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Post 8 

Having Our Final Say on Alternative Fee Arrangements

Week 8. Each week via the In-house ACCess blog, follow the promise and pitfalls of forming a new value-based client-firm relationship. This blog pairing explores how to improve the value returned using a different approach to managing litigation work.  As General Counsel of Kayak, Karen Klein provides legal counsel to senior management and oversight of all legal matters. Karen’s co-blogger is Nicole Nehama Auerbach, a co-founder the Valorem Law Group, 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 view

From Karen:

It is hard to believe that this is the last post of the series. When Nicole and I began this undertaking, I wondered if there would be enough to say about alternative fee arrangements to fill eight posts. Now I know that we could each fill many more posts than that -- if only we didn't have our day jobs. In trying to think about how best to conclude the series, I thought it would be helpful to summarize what I've said before, and provide advice to those in-house counsel who are thinking about using alternative fee arrangements or are at the beginning of doing so. 

First, with anything new or novel, it takes time to feel comfortable with it. My entire career was based on the billable hour system, and I suspect the same is true for most of you. It is not easy to change the mindset that has been ingrained in you immediately, so do not become frustrated if you do not understand every aspect of using alternative fee arrangements at the get go. Like so many elements of doing the simplest things -- riding a bike, driving, reading a case, getting the fundamentals down is only part of it. The more you use alternative fees, or even the more you discuss that prospect with outside lawyers well-versed in providing litigation services under such arrangements, the more comfortable and knowledgeable you will become.

Second, as with any relationship, communication is key. While you should have open communication with all of your firms, even those billing by the hour, the nature of the alternative fee arrangement makes it that much more necessary to have solid communication with your lawyers, especially at the outset of the matter. In order to fashion the fee arrangement itself, it is necessary to identify the goals you have for the litigation and define the outcomes that you seek—a win, a quick resolution, or something else. This alone typically requires more communication than usually takes place at the beginning of a case being handled under the billable hour system.

Third, remember that there are times when the arrangement you've agreed upon may change. It is helpful to use the example of building a house: sometimes you change your mind about the type of finish you want, or sometimes an unforeseen problem can occur. These problems are addressed via a change order.   If something in the litigation causes the scope originally agreed upon to expand, and that is not the fault of your lawyers, then it will be necessary to revisit the arrangement in some way. Again, communication and careful scoping are key. 

Fourth, if you are concerned that your firm will not have the necessary incentives if you devise a flat fee or flat monthly fee arrangement, seriously consider having a bonus element as part of the fee. Knowing that there is a significant amount of money riding on the outcome (or whatever goals you and your firm identify) will give you the peace of mind that your firm is always aligned with your goals.

Finally, remember that budget certainty is something that others in your organization (your CFO, CEO) value greatly. Knowing in advance what litigation will cost is something that most business people will be thrilled about, and only alternative fee arrangements can provide that budget certainty. Also, having the ability to have the most senior members of your outside legal team collaborate without being charged by the hour for that collaboration is priceless.

As I said at the beginning, a fixed fee arrangement is simply one type of method I will use for my matters. Even though it will not become the sole arrangement I use, having the option of using alternative fees for litigation or other matters is something I view as very valuable. I am happy with my decision to step out of my comfort zone in order to learn more about them and experiment with them. Once you do that one time, the benefits of alternative fees are self-evident. I encourage everyone faced with growing legal fees and shrinking legal budgets to give them a try.   

The firm view 

From Nicole:

First, I would be remiss if I did not start this post with a heartfelt thank you to my partner, Patrick Lamb, who filled in for me last week. I was busy working on an expedited matter (for Kayak, coincidentally), and, I truly appreciated both his help and his insightful post.

I echo Karen's sentiments that this series has progressed far faster than I imagined when we started. In only seven previous posts, I think we have addressed a number of important issues relating to handling litigation using alternative fee arrangements. And though we come from different perspectives, inside and outside counsel, it is evident that even from these different vantage points, we see eye to eye on the issues we have discussed. For me, that is no surprise. I have always seen the option of alternative fees as something beneficial to the industry as a whole, regardless of where you work. And, for those firms and clients who embark on such arrangements in the right manner, the alignment of interests is a natural by-product.

As Karen concluded by providing advice to her fellow in-house lawyers who have not yet taken the proverbial plunge or are early in their experience with alternative fees, I will aim for the same audience, but obviously from a somewhat different standpoint.

1. There is no time like the present. Understanding alternative fees is not something that will happen faster if you wait. As we both said early on, it takes a certain confluence of factors -- the right case, the right firm, the right motivation -- but waiting for those factors to occur automatically may mean you are waiting a long, long time. Consider finding the right case, finding the right firm and then trying it.

2. Stop worrying that the fee proposal you have been given has a "catch." I have met with a number of people since we started Valorem three years ago, and there always seems to be this initial concern that the fee arrangement has some secret mystical quality to it that clients worry will cause a windfall for the firm. Trust me, there no hidden "trap." As we have always said, we are in this for the long haul. As a result, we hope to keep our clients, not take advantage of them on the first matter and never work with them again. I suspect the same is true for most lawyers using alternative fee arrangements. It all comes down to that one word -- trust. For us, we want repetitive clients, not one-offs. If we aren't open and fair in all we do, chances are, we will never see you again. And believe me, we know that you talk to your friends in other companies, so chances are, we won't have much of a client roster if we are trying to take advantage.

