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

ACC Board Members See Opportunities in the Midst of Greater Regulatory Scrutiny, Increased Client Demands & Efficiency Directives in the New Year

As 2009 comes to a close, some will look back on the past year disheartened by the economic upheaval that occurred, while others will look ahead with cautious optimism, confident that in the midst of challenges the coming year will bring lucrative opportunities for growth and prosperity. Articles and Blog posts abound, with everyone offering their predictions for the coming year. While nobody has a magical crystal ball to foretell the future, we can learn from events of the past and the current environment to not only predict, but also prepare, for what is yet to come.

I have always found our ACC community to be a great source of support and insight and as Ivan Fong, ACC’s former Board Chair, noted in a previous ACC Docket message, “During times of economic stress, it is important to hold fast to your core values and to the people … who can support you in your time of need and give you hope and inspiration.” By tapping into the collective wisdom of ACC’s Board of Directors, we can all glean added insight to stay on top of the trends – and help us to prepare for 2010. 

When asked what the greatest challenges will be for in-house counsel, as well as where new opportunities will emerge, ACC Board members offer the following predictions.

David Allgood, Executive Vice President & General Counsel, Royal Bank of Canada: We will have to respond to the impact of the global financial crisis on financial regulations and I see a significant regulatory onslaught occurring, particularly for financial institutions.  

I am expecting - looking for, actually - more use of project management principles by the outside law firms I work with to ensure greater efficiency and cost containment.

Jonathan Block, Attorney, Former Vice President and General Counsel, Salem Communications Corporation: The current political winds are blowing in favor of increased regulation, and given the speed in which it is happening and the polarization of the political process, it is hard to know where we’ll land until we are already there.  With all of the changes, reduction in resources and increased pressure to take risks that will potentially jeopardize the company, the complexity of how in-house lawyers go about performing their job will continue to increase.  

The increased complexity and reduction in resources, however, provides an even greater opportunity for in-house lawyers to demonstrate their strategic value to the organization. With greater challenges facing companies, GCs have the opportunity to burnish their image as the go-to problem solver for the company. This is also a great time for companies to start building for the recovery and investing in their future. With even well run businesses having to eliminate assets to address cash flow issues over the past few years, strong companies now have the ability to acquire some especially valuable resources (including human capital) in a manner and at a price they previously couldn’t come close to. 

Jeffrey Carr, Vice President, General Counsel & Secretary, FMC Technologies, Inc.: In-house counsel must determine how to make value-based engagements the standard for their own teams while simultaneously implementing value-based engagements with their outside counsel.  

In looking ahead, I see the ACC Value Index, the client satisfaction measurement tool developed to help ACC members share meaningful information about the value they get from their outside counsel, being recognized as the industry standard.

Elisa D. Garcia C., Executive Vice President & General Counsel, Office Depot, Inc.: For in-house lawyers with public companies, we will have to nimbly navigate an avalanche of new legislation and regulation in the governance arena. From proxy access to say-on-pay, from risk committees to golden parachutes, and all the enhanced disclosure requirements that will accompany these and other regulations, I foresee substantial confusion and lack of guidance from the regulators. This is especially concerning because of the “anti-corporate” bias of regulators. I hope the regulators work with the business community to ensure that the new rules are clear and enforced fairly.  

I encourage smaller and diverse [law] firms to embrace the ACC Value Challenge as a game changing differentiator. I think the agility of a smaller firm will enable it to be more creative in bringing value solutions to corporations and thereby helping them gain opportunities they may not have otherwise had.   

Michele Gatto, Executive Vice President, Corporate Services & Chief Legal Officer, National Life Group: In the current economic environment it will be incumbent on in-house counsel to manage expenses carefully and strategically, with a focus on increased efficiency, productivity and value. This is an opportunity for in-house lawyers to demonstrate their abilities to be good leaders, as well as good lawyers. We will also need to stay focused on new developments in the legislative and regulatory environment (financial services reform, health care reform, etc.).

