Management Solutions ® Issue 33

Corporate clients are forcing law firms to change how they do business. As I wrote in an earlier issue of Management Solutions (Issue 24), clients are insisting on value-driven, high-quality legal services that deliver solutions for a reasonable cost – and they are changing the way value is determined and compensated. They are issuing restrictions, procedures and standards that they expect outside counsel to follow regarding how legal work is done and who does it. What is going on here is a fundamental transformation in both the attorney-client relationship and the way legal services are retained, managed and paid for. 

Lawyers need to understand this in order to serve and retain current clients and attract new ones. Firm leaders and professional development directors need to understand it in order to redesign systems and teach lawyers how to operate in this new business environment. The first source for this information is conversations with firm clients. But it is also important to look at the broader trends and patterns in the legal marketplace. The Abbott-Mara and NALP surveys discussed above found that law firms conduct a great many training programs for clients and they expect client programming to grow. In order to make client programs meaningful, regardless of the topic, firms must understand and address what clients are thinking about and looking for.

Fortunately, there are resources available that provide guidance about what clients want, what clients and firms are doing about it, and how to implement many of the changes clients are demanding. One source is LegalOnRamp, a collaborative website where in-house counsel, outside lawyers and third party service providers share knowledge, ideas and resources. Members (who must be invited to join) post information, best practices, forms, presentations, and even databases. Some parts of the site are limited to in-house counsel, but the discussion groups and many of the documents and resources are open and available to law firm members.

A more expansive resource for law firms is the Association of Corporate Counsel “Value Challenge.” The Value Challenge is designed “to reconnect the value and the cost of legal services.” Since its launch in 2008, the Value Challenge has generated a momentum for change that is powerful and growing. Its website offers a wealth of information, innovative ideas, best practices, training materials and toolkits for law firms. These various resources fall into ten areas that are considered “key levers” to improve value in attorney-client relationships:

  • Aligning Relationships
  • Value-based Fee Structures - i.e. not based on the "billable hour"
  • Staffing and Training Practices
  • Budgeting
  • Project Management
  • Process Improvement
  • Use of Technology
  • Data Management
  • Knowledge Management
  • Change Management

Let’s look at the first listed area, “Aligning Relationships.” Firms that prize their client relationships must align their interests with those of their clients. This requires a thorough understanding of the client’s business, goals, and tolerance for risk. It also requires a high degree of transparency about how legal work will be done, who will do it, strategies to be employed, the business and legal risks of each strategy, expected outcomes, and how all of those factors will impact the client’s fees.

Innovative corporate counsel and law firms are building trust and seeking mutual benefit by aligning their interests around both the client’s objectives and the law firm’s fees. They are developing ways to work as “professional partners.” The hallmarks of these efforts are communication, flexibility, feedback and assessment, incentives for extraordinary performance, and a search for continuous improvement.

One firm that has taken an innovative approach is Seyfarth Shaw, which was featured in an earlier issue of Management Solutions (Issue 28). The firm’s system, called “Seyfarth Lean,” is based on a Lean Six Sigma model of process improvement and project management. Using it, the firm and its clients map the delivery of legal services, identify areas where efficiencies can be gained, and predict legal costs with greater accuracy.

Here are two other examples of innovative practices; both originated with corporate clients and promote closer partnering between them and outside counsel.

FMC Technologies’ Alliance Counsel Engagement System (“ACES“). FMC developed this model to achieve relationships with outside counsel based on partnering and sharing risks and rewards. The ACES performance-based model works for any form of legal matter and with any form of fee arrangement (including hourly bills, fixed fees and retainers). It is supported by a technology platform developed by FMC for sharing information and promoting collaboration between in-house and outside counsel.

Key features of ACES include:

  • FMC and the firm agree at the outset on objectives and service level expectations.
  • During the course of the engagement, FMC withholds 20% of each invoice and puts it in an "at risk" bucket.
  • FMC gives the firm structured feedback in the form of a “report card” that assesses the firm on 6 factors: responsiveness, goals achievement, effectiveness, knowledge, predictive accuracy, and efficiency.
  • At the end of the matter, FMC pays the firm 0-200% of the "at risk" amount based on the firm’s report card.

Under the ACES model, successful firms can get a higher effective billing rate, which the company gladly pays because of the value delivered. General Counsel Jeff Carr has said FMC pays firms on average 107% of their invoiced fees yet FMC has still managed to reduce its legal expenses.

Pfizer’s Legal Alliance (“PLA”) Program.  One key objective of Pfizer’s Legal Alliance is to foster trust and collaboration with its outside counsel. The Alliance currently includes 17 law firms around the world and covers about 75% of Pfizer’s legal expenses for all legal matters. All Alliance firms work on a fixed fee basis and are expected to collaborate with each other in serving Pfizer’s legal needs.

A Pfizer Steering Committee oversees the Alliance, setting long-term strategy and each law firm’s annual fee. The PLA’s Chief Counsel, Ellen Rosenthal, recently explained that Pfizer forbids its lawyers from talking about hours when discussing fees with Alliance lawyers. Instead, Alliance firms receive an annual fixed fee that is paid in 12 monthly installments. There is a potential for bonus payments based on collaborative behavior and successful outcomes, not on the amount of work done.

Through the PLA, Pfizer tries to build long-term relationships with Alliance firms, and promotes collaboration with and among Alliance counsel in many ways:

  • A Roundtable of corporate counsel and Alliance firm lawyers drafts and executes a strategic plan, develops program metrics and evaluations, raises problems that may be occurring throughout the Alliance, and works together to find and implement solutions.
  • Pfizer sponsors workshops for member firms on best practices, including training on how to work efficiently and collaboratively, and how to manage work on a flat fee basis.
  • Alliance members use technology tools that foster communication, collaboration and knowledge sharing.
  • Pfizer’s law department has a dedicated website for Alliance members that includes firm and lawyer profiles, articles and other resources.
  • Pfizer holds periodic meetings for Alliance firms.
  • Pfizer lawyers visit Alliance firms.
  • Seconded lawyers from Alliance firms work at Pfizer.
  • Balanced Scorecards are used twice yearly (1) by Pfizer to assess firm performance and (2) by Alliance firms to assess Pfizer and each other.

More about FMC, Pfizer and other new approaches to the attorney-client work relationship can be found on the ACC Value Challenge website. Every law firm should be developing ways to increase the value and limit the cost of legal services. For inspiration, ideas and guidance, the ACC Value Challenge is an excellent place to start.