3. Be realistic and as accurate as possible when explaining the case at the beginning so that we have the ability to do due diligence and to appropriately define the scope. If you have archaic e-mail systems, but you have retained every email since the disco era, that would be something relevant to mention, as e-discovery is often the most costly part of a case. If you do not want to have to revisit the billing arrangement, then be as comprehensive as possible at this stage.

4. Remember that part of going to an alternative fee arrangement is to take advantage of efficiencies and creative strategy to streamline a case. Do not engage in a flat fee arrangement but then expect your outside firm to do all of the things your billable hour firm used to do. Because not much of the "uncover every stone" mentality adds to achieving the goals of the case, you must be willing to let it go. If you are not, you are guaranteeing your firm will lose money on the deal and will not likely want to work with your company under similar circumstances again.

5. Particularly if you have a discretionary bonus at the end, remember to reward your firm appropriately. Most companies think lawyers are overpaid as it is, but this is a result of the billable hour scenario, not alternative fees. If your firm puts itself at risk for your matter and knocks it out of the park or gets a better than hoped for result, reward them appropriately just as you would want to be rewarded internally for similar performance. In the end, when firms feel that their clients appreciate them and understand the efforts they are making, the loyalty and willingness to go the extra mile becomes automatic, and that makes for a beautiful partnership.

Overall, I hope that this series has provided some insights to those facing similar issues to Karen and Kayak. I welcome the opportunity to speak with anyone with direct questions or opinions about what we provided.

And finally, my trip of the week is to Japan. Not the place most people would aim to go to after last week's disaster, but my heart goes out to the Japanese people and this is my way of keeping them in my thoughts.   

Final thoughts from Susan Hackett:

I want to take this opportunity to thank Karen and Nicole for joining us on this journey to ‘lift the curtain’ on value-based client-firm relationships. We sincerely hope that this series provides you with different approaches to consider when managing litigation work, and helps you assess how you can learn from these examples and apply value-based practical solutions.

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 Post 7

Making Time for Value

Week 7. Each week via the In-house ACCess blog, follow the promise and pitfalls of forming a new value-based client-firm relationship. This blog pairing explores how to improve the value returned using a different approach to managing litigation work.  As General Counsel of Kayak, Karen Klein provides legal counsel to senior management and oversight of all legal matters. Karen’s co-blogger is Nicole Nehama Auerbach, a co-founder the Valorem Law Group, 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 firm view

From Patrick Lamb:

Nicole has a day job, and unfortunately (for this column, at least) it is going gangbusters at the moment. Since I am no stranger to writing blog posts and have been following Nicole and Karen’s posts very closely, I volunteered to guest post this column. I apologize for the interruption and hope I can measure up to the high standards Nicole has set in her earlier posts.

I have been a huge proponent of pricing using non-hourly arrangements for a long time. Even as a younger lawyer, I was always bothered when I saw that my opposing counsel was getting paid the same or, many times, more than my firm was without regard to outcome. That struck me as fundamentally unfair. I also saw from close proximity how some lawyers took advantage of deep pocket clients to do (and bill for) all sorts of crazy stuff that was never, under any plausible set of circumstances, going to make a difference to the outcome of the case. The rationale used was at times candid (“we make money this way”) and at other times questionable (“we need to do all this work so the client knows we are being thorough”).   The point is that, to me, the flaws in the hourly model and the abuses of that system in the name of “defensive lawyering” (think, defensive medicine for lawyers) made the system unacceptable. I still have to confess to being somewhat surprised when clients, the victims of the system, are not as fed up with it as I was before we started Valorem.

In our three plus years of operating Valorem, we’ve learned that there are far more in-house lawyers like Karen than there are ones who are fully committed to non-hourly arrangements. This series of blog posts has been enlightening as Karen explained the development of her thinking on alternative fees, including how using alternative fees required her reallocate how and when she spent time on matters, particularly at the outset. As some have said, when you are putting out fires every minute, it’s not easy to set aside time to plan the handling of a matter, even if you know in your heart it is the right thing to do and ultimately a better way of handling problems. Time for in-house lawyers is the rarest treasure, and it must be safeguarded.

One of the results of thinking about this widespread problem—the I-think-I’d-like-to-try-alternative-fees-but-I-don’t-know-where-to-begin-and-how-do-it problem—is that I think it is incumbent on lawyers who want to provide service on this basis to make it easier and more convenient for in-house lawyers to do so. We need to provide detailed planning maps that show what will be accomplished over a given segment of time, when settlement discussions will be suggested, when the trial is likely to occur, and when expenses will have to be accrued. These benchmarks allow a basis for evaluating performance along the way toward final resolution. I think these kinds of tools will prove themselves useful to in-house lawyers and ease the pain of trying alternative fees.

It goes without saying that even the best battle plan never survives contact with the enemy, so both client and lawyer will need to see these plans for what they are, a starting point. But the ability to abide by the plan and force events to move as desired can be an important way of judging performance, both in the quality of the planning to start with and the execution of the plan strategy.

I’d welcome reaction from the in-house world. Are there things we as proponents of AFAs could do that would make it easier for you to implement non-hourly fee arrangements?

Kayak pick of the week: Chicago to Ireland. Erin-Go-bragh!

The client view

From Karen:

I know that Nicole is under the gun (for one of my cases) and a bit under the weather, so I appreciate Pat stepping in to write this post for Nicole. 

