changes, and quickly, maybe it really IS a strategy.

How many law firms are really making changes to reflect the new reality?

Wonder how many in the legal profession have noticed that as of September 2008, the world is totally different than it was only a few months ago. How many law firms are really making changes to reflect the new reality?

In recent days, we have responded to two enormous RFPs with striking and novel alternative fee and alternative service approaches that are in tune with some of the premises of the Association of Corporate Counsel’s Value Challenge. Having listened closely over the last three or more years to the concerns of inside counsel like FMC’s Jeff Carr, Wal-Mart’s Miguel Rivera, and Clorox’s Laura Stein (not to mention sourcing professionals and nonlawyer buyers of legal services) we have redirected our approach to RFP responses to create alignment with buyers’ definition of value. Obviously, the baseline for us is providing high quality legal services; without that, we are nowhere. But now, after three or more years of continual internal dialogue about what value means to clients, some of our lawyers who are in charge of large accounts are enacting changes.

In one recent instance in one of our markets where we have far fewer lawyers than other firms, we competed with 14 other large “name-brand” firms to be the sole (or nearly sole) law firm for a publicly traded company with a legal spend of approximately $7 million. Prior to preparing our submission, we invested an incredible amount of effort understanding why the company was issuing an RFP at all – where had the incumbents not delivered value, and what really is of value to the company going forward. We nailed it, and as a result we are one of four finalists and the only nonincumbent still at the table. In another response to an RFP for a large organization that is an existing client, we proposed to provide tens of thousands of hours of legal service for a fixed fee. The inside lawyers were stunned that a law firm has matched its actions with its words about value. Hopefully, we will win both of these big gambles, but win or lose, the market is noticing, which is a big part of the game.

The key in both instances is absorbing our share of the risk, not expecting inside counsel to manage our affairs, and taking responsibility for our own efficiency. In these two instances, at least, the themes of Value Challenge have gotten the attention of the folks paying the legal bills.

More Evidence That Times Are A-Changin'

In a previous posting, I mentioned the renewed focus of sourcing executives generally and the Institute for Supply Management in particular on the corporate legal spend. Sourcing executives represent a sometimes-overlooked constituency in discussions about the evolving relationship between inside and outside counsel, as manifested to a large degree in the Association of Corporate Counsel's Value Challenge.

In November's Docket, the journal of the Association of Corporate Counsel, Kenneth Cutshaw, the General Counsel of Cajun Operation Company points to another organization, whose rise is futher evidence of the legal profession's transformation. That organization is the nascent International LPO Association (ILPOA), scheduled to me up and running by the end of the year. LPO is the acronymn for Legal Process Outsourcing -- the much discussed flow of commoditized and repetitive legal work to other nations, including India and -- interestingly -- Ireland, Israel, Canada and other Eastern European countries now listing themselves as homes to LPOs.

Market forces have been slow to reach the legal profession, but as an individual who has studied it carefully for most of the last decade, there is a palpable acceleration, and all of the words about new law firm business models seem to be nearing reality.

Value: Some Folks Just Get it!

Too often, those who drop in and out of the inside counsel-outside counsel discussion reduce it to a sound bite that centers on criticism of law firm fees. No doubt law firms are culpable, but the topic is a whole lot broader than that, and kudos to Susan Hackett, General Counsel at the Association of Corporate Counsel for continuing to focus on overall value, and not just prices. To her credit, she totally "gets it" that value is a two-way street. As an innovator at a law firm that is aggressively implementing alternative service and pricing models, I particularly appreciate her comment in the law.com article: "Lots of clients' lips are moving, but their feet aren't moving....People assume that we're pointing our fingers just at the firms. But we have the guns aimed at ourselves, too."

