In-house ACCess : In-house ACCess: Association of Corporate Counsel : ACC : The In-house Counsel Bar Association

 The grocery-strategy connection

 Week 11. Each week, via the In-house ACCess blog, follow the promise and pitfalls of forming a new value-based client-firm relationship. ACC Value Challenge steering committee member Ken Grady, General Counsel and Secretary of Wolverine World Wide, offered to profile his selection and start-up process of launching a trademark portfolio management engagement with law firm Seyfarth Shaw. Ken's co-blogger is Lisa Damon, a member of Seyfarth's Executive Committee and leader of the firm's efforts to incorporate Lean Six Sigma into its business. The voice, views and stories expressed by the authors below are their own and not ACC’s. To catch up on the story so far, click here.

 The client side

 From Ken:

Nutritionists have told us for years that we should develop a strategy before we go grocery shopping. We should plan our meals for the week, deciding what we will have at each meal, and how to do things like sequence the meals to use leftovers. From that plan, we should develop our grocery-shopping list. If you are efficient, you group items on your grocery list according to where the store places those items. When you go shopping, you move efficiently through the store, without backtracking, and you buy only what you need. You don't go shopping when you are hungry, and you don't give in to the temptation to buy those goodies in the checkout aisle.

Lawyers love tasks and checking things off lists, but as much as we advertise our strategy skills to our clients, we often neglect that step ourselves. We don't develop our strategy before we dive into the tasks. Of course, we do use strategies from time-to-time, usually for lawsuits, acquisitions and other transaction events. However, typically, we don't develop strategies for routine work.

For the Wolverine trademark portfolio, Wolverine and Seyfarth are working to develop many strategy tools. These tools will guide our decisions on issues relating to each mark, streamlining pieces of the decision process that today are ad hoc.

We want to make decisions up front about what to do in various situations and know where marks fit into our portfolio before we are confronted with the question. For example, we want to know the relative importance of a mark, and which countries are more important for that mark -- based on factors such as sales levels, related marks and counterfeiting risk. We want to have a strategy for customs surveillance, and a strategy that ties the mark to our domain name strategy. Using these and other strategy tools, we can make decisions quickly. If something pops up on a watch list, we know whether that country is important for that mark, and that guides the decision about what effort to put into a response. We avoid ad hoc decisions that result in our buying things we don't need.

Doesn't it take time to develop these strategy tools? Yes, but not a lot. Once we have the template, the time is in filling out the templates with the assistance of our client. The savings potential is enormous. It can cost thousands of dollars to oppose a proposed registration of a competing mark in one country. If we decided that our mark in that country is not strategically important and we avoid spending the thousands of dollars, then we probably covered the cost of the strategy process for the mark. We avoided the temptation to buy something in the checkout aisle and stuck to our original strategic shopping plan.

Next: Developing a map to the future.

The firm view

 From Lisa:

Ken's entry this week talks about developing a strategy before you act. For us, Lean Six Sigma helps provide the discipline for that step.

When I look at how Lean has changed my life as a lawyer, one of the keys for me has been to develop the discipline to stop and think before returning to business as usual. Ken talks about this step in the trademark area; for us, it is a step we try to use in every matter across the spectrum.

A key feature of Lean is DMAIC, a structured way to look at a matter and plan an approach, a strategy. This discipline asks you to:

·       Define the problem first -- what are you trying to accomplish? What problem are you solving? It mandates talking to your client, standing in his/her shoes and understanding the issue.

·       Next, you Measure. Look at the information/data that you have available (not relying on your "gut" or on the way you have always done something).

·       You then Analyze and Improve -- or implement -- the strategy or the solution.

·       The “C” stands for Control, which is the discipline of not going back to the way you have always done something, not returning to "business as usual."

Using DMAIC as a framework for the way you think about a legal problem can be no more than a quick mental ‘stop and check’ before you begin a project or a longer more involved discussion. The important thing for me is the pause to think, to consider and to plan -- the strategy that Ken talks about.

Lean provides other tools that I find useful in the world of lawyers -- for instance, the concept of looking at the root cause of problems and the tools designed to help you get there are ones that I use frequently -- not just in law, but in my like life as a manager of people. Too often, instead of stopping and analyzing, we jump to a solution -- lawyers are trained to solve problems. Again, Lean gives us the discipline to stop and consider: Are we really solving the root cause, or are we simply putting a bandage on something that won't last or won’t truly solve the issue?

Like effective project management and process design tools, taking time to plan strategy on the front end almost always saves time on the back end. I believe that strategic planning is not a luxury or an option to use only when time permits, but instead, it is a step that should always be integrated in my thinking -- whether I'm planning the trip to the grocery store or planning a much more complex project for one of my clients. I guess that all of those law school professors were right in the first place: Keep your pencil down in an exam until you have planned the answer!

Next: Working with Ken to map out strategy

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Much to the chagrin of those who know me well, I am a creature of habit. I sit on the same side in church; the same car and even seat on the commuter train. It upsets me if someone sits in “my seat.” Yes, I know it’s not really mine, but I am in my comfort zone. If I take a different commuter train, then I have to adjust to new conductors and new passengers. It’s almost like being in a new city. But, we all know how comforting yet constricting routine can be.