J. Alberto Gonzalez-Pita, Senior Vice President & General Counsel, Las Vegas Sands Corporation:  Some trends are clearer than others, and increasing regulation is one that stands out. This will happen at the state and federal levels and will impact a wide-range of small and large businesses in numerous industries. I believe we will also see increasing enforcement of existing regulations with larger fines and penalties for non-compliance. Identifying, analyzing and complying with these regulations, as well as ameliorating their impact will require a significant investment of time and resources by in-house counsel.  Another trend is the continuation of the changing dynamics between companies and their outside counsel. The economic recovery is unlikely to be fast or robust enough to diminish ongoing cost cutting efforts, and outside counsel will continue to feel pressure on their fees. The ACC Value Challenge will continue to gain momentum as an effective way for in-house lawyers to achieve demonstrable savings and efficiencies. We will continue to see more alternative fee arrangements and less hourly rates through 2010 and beyond.

There will certainly be numerous changes in store for specific industries (banking and finance, insurance, health care, pharmaceutical and hydrocarbons), but I'm not a good enough prognosticator to say what those will be. "Legal" change is in the air more so than in years past, and I believe this will impact the vast majority of in-house lawyers in some fashion.

Teresa Kennedy, Assistant General Counsel, Cox Communications, Inc.: Lawyers will be stretched by handling more matters than ever in-house, with less support from our business partners.  This situation will require us to be more actively engaged in vetting business issues, which of course, presents us with both opportunities and challenges!

Jonathan Oviatt, Chief Legal Officer and Secretary, Mayo Clinic:  We will continue to see increased expectation that legal services will measure up to the same metrics of "quality and value" that are applied to all other shared services in the organization. Effective lawyers will be those who intentionally partner with clients to improve quality and value, while reducing expenses.  With increased regulatory complexity and decreasing budgets, effective risk balancing and risk management skills are essential for effective lawyers.

"Tone at the Top" has never been more important and effective CLOs have a critical role in ensuring that our clients do the right thing. Additionally, it has never been more important for us to avoid taking ourselves too seriously—we must maintain balance.

Carol Ann Petren, Executive Vice President & General Counsel, CIGNA Corporation:The greatest challenges for in-house counsel will definitely include an increased focus on executive compensation and risk management. There should also be an increased willingness to take advantage of developing business opportunities with a more stable economy and clarity on the regulatory front.  

Eric Reicin, Senior Vice President & Deputy General Counsel, Sallie Mae, Inc.: In times of stress, uncertainty and an enhanced regulatory environment, in-house counsel need to be more than practitioners, they need to serve as both a trusted advisor and business partner. During the last 20 years - especially the last five - we have seen a dramatic shift in the speed and efficiency of the practice of law with the addition of each new technology (overnight mail, fax, electronic word processing, electronic legal research, e-mail, e-filing/knowledge management, internet search, video conferencing, intranets, IM, BlackBerry, iPhones, Twitter and private secure social networks), and this trend will continue, mostly to the detriment of our personal lives and to the perceived benefit of our clients. It will continue to fall to us to encourage our clients to prioritize, recognize when immediate turn-around is required and when further thought is preferable. Thoughtful legal advice often takes more than 140 characters of text.

Martine Turcotte, EVP & Chief Legal & Regulatory Officer, Bell Canada: One of the major regulatory and investor areas of focus will be on executive compensation where more disclosure -similar to a management and discussion analysis focused on compensation – that is now required. While we had to go through this as one of the first Canadian issuers last year, regulators have kept a close eye on this, and now with “say on pay” resolutions having been adopted by a few issuers like ourselves, it will be an interesting discussion with governance organizations and major investors.   On the administration side, top focus will remain on outside counsel costs and the value proposal.   

Norman Wain, VP, Corporate Legal Affairs, Assistant General Counsel, The Finish Line, Inc.: I see our greatest challenge as balancing the corporate expectations while continuing to decrease (or manage) costs in light of tighter economic conditions. In-house counsel need to learn to work more efficiently, better manage outside counsel (perhaps changing fee structures) and then battle senior management to still pay attention to legal when they are desperately focused on reducing costs and cutting programs from their budgets.

In terms of prospects for the year ahead, technology is constantly changing, which creates new opportunities. In addition, we will need to monitor new government regulations and what their impact will be on our businesses.