Recognizing the demands on in-house counsel time is very important. If we had the ability to leisurely consider how to achieve the results we need to produce for our companies in the most cost-effective manner, our jobs would be so much easier. But so often, we simply need to delegate a problem to a trusted advisor and focus on the next problem. So the more an outside lawyer can do to show how things will work smoothly, the easier it will be to at least try an alternative fee arrangement. That doesn’t mean it will be easy, but at least easier.

I want to comment on the planning aspects of managing an alternative fee arrangement. My background is not as a litigator, and while I understand the process, I am not in the same position to evaluate things as someone who has spent their career in a courtroom. For that reason, being given a roadmap, with attendant explanations of why certain non-obvious things need to, or are likely to happen, what the strategic points are, what options might reasonably be available and other executive level information that will help me evaluate the contemplated strategy, including how it meshes with our business plans, is really important. One of the reasons I value working with Nicole is her ability to explain the strategic and tactical options available and the pros and cons of each in a way I can use to explain to my business colleagues. 

Kayak’s foray into alternative fees has been eye-opening, and despite what we have said about time, I look forward to the passage of some time so I can look back at our alternative fee approach with some distance and compare what we have experienced with what we would have under the more traditional approach. I appreciate the ACC giving us this forum to write about our experiences, and I also am looking forward to speaking with my in-house colleagues about whether my concerns, experiments, experiences and results with AFAs match theirs.

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Post 2

Alternative Fee Arrangements, Time Well Spent

Week 2. Each week via the In-house ACCess blog, follow the promise and pitfalls of forming a new value-based client-firm relationship. This blog pairing explores how to improve the value returned using a different approach to managing litigation work.  As General Counsel of Kayak, Karen Klein provides legal counsel to senior management and oversight of all legal matters. Karen’s co-blogger is Nicole Nehama Auerbach, a co-founder the Valorem Law Group, 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 view

From Karen:

Last week, we discussed how a lot of things needed to be aligned for me to be willing to use an alternative fee arrangement for litigation.  One of my greatest concerns, because it touches upon the one critical resource that I have the least of, was how much time it would take to work out a fee arrangement.  As I mentioned, in a small legal department, when everything that hits my radar is something that needs to be resolved yesterday, it takes no time at all to agree on the billable hour model.  Typically, if we are the defendant, the time it involves is the five minutes it takes me to pick up the phone, call my lawyer of choice and say, "We just got sued in this court by this party about this thing. Can you handle it?" Assuming no conflict, the answer is typically, "yes," to which I say, "I'll send you the complaint." Done deal. It may take a few minutes longer if we are plaintiff, but not much.

When it came time for me to consider an alternative fee arrangement, I worried about the time on the front-end, as I suspected the negotiation would be time-consuming.  While I'm sure the front-end aspect was much more time-intensive for Nicole, as it turns out, for me, it simply entailed answering some questions about our goals for the case, how many witnesses both sides would likely each have, the universe of documents we possessed and in what format, and the value of a win so that she could then put a proposal together with options for fee arrangements.  I then got a detailed fee proposal with more than one option so we could decide which arrangement best fit our needs. The proposal was specific in terms of the phases of the case and the assumptions that it took into account. It was in simple enough form for me to forward to our VP Finance and to recommend one of two options offered. Done deal.

In retrospect, the discussions we had at the onset, and the consideration I had to give to what our goals were and what the scope of the matter appeared to be, were a valuable investment that is often missing in the initiation of a case under the billable hour model.  The expenditure of time spent thinking through the case helped me focus on what I wanted to accomplish in the litigation. That benefit was well worth the expenditure of a little more up-front time.

One other by-product that I underestimated, but truly appreciate from the time standpoint is the elimination of monthly invoices that I have to pour through in order to approve.  That is one less administrative task that I am quite thrilled to have off my plate.  And, because the arrangements that we've entered into typically involved some fixed aspect as well as an incentive bonus, I don't have to worry about whether the firm's interests are aligned with mine.  More on that structure in a future post.

The firm view

From Nicole:

Karen raises a common concern that many clients seem to have about entering into alternative fee arrangements. Because the details of alternative fee arrangements, particularly customized ones like we create at Valorem, can be made quite complex, there is a concern that the alternative fee is more difficult to grasp than billing by the hour. Busy clients tend to shy away from an alternative fee because, like Karen, they are reticent to spend precious time at the beginning of the matter.   While there is certainly more time involved than simply picking up the phone and saying, "You're hired," the expenditure of time for the client is far from extensive. In fact, our experience is that clients who try the alternative fee and focus on the key questions about the litigation at the onset generally prefer this method because it puts them on the same page as their outside lawyers from the get go. And, as Karen has experienced, the net investment (including bill review) over the life of the case is frequently less.

Some of the questions we ask that might never be expressly discussed under the billable hour method are: what does a victory look like (i.e., is it -- just settle the case quickly, or might it be, settle within this fiscal year, but for no more than x); who in your company is going to be involved (or inconvenienced?) as a witness; are there any internal political or external public relations issues we need to be aware of; what do you think the motive of the opposing side is; are there non-cash ways to resolve this (extend a contract's term, commit to order x amount of product); who owns the problem from a business standpoint, and what are their views and expectations, etc.

What most clients don't know is that any firm well-versed in doing alternative fee work is then going to spend a fair amount of time vetting the case on its own so it can determine whether it wants the case, and if so, a fair way to price it given the perceived risks and rewards. This behind the scenes vetting process does not require any additional time by the client, and is merely the due diligence that comes along with understanding the scope of the matter in order to set a reasonable price.

