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In-house Access Insight & Commentary for In-House Counsel Worldwide

Opportunity Lost

Posted in ACC Value Challenge

Guest Blogger: Emily Jelich is vice president and associate general counsel at Royal Bank of Canada in Toronto, Canada. Jelich heads both the global capital markets legal team and the global dispute management legal team, which include team members in Canada, the US, UK and Hong Kong. She is a member of the ACC Value Challenge Steering Committee and champions several initiatives within the RBC general counsel team aimed at working more efficiently with business partners and external counsel.

While there has been a great deal of discussion in the legal community on the topic of value-based fee arrangements (VBFs), I find it surprising that the vast majority of law firms still seem to try to avoid these arrangements in hopes that they will disappear. I do not mean to disparage those law firms that are trying, but I am continuously bewildered by the fact that they are the minority. I’m not here to define VBFs— the Value Challenge material does that much better than I could — but I will say that VBFs are not discounts. They are not even discounts of annual fees.

As part of their reticence, I am struck by some law firms’ responses to requests for VBFs. Particularly, when I ask a firm for a VBF in litigation or regular transactional work, the firm will often respond that it can only propose a VBF if I “promise” the firm all of our work in that specific area for a period of time. Why are firms not sufficiently interested in developing and marketing skills to provide cost certainty and case management through VBFs unless there is a promised stream of work? Why is this promise so useful to the firm? Work in these areas can always end.

In my mind, the process should be the exact opposite of what I am experiencing. Firms should actively enhance their understanding of cost structure, and then develop and market VBF models. This way, the firm would create an expertise across clients, and would create a valuable differentiator for itself in the market. The few firms that are doing this are gaining the fame they deserve, but the vast majority continue to resist and ignore this trend.

I don’t pretend that VBF capability is easy — presumably, that’s one reason that firms have struggled with, or avoided, it. However, it does surprise me that firms don’t seem to realize the power behind this opportunity. As a client, the firm that understands what may increase or decrease overall costs in a matter, and provides a VBF by assessing which of those factors are within its control, will be a firm I want to retain. This firm would further assist me by identifying which factors I control as the client, and what actions I may take to change the assumptions behind the VBF. This knowledge is very valuable because it helps me to consider where to spend my money and time.

VBFs are most often discussed in terms of cost management, but they also address a long-heard request from both clients and law firms: they necessitate a conversation about goals and expectations at the beginning of a matter. They also continue discussions, which become based on actual experience instead of assumptions. VBFs may emerge as a simple way to ensure that important communications occur throughout a matter, in addition to their function as a cost management tool.

I believe that the firm that pursues the goal of becoming systemically better at VBFs for its own sake will at the same time become more attractive to clients and will be more likely to develop strong, on-going relationships as a result.