- - - -

From regulatory hurdles - to increased scrutiny - to strengthening relationships with outside counsel, it’s clear that in-house counsel will have their hands full in the coming year. In addition to increased government scrutiny and regulations, I see increased regulation of the legal profession, with more laws and regulations governing the conduct of lawyers. And, while the use of value-based fee arrangements will increase, the billable hour will not disappear. I believe, however, that it will no longer be the default billing mechanism that parties use without consideration of other approaches. 

As these changes take hold, ACC will continue to respond to in-house counsel needs and challenges in the coming year through our educational programs, member communications and advocacy efforts. If you have additional thoughts and predictions, I’d love to hear from you, too.

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I understand that most firms employ the business model of selling rates and hours, and thus the only way to make more money for them is to raise rates or increase hours.  Since many are still struggling to secure the hours (even though the billable "expectations" have not decreased), they'll seek to raise rates for the lawyers who remain working.  Are they really that tone deaf?  Do they really believe that the path to profitability is made smoother by increasing rates in 2010?  Don’t they see the imperative (for their own survival and for longer-term-profit sustainability), as well as the opportunity, to start moving toward another business model of valuing their legal services based on the worth of what they sell and the efficiency with which they provide services?

While my information is anecdotal, everything I have heard from firms I'm talking with as a result of the ACC Value Challenge and from clients who have been whacking back their budgets, is that a firm would have to be foolish to announce any kind of increase right now. Do they believe that with some markets rebounding that they'll be able to return to the "Golden Age of Profitability" that all the consultants use to describe the last 10 years?

Sure, many firms will engage in a "paper" exercise of increasing rates so that when they were asked to provide a discount they will be at least somewhat ahead of the game, but surely, firms don’t believe there will be a rise in the amount of money that clients will pay for work overall?

Here's the scenario: the CLO goes down the hall to the CFO's budget meeting for 2010.  The CFO says to all the leaders present: "It's been a hard year for us, and you've all done a great job in driving down costs to keep this company afloat. I'd like to especially recognize the law department, which after years of uncontrollable cost-overruns and a 75% increase in legal services costs to the company over the last 10 years (a stat he has retrieved from the Conference Board), succeeded in bringing home a 25% decrease in legal costs in 2009.  We knew you could do it!  Congratulations and welcome to the team!  You've done so well, that this year, we're only looking for another 10% reduction in your budget while everyone else will have to cut 15%!"

What will the CLO say?  Is his/her answer is going to be: "Well, actually folks, our firms were so great about discounting their fees last year, that we want to repay them for their investment in us during our hardest moment, and so we're looking for our budget to be back up to what it was in 2008, plus a 5% increase for the firms for 2010!  Those poor guys saw a decrease in their profit per partner last year from 1.8 million per partner to about 1.6 mil after they fired 1/3 of their support staff, de-equitized our best servicing partners, and deferred the starting date for their incoming class of 38 new associates."

If you're the CLO who responds like that, it's you who’ll be looking for a new way to fill your hours this coming year.

Any firm watching attuned to the economic climate and to their clients this last year should have engaged in some kind of cost-cutting or efficiency exercise that did more than cut dead weight or marginalize those who actually do the work, but that fundamentally addressed inefficiencies in the firm's business model.  And that, hard as it will be to take, begins the process of re-setting the compensation expectations of some of their highest paid lawyers.  

Many of the larger firms are simply going to have to tell people at the top that their take-home expectations are simply going to have to change IF THE FIRM IS TO REMAIN PROFITABLE.  Lawyer comp in many firms is not realistic, not supportable, and has to go down because the bubble has burst.  So it's time for them to ante up to the discussion of what it's all about - will they choose the firm's sustainable path to shared profitability, or an attribution system that often puts individual partner comp ahead of the firm's best interests.  Either all boats will rise, or all may sink.

The idea that firms should look to maintain their stature as a top player by raising their prices is based on old thinking.  Value firms will proudly strut their increasing portfolio and profitability by pointing to an increase in client satisfaction with the value of their services, or an improvement in their efficiency, or a reduction of their costs because of an innovative new way they're working in this environment; raising rates to "assure" profitability is a failing strategy.  As this becomes increasingly apparent in the coming months, I hope that more firms will join the ranks of those who've already begun to think about new ways to value their services that don't rely on rate x hours at all.