Once the background work is completed, a written proposal setting out the key assumptions and one or more fee arrangements is then given to the client so they can choose which arrangement might best serve its purpose. It is extremely helpful if the client has data on how much similar cases have cost in the past. Similarly, if the firm has this type of data as well, it can lead to a more informed decision on both parts. In the end, agreeing on an alternative fee arrangement is not so time consuming for the client, and the additional expenditure of time at the front end can frequently lead to better outcomes for the case and more satisfied clients.

My Kayak choice trip of the week is from Chicago to Dallas for the Superbowl. That shows amazing client service on my part since Karen is a Green Bay fan and they beat the Bears for the NFC Championship.

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Welcome back to our “value practice” blog series featuring real-time and real-life value conversations between an in-house counsel and their trusted law firm.  For those of you new to this series, ACC hosted our first client-firm blog pair last year with Ken Grady from Wolverine Worldwide and Lisa Damon from Seyfarth Shaw, which focused on the restructuring of Wolverine’s trademark portfolio to incorporate new service methodologies.  Their fresh approach and candid commentary made these posts a must-read. 

For our next partnership, we are pleased to welcome two new bloggers, Karen Klein, General Counsel for Kayak Software Corporation, and Nicole Nehama Auerbach, a founding member of the Valorem Law Group. From now through March, Karen and Nicole will offer a weekly ‘behind-the-curtain’ look at the evolution of their developing plans and solutions to Kayak’s portfolio of litigation work.  I anticipate that they’ll be giving us all a run for our money – they are the original dynamic duo, but we’ll be working hard to keep up. So often we hear that value-based relationships don’t adapt well to the litigation context and/or that smaller law departments may not be as well-leveraged to convince firms to handle work using value-based fees (.ppt download). We fully expect that Karen and Nicole’s capture of their value discussions will demonstrate that both of those presumptions are fundamentally misinformed. First, some background on our featured bloggers: 

Karen Klein is the general counsel of KAYAK, a great travel site that uses innovative search methods to help you take your travel decisions to a whole new level.  Being a hot property on the Internet poses all kinds of issues that Karen must navigate for her company, for example she may call on Nicole to help her efficiently budget, manage and resolve whatever comes in the door. 

Nicole Nehama Auerbach is a veteran litigator and a leading innovator in value-based fee structures. She is a co-founder of a law firm, Valorem, which is premised on the principle that a lawyer’s work is best measured on a scale of client satisfaction and results for cost, not on a scale calibrated by rates times hours. What makes this even more fun is that both Karen and Nicole’s legal careers started in the same BigLaw firm that they both left, at least in part because institutionalized law firm practice did not accommodate the kind of creative relationship they’ve now set off to explore on this blog.

Thank you, Karen and Nicole, for your time and for offering to share your perspectives on the “Client-Firm Value” relationship.  As always, any comments, questions, constructive criticisms, cries from the bewildered and notes of appreciation are welcome in the comment area at the end of the blog posts.

A hearty welcome to Karen and Nicole: we’re grateful beneficiaries of your shared wisdom and innovative ideas.

- Susan Hackett

Lifting the Curtain: The goal of this effort is to ‘lift the curtain’ in order to help you assess how you can learn from this example and apply value-based practical solutions. The voice, views and stories expressed by the authors below are their own and not ACC’s.

Join in: Please be sure to join in the conversation with your comments and observations, and enjoy.

Susan Hackett, Senior VP and General Counsel, Association of Corporate Counsel and the ACC Value Challenge (hackett@acc.com)

The client side:

Blogger Karen Klein is General Counsel at Kayak Software Corporation 

Full disclosure: I was not an early adopter of alternative fees.  Some (like Nicole, perhaps), may even say that I came late to the party. But adopt (or adapt), I have -- at least on some of my matters.  I suspect that my pace in utilizing alternative fee arrangements is typical of most in-house counsel today. Some were instantly on board, some will never make the move, and most of us in between see their value in some, though not all, circumstances, and will use them when a number of variables come together at the same time. I also suspect that many other in-house attorneys have grappled with the same issues I've faced, or at least have had the same questions along the way. As Nicole and I discuss our experiences and perspectives in the course of this series of posts, I hope that we provide something useful to both the early adopters and those who are just getting their feet wet with alternative fee arrangements. My guess is that I may learn something new along the way as well.

I should first start by telling you a few things that I think have influenced my mindset. I started my career in the corporate department of a large Chicago law firm, and of course, the only way we billed was by the hour. When I left the firm, I embarked on a series of in-house jobs at start-ups and technology companies, including Platinum Technology and Orbitz.   As you probably know, currently, I am the general counsel of a travel metasearch company called Kayak Software Corporation. In the simplest sense, our website, www.kayak.com, allows users to search for travel-related services (air, hotel vacation packages, etc.), and then link to providers’ websites to make travel-related purchases. Until about 14 months ago when I hired an associate general counsel (a true godsend, really), I was a department of one with what seemed at times like enough work for a department of twenty.  To say that things move at breakneck speed is an understatement, and when I’m trying to staff something quickly, grasping the hours times dollars system is often the quicker and easier thing to do.