I cut my professional teeth in the print world of communication. Translated, that means I know what a pica pole is. I also know that a wax machine is not only for cleaning up your eyebrows and I am pretty good with X-Acto knives. I worked on my college newspaper before PageMaker or Quark even hit the design scene. Even so, I have embraced the online world and new technologies; however, I am usually not a first adopter unless it is effective. So, imagine how uncomfortable I was when two ACC colleagues introduced me to microblogging via Twitter. I had a LinkedIn profile that I had to complete since it was going to be posted on my Twitter page. I set up my Twitter account, @eicdocket, in February 2009, and have completely embraced the concept of social media. My LinkedIn account is used at least five times a week. But you won’t catch me on other sites — I only have so much time.

Twitter gives me access to topics and people I normally would not know about or communicate with. Since Twitter only allows 140 character, it forces me to write succinctly — a trait all of us should strive for. It serves as a communication tool for my employer when we launch a new magazine issue, blog post or news event. Yes, I even use it for personal observations, comments or thoughts; I use my best judgment to make sure I don’t take it too far. However, this isn’t always the case online, and employers are grappling with how to deal with social media because it’s not going away.

This month’s ACC Docket cover story, “Are You Building a House of Cards? Social Networking in the Office” asks if you have a clear social media policy for your clients because “what happens in Vegas,” doesn’t always stay there. And, if you need more on social media, then read “Identifying the Legal Issues Lurking Behind Walls and Tweets” and “Social Media Game Plan: IP and Marketing Law Playbook.”

If your multinational company is not familiar with US-style discovery, make sure you read “Tips and Traps in Conducting Discovery of Foreign Corporations.” “Building Blocks for Corporate Ethics” is an excellent refresh of your knowledge in this area. Protecting your customers’ privacy should always be a priority, so “A Balancing Act: Protecting Customer Interests and Privacy Online” helps in-house counsel strike a balance between the two. Further, neither in-house nor outside counsel should miss “Evidence Preservation Warfare: Ediscovery Lessons Learned from AMD v. Intel.”  Written by AMD’s legal team, this piece provides excellent points to remember as you preserve data within your company.

Make sure you always read our columnists. We knew their work was award-winning even before publishing peers told us so. Infusing humor, perspective and knowledge in 700 words or less is never easy. Try doing it in 140 character or less. See you on Twitter.

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The power of project management

Week 10. Each week via the In-house ACCess blog, follow the promise and pitfalls of forming a new value-based client-firm relationship. ACC Value Challenge steering committee member Ken Grady, General Counsel and Secretary of Wolverine World Wide, offered to profile his selection and start-up process of launching a trademark portfolio management engagement with law firm Seyfarth Shaw. Ken's co-blogger is Lisa Damon, a member of Seyfarth's Executive Committee and leader of the firm's efforts to incorporate Lean Six Sigma into its business. The voice, views and stories expressed by the authors below are their own and not ACC’s. To catch up on the story so far, click here.

The client side

From Ken:

First year efficiency gains in the trademark portfolio require that we know our starting point. To know our starting point, we must have our arms around 3,600 trademarks, all moving at their own pace. That requires a seamless transfer of 3,600 trademarks to Seyfarth, and that requires excellent project management. 

Let me talk about the Wolverine side of that equation. There are four of us who day-to-day touch the trademark portfolio. The old school way consisted of lots of e-mails, hallway chats, catch-up meetings and follow-up e-mails. We kept the ship running but it didn't look pretty. This transition brought us the opportunity to upgrade.

We established a several month transition schedule, rolling from our less complicated brand collections of trademarks to our most complicated collection. Approximately every two to three weeks, another brand moves to Seyfarth. Every week, we have a WebEx conference for the Seyfarth and Wolverine team. Using one of Seyfarth's project management tools, we work through (1) transition status and issues, (2) portfolio issues for the brands that have moved, and (3) general issues affecting the portfolio. The online tool lets us systematically work through each issue, coded using several criteria including importance and due date, to update the team. Since it is something we all can access at any time, the call gives us a chance to quickly identify any needed action items. We don't resolve many of them in the call - they are put on the list for separate in depth calls as needed. The call takes one hour, but keeps everyone on top of the issues.

Separate calls are scheduled, including one regularly scheduled call each week between Seyfarth's lead attorney and our lead paralegal, to cover in depth some of these issues. We have other ad hoc calls (and some e-mails) as needed. This sounds oh-so-straightforward and it is, but that is because the groundwork for a well-run project management process was put down by Seyfarth long before we darkened their doors. Oddly enough, I used a similar process some 16 years ago in the early ages of computer video conferences. The key here is that, while Seyfarth's implementation is much more elegant than the old version I did, the concept of project management isn't new and doesn't require huge amounts of time. In fact, properly done project management will significantly reduce the time it takes to keep things on track versus the ad hoc method we used and many of you may still use.

Another factor here is constant improvement. Each week the Wolverine/Seyfarth team improves the process management process.  We are handling more brands and issues as they transfer to Seyfarth, but we still do so in an hour or less. We also have started the real lean process - the team held its first process mapping session last week. Through a WebEx, team members from both entities started mapping out the process for trademark searches. This is the first step in defining what we do today to give us that springboard for improvement. Just as we break complex legal matters into manageable pieces to solve the legal challenges, we are breaking this complex portfolio project into manageable pieces to handle the transfer and start "leaning" the processes. 

Next: Strategy tools - how to get there by knowing where there is.