Get with the program, law firms:  Just because many of you sell an overpriced inventory of hours doesn't mean that that's what clients are going to purchase in the new paradigm, and raising rates is going to make your pitch to sell all those hours even more unattractive.  Furthermore, it will indicate clearly your lack of alignment with the clients you serve.  It will also hand your current clients the permission slip to visit other firms that will provide the services you've always provided, but for less, or better, or for a more predictable cost.

Perhaps the silver lining for firms that haven't figured this out in the short term is that clients are increasingly uninterested in rates at all; they are increasingly focused on the all-in cost of the work. Rates are becoming irrelevant to many clients who say: "I really don't care what your rates are - that's not my problem; this is what I'm willing to pay for the work, since this is what it's worth, and you figure it out from there."

Again, it is time to get off the merry-go-round of "firms-raise-rates-so-clients-will-demand-discounts." This is no way to sustainable profitability or support strong, institutionalized, trusted relationships over the long-term.  

Hopefully, 2010 will be the year NOT of the rate increase, but instead, one where there is significant movement of firms toward other options for valuing the services they provide.  This must happen while there is still an opportunity to experiment with new models and adjust to the new order without as great a penalty - indeed, with a distinct upside for early adapters.  The window of this opportunity will begin to close soon as some folks get it and others don't: those who haven't been moving to accommodate new client expectations will find themselves keeping company with their newly-hiked rate structures on the sidelines.  Seated right next to -- as Mike Dillon so aptly put it – the Mastodons.

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We are pleased with the interest in the ACC Value Index (AVI) since its release last month at the ACC Annual Meeting in Boston. The attention from the media and law firms at this early stage of development reflects the potential value of the AVI to our members. Recent Blog posts and articles, especially those that show “purported ACC law firm rankings,” require clarification:

• The ACC Value Index is in the early data-gathering stage and it will take time to develop a robust database.
•  It is premature and inappropriate at this time to cite "rankings" of law firms given the limited number of evaluations submitted thus far.
• The AVI is a service for ACC members that will enable them to share information and communicate with each other about the selection and retention of law firms.
• ACC will share with each law firm the evaluations it receives about that firm as soon as we finalize the appropriate formats and procedures.

We welcome the continued input, feedback and engagement of the legal community in the ACC Value Challenge.

ACC President Fred Krebs on the ACC Value Index

Friday, November 13, 2009

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The recent launch of the ACC Value Index at ACC's 2009 Annual Meeting generated significant interest and commentary, including both praise and criticism. 

We welcome these comments because they not only further the attention and discussion about value in the delivery of legal services (a primary goal of the ACC Value Challenge), but they will also help us to improve the ACC Value Index (AVI).

            A few additional thoughts on the AVI:

1.           We created the AVI as a member service, so by definition, it is available only to ACC members.  Stated simply, it provides two specific benefits to our members:  a) the compilation of individual ACC member views on the value received from specific law firms; and b) the ability to find other members who have used a firm in order to communicate with them and engage in a dialog about their experience.  The AVI is a specific tool meant to inform decisions as part of a larger process of selecting and retaining a law firm.

2.           Members may post an evaluation anonymously or with identification at their option.  We believe the anonymity option to be important - particularly at the outset of this initiative.  Over time, as the AVI gains acceptance among our members, I anticipate that the percentage of anonymous postings may decline.    Evaluations can be posted with attribution - or anonymously -  as we seek useful and candid information to build acceptance of the evaluation concept generally.

3.           We will make the evaluation summaries available to the law firms. When and how best to do that remains under consideration by our Advisory Committee.  A corollary benefit of the AVI will be the ability to recognize those law firms that provide value in the collective judgment of our members.  Coinciding with the overarching goal of the ACC Value Index – information gleaned from the AVI will help to foster a greater dialog between clients and their outside counsel.

4.           The AVI is a work in progress and we are pleased with the interest and input it has generated to date.  Nevertheless, it will take time to populate the database with sufficient evaluations to reach a meaningful threshold.  The AVI database has been populated with over 1,500 evaluations, reviewing over 400 firms, and we will continue with our member outreach for additional evaluations.

5.           The AVI is only one part of the ACC Value Challenge, which encompasses a larger effort to reconnect value to the cost of legal services.  Other aspects include a) “Meet. Talk. Act.” which encourages clients and law firms to engage in discussions about value and their relationship; b) a law firm economic model; and c) specific resources with examples of value practices and ideas on ‘how to’ implement practices focused on value.  Resources, success stories and updates are continually added to the ACC Value Challenge community pages and we encourage law firms to get involved and help to provide additional information/resources.