So, while I’ve always been open to change, I was simply too busy on a day-to-day basis to make such a change without some concerted effort from a proactive law firm. Even then, it needed to be the right matter, and I had to feel that I understood how the process was going to work. All of those stars aligned in the form of (a) some pieces of litigation we were involved with, (b) some (gentle) prodding from Nicole, with whom I had worked for several years and had a good working relationship, and (c) a VP Finance who loved the idea of budget certainty when I brought the proposals to her. And so, under those circumstances, I took the first step on a path that probably, if all continues to go well, will be walked upon a little more frequently and with less hesitation as the right situations arise.

The firm view:

Blogger Nicole Nehama Auerbach is the Co-founder and Partner of Valorem Law Group LLC.

Full disclosure: I was an early adopter of alternative fees. It was for that reason that, after more than 14 years, I left my career at that same large law firm in Chicago where Karen started. I left to help launch a litigation law firm built entirely on the alternative fee model. When the four founding members (we now have 8 attorneys), all large law firm refugees, started Valorem Law Group in 2008, we believed to our core that clients wanted: (a) budget certainty for their matters; (b) attorneys who were willing to tie a part of their fees to the outcome of the matter; and (c) lawyers who would focus on the end-goal, not “boil the ocean to make a cup of tea.” We were not at all surprised when alternative fee arrangements became the talk of the legal world so soon after we opened our doors.

And though we have been blessed with our share of the early adopters on the client side, one thing that we discovered early on was that many potential clients out there are like Karen – lots of work, great intentions but little or no time. Like anything new, alternative fees take time for people to get their arms around. And while most lawyers consider themselves to be very “cutting edge,” in fact, they are some of the slowest people on this earth to embrace change. Luckily for us, with all things, there comes a tipping point, and this one is being helped along by progressive legal department budget cuts that cannot be accomplished with a simple discounted billable rate.

As Karen said, it often takes a number of things for in-house lawyers to make the move to alternative fees.  From our perspective, it is (1) a lawyer (i.e., the general counsel, AGC) who understands that time invested up front will pay dividends and is confident enough in his or her role to be willing to risk using a new fee arrangement in the (unlikely) event that it does not go exactly as planned; (2) a matter where the scope is generally definable from the outset; and (3) a case that is not simply a routine and small-dollars matter, but also, is not a bet-the-company matter. Since we handle litigation only, we are constantly fighting against the fallacy that all litigation is uncertain. While many aspects of litigation may be influenced by the conduct of the opposing party, by and large, all litigation has the same core elements. As we hold ourselves out as expert litigators, identifying the scope of a matter is naturally within our expertise. In our firm’s three year history, we’ve seen that when the three things listed above are present, and the client or prospect is willing to embrace change, an alternative fee arrangement is born. 

As we continue in our series of posts, we’ll discuss the journey – the good, the bad and the potential pitfalls. Best of all, we won’t do it by the hour.

Each week, I will select a dream destination of choice through Kayak. This week, I choose Chicago to Auckland, New Zealand (summer there). For details, visit http://www.kayak.com/flights/ORD-AKL/2011-02-14/2011-02-28.

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Post 15

The Current State

Week 15. 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:

So where are we?  We have built a relationship, started the transition of those 3,600 trademarks (and all the baggage they bring), developed a workable plan for the 2011 fee structure, and delved into the world of strategic trademark portfolio management.  For a small legal department with an assortment of other projects on our plate (and, oh yeah, those daily client matters that take up a lot of time and pull us away from these fun diversions), that is a lot of work.  We need to complete the portfolio transition this year, lock down the final numbers on the fee structure, finish some of the strategic planning tools, and keep up with the day-to-day portfolio challenges.  But those are the big tasks.

The real fun comes when we dig into the process improvement stuff.  Please, don’t all groan at the same time.  Who went to law school to become a process wonk?  Well, none of us did.  We went to law school to challenge our minds with interesting problems and come up with novel solutions.  Somewhere between law school and now, we got bogged down in grinding out the million or so things that need to happen.  One of my big goals is to move our team away from those million anchors (lean – take the waste out), leaving us more time to work on the things where we can add value to the business.  Fighting fires has its benefits, but working with the business team creatively is where we can take our skills and knowledge and showcase how in-house lawyers (with the assistance of our strategic outside law partners) drive asset value building not just asset protection.

This project has involved large steps, but getting out of the grind really involves many small steps.  We took our intake form for possible infringements, made it into something you can fill out online, posted it on an internal site with some instructions, and sent the word out.  Our clients are much better about giving us the information we need the first time.  We don’t fill out the form (which meant they took notes somewhere and then transferred them to us and we converted the notes to the form – now they do it once on the form).  This was small, but it saves a lot of time (again, 3,600 trademarks!).  It didn’t take long to do, but when combined with several other similar changes we freed up time for our IP paralegal.

The same small steps work for value fee arrangements.  The first one I did was for a retail store lease.  They were costing my then-client around $3,000 to $5,000 a lease.  We worked out arrangements with the firms handling them to do them on a sliding scale fixed fee arrangement, with incentives for fast turnaround when needed.  It took a couple of hours to work this out, and our fees became predictable and the income flow for the small firms we used also became predictable.

So where are we?  We are about to launch lots of small steps that by the end of next year will add up to (we hope) big gains.

Next: Final thoughts.

The firm view

From Lisa: 

As Ken notes, we -- as outside counsel -- must also move away from the inefficient “fire drill” realities that often characterize our practices. We need to provide a more strategic, streamlined approach to our work which allows our clients to focus more of their efforts on value-added activities. Right for our clients; right for us.