The firm view

From Lisa:

We have been pleased and excited about the reception that Ken and his team have given to the various project management tools we have adapted for our trademark practice. Ken's strong interest in Lean and his focus on the creation of a value relationship dovetail well with a number of previous projects we have undertaken to improve our global trademark portfolio management practices and file transition procedures.

We began our Lean trademark journey a little over a year before we met Ken, when the firm was already well into its larger adoption of Lean. The driving force behind the Lean trademark program was the perception that traditional law firm trademark practice, like many areas, contains various inefficiencies that increased cost and wasted time (increased "pendency" in our nomenclature). The net result? Ad hoc decision making and a focus on fighting day-to-day fires, at the expense of strategic thought and action. We tried to attack these problems through a combination of process standardization (we have "process mapped" ten standard tasks within the trademark practice), project management approach, and the development of new technology tools to improve client communication, collaboration and information management in the trademark practice.

As with any development project, the path wasn't always completely clear, and we made some mistakes before joining forces with Ken. In one case, we created a standardized process for a task that had previously been only loosely coordinated among various team members. After about three months, however, we realized that the new standardized process actually increased our cost and the time spent on that particular task -- costs that the firm absorbed as "R&D" for the program. After that experience, though, we developed "version 2.0" of that process map. Ultimately, we reached a solution that was an improvement over both version 1.0 and the prior practice.

We've also benefited greatly from our interaction with Ken's team. As we began to implement our trademark extranet product for Wolverine, Ken and his team were not shy about guiding us as to how the tools would best work for them. Ah, the power of feedback!

We then customized our platform in a manner that's actually much better than the original. Our experience reflects a critical point about building a relationship: Providing value and efficiency can't be a one-way street. While we have brought some innovative tools to the table, Ken's team has been extremely engaged in the implementation and adaptation of them. They have given us valuable feedback along the way. Had it not been for the level of engagement from Ken's team, the implementation would not have been as effective. That's where genuine partnership in the relationship becomes essential.

For those of you using project management tools in your practices, what is working? How has the collaboration been between in-house and outside counsel? What tips for success can you share for the benefit of others?

Next: Continuing the transition and working toward development and implementation of an effective strategy.

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Translating value and metrics into fees

Week 9. Each week via the In-house ACCess blog, follow the promise and pitfalls of forming a new value-based client-firm relationship. ACC Value Challenge steering committee member Ken Grady, General Counsel and Secretary of Wolverine World Wide, offered to profile his selection and start-up process of launching a trademark portfolio management engagement with law firm Seyfarth Shaw. Ken's co-blogger is Lisa Damon, a member of Seyfarth's Executive Committee and leader of the firm's efforts to incorporate Lean Six Sigma into its business. The voice, views and stories expressed by the authors below are their own and not ACC’s. To catch up on the story so far, click here.

The client side

From Ken:

In all the fun of setting up our new trademark portfolio representation and fee arrangements, one thing I can’t overlook is the equally fun world of accounting. Our company focuses on building brands, and with about 3,600 trademarks in the portfolio those marks are an important part of our brand building process. Since they are valuable assets, we need to track the asset value from day one. In the old days, this was relatively straightforward, yet somewhat tedious. For each mark, we captured the dollars spent on acquiring the registration. That meant hours times billing rate plus expenses. Once the mark registered, we expensed the costs of keeping the mark so they were not built into the asset value.

As we work out our new structure with Seyfarth, the accounting piece becomes a bit more complicated. While Seyfarth will keep track of the time it spends on each mark, our fee structure looks at the total work performed by Seyfarth (with some exceptions, such as litigation) and puts that under one umbrella figure. We then adjust that figure based on factors such as efficiency gains.

That means we need to develop a way to determine the initial value of a mark. The method I am considering is to take the total number of hours worked by Seyfarth in a given period (e.g., a quarter), divide the total payments to Seyfarth for the quarter by those hours, and take that resulting rate times the number of hours worked on a particular mark application as the “value” generated for the asset during the period.

While the calculation works, it raises some questions. Is the “value” of the mark really determined by this “hours times average rate calculation”? Should the initial value of a mark be determined by the average cost to obtain a mark rather than the specific time spent obtaining the mark (this assumes all marks are of equal value out of the box even though some required more work than others)? Should the initial value be unrelated to the costs to obtain the mark, and instead be based on something else, for example, some metric based on sales during the period prior to when the mark is registered?

I’m sure the valuation experts could chime in with many other thoughts on how to get to the initial value of a mark and would point out various flaws with the methods I have listed. I’m not trying to get to the right answer in this post. My point (and I do have one), is that as we push ahead with modifying the way we compensate outside counsel we have to work with other groups to modify their thoughts about valuation. Many of our colleagues have learned to think about lawyer’s services based on hourly rates and have adapted their systems to this model. Educating others--corporate controllers, CFOs and CEOs – that the hourly rate is not an appropriate model is part of the process.

By the way, if anyone does have a great model for determining initial trademark values, please let me know.

Next: What are reasonable first-year efficiency gains?

The firm view

From Lisa --

Ken's last few posts have outlined critical standards and metrics of value that he expects us to deliver at different levels -- strategic, artisanal, industrial. During this time, we also have worked to demonstrate to him that we have the right expertise, chemistry or fit, and that an ongoing relationship with our firm would make sense to him and his team. (Chemistry and fit is important from our perspective, too, but hey, Ken’s the client!)  We also have begun to build the principal process design and project management mechanics of the first big project, the trademark initiative.