As I reflect on the current volume of high-level discourse on new business models, I can't help but reflect that for me all of this arose almost five years ago when I first met Judi Trail, who oversees the acquisition of audit, tax and legal services for JPMorgan Chase. When I first met Judi, I was amazed at the bank's sophistication in the realm of legal sourcing, which any student of the subject should get to know. When one considers the avalanche of legal services that will be purchased by the financial sector as a result of the financial crisis, one wonders how soon the legal-purchasing advances at JPMC and other large banks will become standard fare.

Which leads me to yet another observation. We don't always take note of the fact that another significant constituency -- the sourcing world -- is carrying on a related, but not yet connected, discussion of the legal services model. I refer you to a September article in the publication, Inside Supply Management, which is the house organ of the Institute of Supply Management. This organization is where the REAL purchasing experts congregate. The article to which I refer was authored by Jason Winmill, a partner with Argopoint Consulting LLC in Boston. As the author bio notes, his firm specializes in bringing a structured sourcing approach to corporate legal departments. Heads up to those involved in the legal services purchasing discussion. ISM is "onto us." Here are the introductory words from Winmill's article.

"Corporate legal spend offers one of the most challenging, but also rewarding, categories for corporate supply management departments. But sophisticated supply management professionals are making inroads into legal departments....."

Read and heed!

We Get It. Let US Move on.

Pamela V. Rothenberg's response to the National Law Journal Article “Billing gets creative in souring economy”

All of this talk about the dead billable hour and alternative fee arrangements is starting to get boring. Maybe it is because I am an activator and just need to move on and get stuff done. Maybe it is because at my firm, Womble Carlyle Sandridge & Rice, we have been offering creative billing arrangements, including fee caps, flat fees, success fees, contingent fees, blended rates, shared risk arrangements, retainers and the like, for many years and all of this seems like old news to me. Perhaps it is because it feels like we are stating the obvious, to say the least, that clients are entitled to meaningful value for the legal fees they pay.

In any event, I am at the point (and so is my law firm) , especially given the continuing “financial crisis” and the impact that today’s severely difficult economic conditions is having on our clients and friends in the business community, of wanting to move on from just talking about all of this to actually engaging in meaningful action. (I think I may go and dig out from the bottom of my closet my old Nike T-shirt that reads: “Just Do It,” and start wearing it again.)

Let me expand on my thoughts. Those of us who are fortunate enough (especially at this horrible time) to work at well-managed, innovative, nimble and truly collaborative law firms really “get it.” We understand the rationality of our clients’ needs to have predictable legal budgets for their varying litigation, transactional, regulatory and government relations matters. We also fully comprehend that “value” is defined by more than just cost – it includes a wide array of non-monetary features that are inextricably associated with extraordinary legal service --- legal service that is in every respect designed, produced and delivered in a manner that is truly responsive to clients’ articulated and specific needs, preferences and business objectives.

So here is my challenge to all of the buyers of legal services that are out there clamoring for change – for improved pricing and service delivery approaches – for the creation of a new business model by the private law firm sector – please come sit down at the table with my Womble Carlyle colleagues and me and, as Susan Hackett and our other friends at ACC suggest, let’s build a better mousetrap. We will even treat you to lunch (and we won’t charge it through to you on our bill). We will bring with us only those colleagues that will truly add value to our discussion and we will let you know in advance every one that may show up at the lunch. We will not charge you for any first year associates in attendance (that we may decide to include for training purposes and so that they have a chance of developing into more responsive and client-connected lawyers). We will not try to make “new law” at the lunch.

We will simply roll up our sleeves, with a pencil and pad in hand, and actively listen to your needs. We will strive to develop with your input a customized client service solution, including predictable legal fee budgets, creative billing arrangements and other non-monetary components, that will result in our firm better enabling you to achieve your business objectives and successes.

We, at Womble Carlyle, promise to go above and beyond. We are fearless and creative about developing tactics that are responsive to your needs and that position us to deliver extraordinary and high value legal services. For those of you that are willing to embrace the change that you want to see in the legal profession – please join me and let’s “Just Do It.”

Pamela V. Rothenberg is Managing Member of Womble Carlyle's Washington, D.C. office.