To help us move to a more Lean approach with Wolverine and other clients, we have used three key tools and practices that might prove helpful for others. There are plenty of available methods, tools, techniques, and approaches, (a number of which we have mentioned in prior posts), but these have been especially relevant in our trademark practice:

1. Information Management. In a prior post, Ken described the online matter tracking database. Every trademark project -- whether a new filing, a research project, an opposition, or otherwise -- is tracked in a collaborative online database that is readily accessed by everyone on both teams.  We have already populated the "active matters" database with dozens of entries, and it will grow as more of the portfolio is transitioned. 

The power of this database is hard to overstate. First, it frees up a tremendous amount of mental energy for more strategic thinking. (Need more of that.)  Gone are the days of poring through notes and emails to find the current status of matters. (Need less of that.)  All data on all ongoing matters is in one secure, online location. This let us all see both the forest and the trees. Second, the database keeps the matters moving forward and helps prevent missteps about who was supposed to do what when. Now, every matter and team member accountability is reviewed at least every week by the entire team. Third, it serves as an institutional memory of successes, failures, decisions made, and so forth for future reference. It relieves the burden of memory for those working on the portfolio to recall how a particular matter had been decided in the past, whether the company had encountered this counterfeiter before, etc. The database also provides a continuous, searchable record of "closed matters" to preserve past decisions, settlements, and so forth for future reference.

2. Strategy Tools. Strategy is easy to talk about and sounds great, but can remain amorphous unless you define and track it in writing. We have developed Lean tools that enable us to capture specific global trademark portfolio strategy on an annual basis in various areas, that include trademark clearance risk tolerance, trademark registration gap analysis and trademark enforcement prioritization by mark and country. While the upfront work with our client's business and legal teams takes significant effort, this investment is more than made up in the savings that result from streamlined, consistent, strategic decision-making down the road. By advancing specific, well-defined objectives in the trademark area, we add greater value to our client's business.

3. Process, process, process.  As Ken noted in a prior post, we are huge fans of process mapping. (Join us at the ACC Annual Meeting and, you, too, will be waving the process flag.) In the trademark area alone, we have now mapped many discrete tasks to attempt to find the optimal combination of quality, efficiency and cost containment. Process mapping also takes significant investment. Even the simplest processes (we have one for “Incoming Mail Flow”) take several hours to complete properly, as every single task and person within the process is identified and analyzed. No matter how familiar people are with a process, we find time and again that process mapping reveals areas for improvement in accountability, sequence of activity, elimination of re-work, and time savings.

Ken mentions launching lots of small steps in an effort to achieve big gain, and in working with a dynamic team at Wolverine, we are starting to see how our initial steps can take us to the next great level.

Next: Wrapping it all up.

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Post 14

Making it Work: A Value-Fee Partnership

Week 14. 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:

Last time, I described the mechanics of the 2011 fee structure, but what makes it worthwhile? The key is in the process improvements. Let’s say that in the first year (2011), Seyfarth and Wolverine implement process improvements that save $200,000 (these numbers are examples). Assume that $100,000 is saved from foreign agent fees and expenses and another $100,000 is saved by reducing the time Seyfarth spends on matters. Under the formula I described last time, Wolverine pays Seyfarth $175,000 as the bonus for achieving that $200,000 savings. It sounds like Wolverine gets only a $25,000 benefit. Since these are process savings, however, they don’t end after year one. They are built into how we do things. In year two, Wolverine still gets $200,000 in savings (assuming we still have a large trademark portfolio and are doing the same types of things with it we did in year one). Wolverine also gets those same savings in years three, four and five (and, in theory, continuing into the future). Many of you are probably familiar with net present value calculations. In simple form, if the value of the future cost savings stream offset by the payments to get that stream and discounted at the company’s cost of capital is positive, then you are delivering shareholder value (and if negative, you are taking away shareholder value). Plug the numbers above into an NPV calculation and use 10% as the cost of capital, and you get a five-year NPV of $600,000.

Sounds good from the client side, but why do this on the law firm side? I’ll let Seyfarth speak to this issue, but here is one reason – margin. I’ll go back to one of my earliest examples. Assume the law firm takes 12 hours to do a task and charges the client $300 per hour, or a total of $3,600. If the law firm can learn how to do the task in 6 hours and still charge $300 per hour, it would have the same margin rate (all other things being equal). The client is better off, but the law firm’s revenue shrank by 50% and its margin rate stayed constant. If, however, the law firm and the client shared the savings, both are better off. If the law firm does the work in six hours but charges the client $2,400, the law firm’s margin rate has increased (it made $400 per hour versus $300 per hour on constant costs) and the client’s total cost went down from $3,600 to $2,400.

For those of you who want to make use of that undergraduate psychology course, this structure sounds a bit like the “prisoners’ dilemma” situation. If both parties cooperate, they both win. If either of the parties don’t cooperate, they both can lose (law firms have attorneys working long hours on wasteful tasks, clients pay law firms lots of money to do those wasteful tasks). I believe one way to increase the odds that both parties will work together successfully is to start with relationship building. If the law firm and the client start with a solid relationship, the odds are much higher that they will structure an outcome where both benefit – a robust value fee arrangement.