Now, our team is challenged to take all those needs and address them in a cohesive fee package that reflects Ken's definitions of value and also provides us with an appropriate return.

Here are some of the considerations and challenges we are working through as we develop our pricing structure:

As Ken has pointed out, some part of the value we deliver must be understood in terms of what we can contribute to asset development and enhancement, starting with what it costs to create the asset in the first place -- a specific trademark, for example. This work is the “industrial” activity that Ken has described. It is the core blocking and tackling that has been the mainstay of outside providers in recent years. 

From our perspective, the development of the pricing model for this “industrial component” offers deep potential for innovation. It is one of the places where we have a real chance to advance the model from the traditional "hours times rate approach" -- with its inherent inefficiencies -- to a strategy that rewards both quality service and efficiency minded delivery. Early examples of innovation in this area involved moving away from straight billable hours to applying simple flat fees for a menu of individual tasks associated with trademark prosecution. A more advanced, qualitative model would charge a flat fee for a trademark registration, all-in, from filing to registration, thereby having the law firm bear some of the risk for issues that might arise in the registration process. More recently, fee structures have evolved into a single flat annual fee for the management of all activities for an entire trademark portfolio. And to this model can be added a gainsharing feature whereby the law firm and the client both participate in the benefits of reduced costs that result from greater and greater efficiencies.

By taking this kind of an approach, we are creating rich opportunities for ourselves (1) to develop a pricing alliance with our clients, (2) to build efficient workstream processes and effective project management capabilities, and (3) to enable us to then turn around and share the benefits with our clients. As our discussions with Ken on pricing advance, we expect and look forward to the development of a model centered on these principles.

We will focus on driving efficiency through the volume of 'industrial' work we will do on trademarks, so that we can focus on adding greater value to the strategic use of those marks. This is the 'artisanal' level of value that Ken has mentioned. We will be proposing strategies that will create value for the business through better deployment of intangible assets -- trademarks, patents and other forms of IP -- that are chiefly a creature of the law. One way we can do this for Ken is to through the better management and communication of data about his trademark portfolio -- his active matters, his registration coverage, his enforcement activities, his risks, etc. -- to enable him, his business units, and us to rise above the fray of day-to-day trademark issues and make strategic decisions about the global direction and objectives for his brands.

This type of value may be measured with additional tools that fall more into the kit of the financial analyst than the accountant, using metrics like discounted cash flow, or comparators, or whatever. Although efficiencies are also important in this context, this may be more the place for discussions about the client’s subjective, gut level, sense of contribution by the outside provider. In this context, our pricing model may need to build in metrics or drivers beyond cost-efficiency -- such as strategic contribution and trademark value improvement -- that appropriately measure success and value.

To be successful at the 'artisan' and strategic levels relies on a strong relationship between client and outside provider, so our fee and metrics package also to measure the level of trust and confidence between client and firm. We have metrics in place to both measure the success of our efforts as a relationship. These come from our initial 'voice of the client' discussions, as well as scoreboard metrics, derived from the ACC's Value Index. We think that’s why Ken started with relationship in the first place.

Next: Delivering on first-year efficiency gains

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Balancing strategic roles and tactical delivery

Week 8. Each week via the In-House ACCess blog, follow the promise and pitfalls of forming a new value-based client-firm relationship. ACC Value Challenge steering committee member Ken Grady, General Counsel and Secretary of Wolverine World Wide, offered to profile his selection and start-up process of launching a trademark portfolio management engagement with law firm Seyfarth Shaw. Ken's co-blogger is Lisa Damon, a member of Seyfarth's Executive Committee and leader of the firm's efforts to incorporate Lean Six Sigma into its business. The voice, views and stories expressed by the authors below are their own and not ACC’s. To catch up on the story so far, click here.

The client side

From Ken:

Lisa and I have been talking about the role of outside counsel as we discuss this burgeoning relationship. I suspect this discussion is controversial, because to some in-house counsel it sounds like a threat. It has taken decades for in-house GC’s to evolve into their current role as valued senior executives. Not long ago, the GC’s role was to channel work from inside to outside. Why should GCs now invite outside counsel to sit at the table and potentially drain away that power? In the context of these posts, why should I invite Seyfarth to sit at our table?

The answer is more complex than a 500-word blog post will allow, but here is my quick take on it. A good GC, and increasingly a good global GC, should emulate many of the same behaviors as good global CEOs. Good CEOs consistently recognize that their companies benefit by having many minds at the table. Their personalities help them channel those minds to achieve goals more effectively than each CEO could do through his or her own efforts. With an ever-expanding regulatory environment, business models increasing in complexity, and black swans circling just out of sight, even GCs of relatively simple businesses need that collective power working through the risks their clients face. 

I think some GCs feel threatened that having outside counsel at the table will result in the CEO seeing the outside counsel as the true advisor. More effective GCs will overcome this hesitation and have confidence in their own abilities, in their relationships with their internal team and with outside counsel. Outside counsel who have a weak relationship with the GC or who have interests that are poorly aligned with the company’s interests won’t be good partners and may show that the GC’s fears were well-founded. That, to me, is another reason why I want to spend the time building a strong relationship with outside counsel and why I want a fee relationship that aligns interests.