I have had a great time both in structuring this new relationship with Seyfarth and in blogging about what we are doing. If you have any follow-up questions about the structure or these posts in general, please feel free to use the comment box below or contact me.  In the meantime, get busy with your own value-fee relationships – they work.

Next: Beyond the numbers--forging ahead.

The firm view

From Lisa:

Ken’s post gets to the real center of our enthusiasm for our work with Wolverine and others with our SeyfarthLean strategy.  We believe that the robust discussion around new fee models over the last several years represents a fundamental shift in the way many clients view the role of outside counsel. While the discussion is often framed around fees, we think the deeper core issue is that clients are looking for new and different service models altogether.

Clients need a model that rewards us for delivering top-flight legal services with real efficiency. By its nature, an hours-times-rate model doesn't incentivize for efficiency. Alternative fee models get at this issue to some degree.  They provide mechanisms that help clients to manage down fees, control spending and provide more predictable budgets. The problem is: altering the fee structure alone often leaves clients with questions about quality, resource allocation and the like.  If the firm hasn't really changed its model or its core strategies for delivering legal service, perhaps all that has been accomplished has been to shave the firm's margins, with the hope that economics will rebound as the economy recovers.

For us, this view was key.  We believe that clients are asking for far more than just short-term alternative fee structures.  They want a shift in strategy that makes us better partners with our clients, brings us to the table to offer more than an array of services from inventory and better aligns our economics.  We believe so strongly in this proposition that have built our core strategy around it, have developed our SeyfarthLean program into our institutional DNA and are working to include this discussion in every relationship we have with our clients.

So, to Ken’s point, what do we get out of the pricing model that we have developed with Wolverine?  Well, he is exactly right in his focus on margin.  We are a business, not a legal skunkworks, and appropriate economics are important to us. But Ken’s approach offers far more for us than the opportunity to develop opportunities for good upside. Beyond that, the Wolverine model is a strong manifestation of our view of the world, a response to what we hear the clients asking for and a very cool proof of concept. 

Next:  We look at creating a steady state.

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Post 13

Compensation, Conversation and Collaboration

Week 13. 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:

We structured the value fee for 2011 by borrowing from a common executive compensation arrangement. First, we established the base fee for 2011 (think base salary). Seyfarth used raw data that Wolverine supplied (hours, number and type of matters) to calculate estimates assuming the work was done by (1) a traditional large firm (higher rates), (2) the current firm, and (3) Seyfarth. I also calculated an estimate. My calculation and Seyfarth’s calculation of the Seyfarth fee agreed within about 7%, and we decided to use my number (I had the edge given my insider knowledge).

Next, we set up a bonus structure. The bonus recognizes savings based on systemic changes. This is a key point. We want repeatable changes that reduce the time to do portfolio work. That means we need process improvements, not one time cost avoidance. Reducing the time it takes to process a trademark application is a process improvement, whereas deciding to file a trademark application in fewer countries is a one-time savings. Process improvements give Wolverine savings each time we do an application.

The bonus builds on two opportunities: (1) reducing Seyfarth’s work, and (2) reducing foreign agent work. Between Wolverine and Seyfarth, Seyfarth has almost total control over the foreign agent work. So, for each $1 of systemic foreign agent savings, Seyfarth will be paid a $1 bonus. Seyfarth’s work is more closely tied to Wolverine. Since we must work together to reduce Seyfarth’s costs, we split each $1 of systemic Seyfarth savings $.75 to Seyfarth and $.25 to Wolverine. Put differently, for each $1 systemic savings on Seyfarth’s work, Wolverine will pay Seyfarth a $.75 bonus.

To measure Seyfarth’s systemic improvements, we will use two metrics: time to process an application, and time to receive a useable specimen (we have to file specimens in certain countries to show we are still using the mark). We need one score across both metrics to determine Seyfarth’s bonus, so we will combine the results on the two metrics by weighting them 80% on trademark applications and 20% of specimen gathering. We calculate the trademark application improvement metric, multiply it by .8, calculate the process improvement on specimens metric, multiply it by .2, and add the results. For every X% of weighted process improvement, Seyfarth will earn $.75.

Let’s compare this to a common executive compensation bonus system. I earn a base salary (base fee). My long-term bonus depends on the company’s performance on two metrics, earnings per share (think trademark applications) and value added (think specimen gathering). EPS counts for 65% of the final score, and value added counts for 35%. We get the final score by taking the weighted score (.65 times EPS score plus .35 times value added score), and apply that weighted score to the sliding bonus scale. For each X% improvement in the EPS/Value Added score I get a bonus of $Y.

I’m going to emphasize one point – this structure depends on process improvements not one-time savings. That means we need a system (we are using, of course, SeyfarthLean) to document existing processes, improve those processes (reduce work), and ensure that they are repeatable. Since many have successfully used lean process improvement for services where you could claim there is great variability (for example, medical treatment in hospitals), using it for legal services does not present any unique challenges.

Next: Explaining the power of this approach in driving shareholder value for Wolverine, and margin improvement for Seyfarth.

The firm view

From Lisa:

As the provider, we were delighted by Ken’s approach. We believe that it is fair, aligns us with Wolverine and properly reflects our joint expectations for the further development of the trademark service platform. 

More than that, it provides a compelling strategy for recognizing both the “industrial” and “artisanal” components of our work that Ken has described in the past. We receive a fair base fee and the opportunity to do better if we can help to build out the service platform.  We are absolutely committed to working with Ken’s team to identify process efficiencies and other systemic changes, believe we can do it by harnessing the capabilities of SeyfarthLean and agree with Ken that his approach fairly reflects that commitment.