Another way to think about the goal of a value fee relationship is to compare it to the compensation structure for senior executives (beware the metaphor). In simple terms, a well-constructed compensation structure should, among other things, (1) align the interests of the senior executives; (2) align the senior executives’ interests with corporate goals; and (3) provide clear rewards for achieving well-defined goals. Since my outside counsel are an extension of the in-house team, I would like to see our interests aligned, I’d like to have our outside counsel’s interests aligned with our corporate goals, and I’d like to provide them with clear rewards for achieving well-defined goals.

So, Seyfarth and I are talking about Seyfarth’s role at the table. This means drawing them into the strategic discussions with our internal business partners, but it also means understanding that their fee drives off that strategic work. In linkage terms – our portfolio is a risk management tool and a strategic tool. We tend to understand the risk management piece, so now we are working on the strategic piece – how do we tie Seyfarth’s role to the in-house team’s role to our corporate strategic objectives.

Next: Tying in some of the messy accounting stuff.

The firm view

From Lisa:

As Ken notes, one of the roles of outside counsel in delivering value must be that of strategic business advisor. Done right, we know that this advisory role can both complement and strengthen the GC’s position with his or her executive leadership. While Ken, or his GC counterpart at another company, will always know the organizational issues, context and culture better than we as outside providers, our very exposure to a host of different clients, with a range of risks and risk management strategies, may put us in a very good position to round out the GC’s and legal team’s analysis. We can bring a depth and diversity of perspective to the GC’s table, fully participate as a team member, and add value at the highest level.

While these strategic role discussions continue, we also have to manage the other half of the value equation -- the ‘industrial role’ that Ken referenced last week -- and get things done quickly and efficiently.

For our weekly readers, you may be wondering what we have been up to on the ground? Well, a lot. To date, we’ve transitioned six of the Wolverine brands, or about one sixth of the company’s portfolio (roughly 600 of a total 3,500 marks). And, working with Ken and his team, we’ve done this rapidly and efficiently in less than 60 days.  

Because Wolverine’s trademark assets are central to the company’s business, we knew the transition process had to be delivered on-time, on-budget and on expectation. We have been using project management resources to help us get the job done. As we have adapted lean six sigma to the world of a law firm and its clients, project management has been a key component of what we have implemented. We combine it with a set of Lean tools and disciplines but we rely on our client-facing project management office to help drive our internal and external teams.

There are a number of successful ways to apply project management skills and tools to legal work, such as those identified by LegalBizDev blogger Steve Barrett (link to: How Should Law Firms “Gear Up” to Manage Projects Better? – A 50,000-foot View (Part 2 of 2). For our work with Wolverine, we wanted our project management role to play an integral and strategic role in delivering client value and help drive the success of our relationship:

·       Program Management: To begin the transfer process, Wolverine provided us with an initial schedule, which served as our foundation for development of a high-level timeline and accompanying detailed project plan. To ensure we stay on track, our internal team meets weekly to obtain status, discuss issues and share lessons learned to improve processes for the transition of the remaining brands. 

·       Collaboration: An essential element to this partnership is collaboration with Wolverine's former trademark firm. To facilitate an aligned effort, we developed a process map, checklist and protocols for the intake processes of these files to ensure data accuracy and to procure knowledge of Wolverine's trademark portfolio.

·       Knowledge Management: In our ‘Voice of Client’ interview, Wolverine emphasized the importance of transparency and real time knowledge management capabilities. In response, we created a shared knowledge platform, using our Firm's extranet capabilities. The tool is designed to improve knowledge transfer, minimize risk and provide full transparency of status and priorities including key documents, metrics, etc. 

·       Process Management: We have scheduled the first of several joint process mapping sessions to be facilitated by Seyfarth's Project Management Office. We will conduct virtual sessions with key stakeholders to develop an improved process for handling various aspects of the trademark portfolio. We will also use these sessions to identify and/or develop template documents, checklists and guidelines to further enhance and promote best practices for the newly defined streamlined processes.

The effort to define the ‘rules of the road’, our relationship needs to move ahead on multiple fronts. So far, we’ve used several Lean tools and a healthy dose of project management to ensure a successful transition, and it will be vital to our ongoing strategic partnership with Wolverine--both from the industrial and artisinal perspectives. All of this though, is just the tip of the iceberg. We haven’t thought of everything and as they say, ‘more minds are better than one.’ 

That said, how have you used legal project management and how has it contributed to your client-firm relationships?

Next: Next stage of the fee discussions and more reports from the ground.

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Someone tell me I’m having a bad dream and will awake soon.

The greatest gift offered to law firms in the recent economic downturn was the first realistic opportunity in decades to break their own cycle of shame/pain to rebuild their compensation structures. They had the economic justification to cut back on some of their more extravagant hiring practices (like hiring 100 associates each year when they only intend that 20 will make it to partner). As a result of the client-led (r)evolution, firms started to push forward a focus on “value” rather than “prestige” pricing based on top-level comp and regularly rising rates. But now it seems that law firms are turning up their noses and are returning the gift they were given: maybe it wasn’t exactly what they wanted.  

I’ve been hearing rumbles, now confirmed in articles such as this one that firms are proudly announcing that they’re returning to pre-2008 salary levels and upping their starting associate comp back to $160,000+ (and therefore the salaries of everyone up the ladder in firms that still use lockstep comp systems also goes up). Seems that firms are doing gangbuster business “selling” their entry associates’ work to clients — they can’t get enough! Or maybe it’s just that there aren’t enough entry-level lawyers for all the first year jobs that firms have to fill? Not.

Let’s just pretend that this is truly a necessary step for firms (which I’m not buying for a minute); the optics of this are so awful that I’m shocked anyone would want to announce their intentions to raise salaries where clients will read about it. Set aside the issue of whether increases like this will really attract the best associate candidates or only the ones most interested in the money.   Do firms think that raising entry-level salaries and then raising rates to pay for it actually impresses clients? Is this how law firms flex their muscles so we can see how strooooong they are, even if it does nothing to promote their intelligence or value? We at ACC know that too many clients are still too beholden to the “prestige” or legacy factors inherent in hiring the most expensive firms. Sometimes those firms truly do provide great service; but an increasing number of other firms are capable of delivering similar results without the higher costs and clients are more and more likely to try them out. And the latter firms are getting more and more attention — firms that ignore this, do so at their own peril.

Many large firms have been caught for decades in a ridiculous and self-fueled cycle of “Keeping Up With the Joneses”, wherein firm management bitterly complains that while they know their comp systems are not based on sound business principles, they claim to be victims of a marketplace in which they can’t hire anyone worthy of their firm if they aren’t paying more than the other firms in town. Since we see no shortage of smart talent graduating from law school each year, many of us had a sneaking suspicion that the reason the firms kept raising starting salaries was more connected to a decision about what the partners in the firm were making or wanted to make.

In general, I have no problem with firms paying whatever they want for talent, especially lateral talent. Frankly, clients shouldn’t have to be worried about what firms set as their standards for comp if the firm is pricing its services in a manner that the client finds reasonable and valuable. But most firms are about to approach their clients and suggest they need an increase in fees, dictated by rising costs, that they’ve just invented. 

Wouldn’t it be wonderful if more firms adopted a different approach that might include:

1) a commitment to hire new entry lawyers at whatever they believe those lawyers are worth, and they plan to invest in them and train them so that they will succeed;

2) offering new lawyers promotions and higher compensation as they master certain competencies, and that clients thus will not be charged for their services in a manner that is not commensurate with the value of the work they can provide; and

3) a commitment not to raise salaries and therefore costs and thereby request an increase in fees, but rather a commitment to take a page from the client’s business management book, and look for ways to lower client costs by increasing the firm’s efficiency or productivity, or structuring their staffing or costs based on what the client wishes to afford.  

There are a lot of firms out there doing this, and their efforts are far too often not noticed — visit ACC Value Challenge to read about firms that are working hard to do better: And let me shout out a few here that are putting their money where their mouths are in terms of deploying new comp systems that incent value: Howrey, Drinker Biddle, McKenna Long, Valorem, Morgan Lewis, Sutherland, and many more. Have they figured it all out? Probably not and they’ll continue to struggle to get it right. But they’re positioning themselves not just for profitable relationships with their own lawyers and clients, but for long-term success as firms.

To leaders in firms considering whether to return us to the madness of ever-upward-spiraling salaries: Please stop. Your clients know that the emperor has no clothes. Are you really going to tell them you can’t hire talent unless you increase the rates of starting associates in your firm? Clients are watching to see what you do. So I’d suggest this is your chance to lead, rather than claim you have no choice but to follow.

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Industrial, Artisanal, or Both?

Week 7. Each week via the In-House ACCess blog, follow the promise and pitfalls of forming a new value-based client-firm relationship. ACC Value Challenge steering committee member Ken Grady, General Counsel and Secretary of Wolverine World Wide, offered to profile his selection and start-up process of launching a trademark portfolio management engagement with law firm Seyfarth Shaw. Ken's co-blogger is Lisa Damon, a member of Seyfarth's Executive Committee and leader of the firm's efforts to incorporate Lean Six Sigma into its business. The voice, views and stories expressed by the authors below are their own and not ACC’s. To catch up on the story so far, click here.

The client side

From Ken:

Let’s forget the math and look at the concept of my last post. As Lisa has noted, we aren’t just talking about trademark portfolio values. The concepts here can (and in my opinion, should) be applied to many interactions between clients and law firms. If law firms mostly aim for good quality service at an acceptable price they will work towards the Wal-mart model. I think those firms want to thrive over the long-term need to define what value they add to the relationship. Doing good legal work is the threshold not the value. Value in a transaction isn’t simply documenting the terms of the deal – it could be identifying with the client the key risks and presenting creative ways to minimize those risks (see Bob Profusek’s thoughts on the role of lawyers in a transaction). Value in a lawsuit isn’t simply being an effective litigator, it is finding a creative way to resolve the litigation quickly and for low cost (defendant) or high return (plaintiff).

Looking at the model from the last post, Seyfarth’s value is helping us handle the day-to-day needs of portfolio expansion efficiently while finding creative ways to help us increase the value of the portfolio. The efficiencies reduce the time the firm (and Wolverine) spends on the routine but necessary portfolio management steps. Gainsharing with Seyfarth gives the firm an equal incentive to continue looking for and rooting out inefficiencies. We incent the firm to drive value by adding the topper fee. The key here is not whether the example has the right percentages assigned to each part of the equation. Rather, the key is that we are linking the client and the firm so they share incentives to improve and share in the value created through that improvement.

The purchasing specialists may tell us to get three bids and choose the best cost-to-service relationship. I think that model works for pencils, but not for high value-added services.  Legal services do combine industrial and artisanal components. A firm should be competitive on the industrial component and earn its keep on the artisanal component – the part where the knowledge and abilities of the firm’s attorneys really shine. Purchasing services involves selecting the firm that you believe is best positioned to add value in your client’s situation.