So, what did we need to do from our end to get comfortable with the approach from a business perspective? We clearly wanted an approach that worked off a different calculus than seeking to compare the projected results of Ken’s pricing strategy against a traditional hours times rates model. That approach might have been ok but was clearly inconsistent with the core theme of the Wolverine trademark relationship 

Like Ken, we worked first to develop a scoping model that projected fees under several different scenarios. Working with Ken, we determined that his numbers and our numbers on scope were close and elected to work with Ken’s numbers (that company knowledge thing). From there, we looked at our costs to deliver the scope, ran through a scenario analysis that Ken developed and looked at margins. With that analysis, we concluded that Ken’s strategy should bring us together with Wolverine in a joint mission to handle the daily core services and further develop the trademark platform.

This exercise was similar to our more traditional pricing analysis only in the goal of seeking to understand the financial results of various scenarios. The economic incentives associated with rewarding strategic value (as the client understands it), however, was very different from the more traditional approach to pricing trademark portfolio services and very cool from our perspective.

Next: Working as partners; next steps.

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 Process Mapping Primer 

Week 12. 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:

Lawyers are idiosyncratic workers. We do things differently when you compare one lawyer to another, and we do things differently when you compare how we do the same thing from time to time, such as preparing contracts. We justify much of this idiosyncratic behavior by claiming we do bespoke work – each time we do a case, contract or other matter, it is unique. Our idiosyncrasies, however, make us very inefficient.

We have designed the Wolverine/Seyfarth partnership to reduce process variability, using the SeyfarthLean techniques, so that we each become more efficient in providing legal services to our client. To know what Wolverine does today, we will make process maps. A group of two to eight individuals, drawn from both entities, will brainstorm and capture each step in a current process. In the old days, we did this by taping a long piece of butcher paper on the wall and noting each step in the process sequentially along the length of the paper. With all the mistakes, corrections and additions, it was busy when we finished. Today, Seyfarth does the same thing using computer tools that make the result much cleaner. Using the process map, we then (1) simplify steps, (2) weed out unnecessary steps, (3) re-sequence steps, (4) standardize steps and (5) create tools for steps. Each time we change the process, we update the map. We pull from a variety of metrics to measure our improvement – e.g., overall time to complete the process or number of steps in the process.

An obvious place to start with a trademark portfolio is the application process. The client sends an e-mail asking about the availability of MARK for use with a product. The in-house paralegal does a quick screening search and e-mails back saying that it looks like it is available, and asks whether she should do a full search and how the client will use the MARK. The client emails back saying yes to the full search, and gives a partial answer on use. The paralegal e-mails the outside paralegal requesting a full search. The outside paralegal requests the search and sends the outside IP attorney the results. The outside IP attorney has some follow up questions and sends them to the in-house paralegal, who in turn sends them to the client, who in turn responds to the in-house paralegal, who in turn responds to the attorney. Draw a line on your yellow pad and put each of these steps in sequence. Congratulations, you drew your first process map and already see several ways to improve the process. After each iteration, we want to achieve a steady state. That is, we want a defined process that we will repeat each time we do an application keeping variability to a minimum. One benefit of this technique is that you can apply it endlessly to any given process, always finding room for improvement,

We still can be brilliant lawyers. We just exercise our brilliance at the right time in a defined process that eliminates the unnecessary steps that cost our clients more, but don’t add value.

Next: So what is the status of those fee discussions?

The firm view

From Lisa: 

Ken has delved into the world of process mapping in his post this week. Okay, we love process mapping. We use this Lean tool often at Seyfarth -- we use it in very complex matters and those that are more repetitive. We may do it electronically, on a white board or even in our heads -- the trick is that it is a way to think about a problem.

When we first started working on process mapping, there was some resistance among our lawyers (and from me, as well). "Every matter is different," I kept saying. "This is complex litigation. How can we know what will happen?" We also heard: "My M&A work is highly specialized; a process map won't work." However, as we began to refine what we thought what a map could be and how we put it together, our lawyers began to see the magic of the tool. We think of our maps as "guides." We know that every legal matter is different, but we use maps to think through strategy, to organize our resources, to spot inefficiencies and to refine our strategy. They have become for many of our lawyers a true strategic tool as they think through complex issues for our clients. A quick plug: If you want to see how this works in real life, Ken and I will be doing a session at the ACC Conference, where we will have the audience on its feet, using a number of Lean tools, process mapping included. If you are coming to San Antonio, join us for some fun.

Another tool that we love to use to think through an issue is a "root cause analysis" tool. This can really force you to think beyond immediate problem-solving by requiring you to stop, think and ask tough questions. One of the tools, in fact, is called the "5 Whys" because it essentially demands that you probe for the root cause, using a series of "why" questions.

We also use other tools to guide our thinking. We find that other tools -- fishbone diagrams, for instance -- can be useful in working through client and internal issues to help identify the right solutions. I used one in a complex internal investigation last week, and it enabled me to get to an efficient solution that worked at the heart of the matter, not the periphery.

As we have said before, Lean gives us a way to think, a different approach to the practice of law. The tools support the thinking; they allow us to analyze and solve problems more efficiently and effectively. We would love to hear what kinds of tools and disciplines you are using. Let us know.

Next: A fee update and Ken teaches Seyfarth

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 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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