I know comparisons are fraught with risk from my litigation days when my opponent would turn my well-crafted metaphor on its head in closing. But, one comparison that might help here is the high-end consulting model – for example, Boston Consulting Group (“We partner with our clients to deliver customized solutions that resolve their most significant issues and create lasting competitive advantage.”). The analytical work BCG provides is the industrial component.  Many firms have the financial competence to do the data gathering and calculations. The value-add is in the transformation of that data into solutions that give a company a “lasting competitive advantage.” That value-add, the artisanal component, is why Boston Consulting Group charges what it does for its services.

Next:  The fee discussions progress

The firm view

From Lisa:

To us, Ken’s last post is really important. Although our recent discussion has been in the context of fees, in some ways, it’s getting to an even more fundamental question. Namely, what do clients in the post sub-prime world truly want from their law firms, investment banks and other professional service providers and what role do we wish to fill? Ken’s post makes our choices pretty clear. 

Ken’s framework asks us to choose whether we wish to be a quality services provider that is a necessary part of our client’s infrastructure or do we wish to seek a job as a member of the client’s strategic team.

We could decide to set our goal as being one of the best providers of commodity services in the profession — provide “good quality service” at an acceptable price across our entire portfolio. It’s a fine goal and in some respects could represent a more conscious acceptance of the role that many law firms, investment banks, accounting firms and consultancies moved closer to over the last twenty years or so. It’s the industrial role in Ken’s post.

On the other hand, we can choose to try and increase our relevancy to the client. As Ken points out, that aspiration means that first and foremost we need to understand that the deliverables we produce are far less important than the counsel we provide and the strategic contribution we offer. The deliverables are simply a tangible result of a much deeper relationship with clients. It’s the artisanal role, the transformational service that Ken describes in his reference to BCG’s work. 

In that role, the clients want us at the table to contribute meaningfully to the conversation. Our documents, spreadsheets, financial statements, SWOT analysis, all of that, are just tools we provide to the client as a by-product. That by-product output does not get us hired in the artisanal role nor does it keep us hired. It’s our capacity to provide a contribution further down the value chain that matters in that context. 

As a profession, lawyers used to serve the strategic role as a traditional part of their client relationships. We worked hard to help the client think deeply about their business and contributed to their effort to set direction. In serving that role, we earned the right to be perceived as “Counselor” and slept better at night for it. It was a privilege of the profession.

The press of business, the continued push from a model that increased revenue as a function of time spent, business atmospherics and perhaps the expectations of the clients themselves moved many in our profession and in other professions ever closer to the role of infrastructure providers. At the same time, we moved further away from our role as a valued counselor and our relevancy to the client decreased by the same measure.

All of that is exactly why this conversation is so important to our firm and why we perceive our relationship with Wolverine as a defining moment, as one of those once in a blue moon inflection points calling for us to chart consciously our future course. Although much of the discussion surrounding value in our profession is expressed in terms of fees and their newest compelling models, Ken makes it clear that all of us involved are actually trying to get to an even more important question. What does value really mean and what is necessary to get there? 

In some senses, Ken’s answer is simple--we choose our seat the table. 

Next week:  Approaching these discussions in our relationship with Wolverine

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Structuring an Alternative Fee

Each week via the In-House ACCess blog, follow the promise and pitfalls of forming a new value-based client-firm relationship. ACC Value Challenge steering committee member Ken Grady, General Counsel and Secretary of Wolverine World Wide, offered to profile his selection and start-up process of launching a trademark portfolio management engagement with law firm Seyfarth Shaw. Ken's co-blogger is Lisa Damon, a member of Seyfarth's Executive Committee and leader of the firm's efforts to incorporate Lean Six Sigma into its business. If you're just tuning in, here is the background to this story.

The client side:

From Ken:

“Fee discussions” - that point in many outside counsel retentions where the will to act seems to disappear for many in the in-house bar. While I would like to say this is just my impression, I hear this far more often from outside counsel. (“I’m willing to do a value relationship structure, but when I suggest them the in-house attorneys hem and haw and then just go back to hourly billing.”) 
Sometimes, I think in-house counsel perceive value relationships as difficult to structure.  Our trademark project is big, has many parts, and isn’t a one-time deal. To me, it makes sense to spend time structuring the fee relationship. Most of our matters aren’t that way. They have limited duration, limited impact, and the amount at risk is less. The time needed to structure a value relationship (assuming we already work with the firm) is much less – minutes, hours to maybe days.
Back to the task at hand. Seyfarth has proposed a way to construct a baseline working from the information we shared with them. The baseline uses the volume of work prior to the shift (number of applications US, number outside the US, oppositions, etc.). We can use this information to form our starting point – what did it cost for a specific volume (not necessarily what it should have cost). One way to set the new fee relationship for year one of the relationship would be to: 

1. Adjust the baseline based on what we know about the business (that is, increase, decrease or the same amount of portfolio activity)
2. Adjust that amount to account for improvements in the processes to handle the portfolio using lean activities we will undertake with Seyfarth
3. Adjust that amount to build in whatever cost-sharing is appropriate for Seyfarth to get up-to-speed on our business as reflected in the portfolio

We then could agree on a base price to handle the portfolio work. We can gainshare on additional improvements – we get part of the benefit (lower costs) and Seyfarth gets part of the benefit (we don’t get 100% of the lower costs). We could add a topper fee:  depending on performance against certain other metrics (e.g., increase in average mark value using the equation I showed in the last post), Seyfarth gets an additional payment for helping to drive the increased average mark value. We can take excluded services and put some or all of them under other value relationship structures. Finally, we can spread payments throughout the year in a way that works for both of us, for example, even payments each month or perhaps payments timed to take pressure off the business when its cash demands are highest. The result might look like this:

In other words, before the shift assume we paid $1,000,000 for a year of covered services. We anticipate 10% more activity, so we increase the base amount by 10%. We assume that we will improve the efficiency of the services delivered by 20%, so we reduce the baseline amount to $880,000 to reflect the lower amount of work. We then say that Wolverine and Seyfarth will split any savings beyond the 20% (50%/50% gainsharing). We give Seyfarth an incentive of 10% of the year’s fee if our metric (average value per mark) improves by some pre-determined percentage. Finally, we agree to pay the $880,000 baseline amount in 12 installments of $73,333. Any gainsharing and any topper fee are paid in lump sums after the year when we have the final metrics. 

Next:  More explanation:

The firm view:

From Lisa:

Ah, fees. Get the alignment right, your relationship sings. Business interests are intertwined and you are truly adding business value. Get it wrong, anything from regrets and hard feelings to a straight vendor/vendee interaction. If I had a wish in our new world, it would be to leave the vendor life as far behind as we can.

With some thought, the fee arrangement can get you out of vendor-land – Ken's plan is a perfect example.  First, a step back. When we typically get asked to set an alternative fee, we are given (or ask for) historical data on legal spend. Sometimes we get detail (by matter), and sometimes it is simply portfolio numbers for the last few years. Many firms use that to price the work. Ken's post though hits a key issue – don't stop there. If you base your alternative fee on past history, you have missed the chance to drive efficiency and value, both in and out. In Ken's post, he talks about a 20% "efficiency improvement" built in to the fee structure. Smart. Then there is a gainsharing provision built in. Smarter still because now you are truly aligning interest. There are other ways to construct this model. Our friend and mentor, Jeff Carr is well known for  the ACES model – which is a risk sharing model – at base, the firm is paid a portion of fees with the reminder in a "success fee" bucket. The alignment comes in defining the criteria. Same ideas — different approach. 

With Ken's model, we have several key issues:

1. How do we achieve the 20% efficiency improvement (cue lean six sigma)?
2. How do we establish "value" for Wolverine?
3. How do we, as the outside partner, help move Wolverine's business forward? (Other than buying shoes – talk about adding value, you should see my closet.)

The first nut to crack is the 20% efficiency improvement. It’s a big number and key to the overall fee structure. Better get it right. That is one of the ways that we used (and are using) Lean Six Sigma. We took a heavy dose of Lean thinking, added some Lean tools (like "voice of the client" - Lean calls it "voice of the customer", and root cause analysis) and lots of project management skills and began to focus on efficiency improvements in the way we worked. You'd be surprised (or maybe you wouldn't) how much improvement you can make if you bring a laser-focus to what the client wants and the way you work. Rework, multiple touches, wrong staffing and unclear expectations are just a few areas to attack.

Ken's structure incents us to work together, across the businesses on efficiency. 

Next week: Fees continued but also, a window on what we are actually doing. Reality law continues.
 

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I grew up a military brat and spent the majority of my life on U.S. Army bases. Uniforms, crew cuts and polished boots were a way of life. My dad’s boots were so shiny that you could see your reflection: To this day, I am still not sure how he performed helicopter maintenance while keeping his combat boots pristine.

An even lesser-known fact about me is that I like to watch war movies. While these movies are not my first pick (I prefer comedy or romance), if the plot is good or based on a true story, I am in. And, if the soldier falls in love — well that’s just blending two great stories.

I am fascinated with the human element of the military. What turns ordinary men and women into leaders? Other than rank and order, what qualities inspire a solider to follow a leader into the trenches during wartime? I often translate military behavior into civilian life: Am I the kind of leader who inspires foxhole followers? Can I spot a potential leader and mentor her so she can rise through the ranks? Am I creating foxhole-worthy leaders?

Identifying leaders is not an easy task. Common traits exist, but execution styles vary. Success is often open to interpretation. But one thing is consistent: one generation paves the way for the next. So, it is our responsibility to seek and develop the next generation of leaders.

This month’s cover story, “Developing Great Minority Lawyers for the Next Generation” offers diversity solutions. If you want to lead the conversation, this is an article to share because it offers solutions and tactics for corporations and firms. The next generation of lawyers and the leaders who rise to the top don’t appear spontaneously. You have to take the time to mentor them.

But even the best leaders and military officials face the reality of a finite career. “In-house Counsel’s Guide to Litigating Age Discrimination Discharge Cases” reminds us that no matter our place on the corporate ladder, we age. In our transition from mentee to mentor, we do not want to be professionally cast aside simply because of the date on our birth certificate. Learn how your company can avoid this. And if it’s too late, find tips to litigate as both plaintiff and defendant.

No matter how you slice it, lawyers are simply mortal men and women trying to accomplish their company’s mission. What kind of leadership qualities do you look for in a potential boss? Are you exhibiting those qualities in front of your staff? For those interested in the CLO career path, ACC’s CLO Community is a good place to start your research and find advice from experienced leaders. For the rest of you, remember the military trench mentality: Are you foxhole worthy?

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