6.           One important observation on the evaluations received to date: law firms generally do good legal work, but all too often, do not have costs and matter management under control. Effective cost and project management should be a key objective -- for both clients and firms to effectively work together. By managing legal matters in a business-focused, client-centric way, as opposed to basing solely on “hours worked,” the agreed upon business objectives will drive greater efficiency, and ultimately, value.   Law firms must learn to reduce their costs while improving quality.  Our members’ companies operate under this imperative, and their outside law firms should, as well.

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 Each year, as ACC’s Annual Meeting concludes, I’m always struck by the interesting and substantive new information I discover.  Inevitably, people say things - or I observe or participate in events - that leave me with much to think about.  This was my 18^th annual meeting and it was no different. Throughout our time in Boston, I continually encountered such instances among our 2400⁺ attendees that, I believe, contributed to the success of this gathering of in-house counsel from around the world.  

Leadership, education, collaboration, support, relationships and value, all contributed to a successful conference, which I tried to capture in these Random Observations…

·        As she shared her lifetime of studying and writing about great leaders, Pulitzer Prize winning author, Doris Kearns Goodwin, presented a captivating tale of personal observations and what we could learn from the great leaders she had studied. I, like everyone in the room, hung onto her every word and was drawn into her uncanny ability to “tell a story” and describe the research that went into her book, Team of Rivals: The Political Genius of Abraham Lincoln.  So much of what she discussed about the politicians and historical figures translated seamlessly to the legal community.

“Lincoln’s success was the result of a character that had been forged by life experiences that raised him above his more privileged and accomplished rivals.”

“The best indicators of a good leader – being able to motivate during frustration.”

~ Doris Kearns Goodwin, Pulitzer Prize Author

 ACC’s 2009 Annual Meeting Keynote Speaker

I say without hesitation—read this or any other book she has written!

·        Ivan Fong, former ACC Board Chair, who recently became General Counsel for the Department of Homeland Security, provided a captivating account of his transition to the public sector, with particular emphasis on the qualities of effective leadership.  His candor and honesty were both insightful, as well as refreshing to hear, in light of his high-profile role with the third largest government agency.

“The hallmarks of being a good lawyer – the foundations on which everything is based – are the quality of the legal analysis, responsiveness, sound judgment and the ability to be a trusted advisor, all of which translate well into the public sector.”

"You can tell the health of an organization by the quality of its arguments.”

~ Ivan Fong, General Counsel of U.S. Department of Homeland Security

Chair’s Choice: A View from the Frontlines

·        Earlier this year, we were saddened to learn of the passing of Robert Banks, Sr., an extraordinary in house counsel for Xerox and the leading founder of ACC. He gave us a great gift and he gave us all an organization that permits us to change and improve our profession and ourselves.  

“For his beliefs and advocacy, we all owe Bob an immense debt of gratitude.”

~ Carl D. Liggio

Founder and 1984 ACC Board Chair

Because of his unyielding support of ACC, it is only fitting that we honor Bob with the ACC Robert Banks Memorial Scholarship Fund, starting in 2010. This scholarship will help support those members who are in transition or need additional support to attend future Annual Meetings.

·       During an engaging discussion of CLOs, opinions were exchanged and suggestions were offered, and I was intrigued by the frankness and insight offered.  Much of the discussion related to the changes occurring among in-house counsel and their relationships with their outside lawyers and the billable hour.  Unlike similar discussions of the past, where everyone just cited problems, here, the CLOs offered tangible solutions and discussed what they have begun to implement to help affect change.

“Meet. Talk. Act. – from the ACC Value Challenge – gives us all a good framework to use … we need to get together with our outside counsel, open the dialog and start doing things.”

~ John Page, Vice President, GC & Corp. Secretary, Golden State Foods Corp.

Chief Legal Officer Roundtable Discussion

“What we’re learning is how to use alternative fee arrangements – when do they work and make sense? More and more there will be categories of matters where alternative and flat fee arrangements are more accepted – it’s the law of supply and demand – some are cyclical and some are secular.”

~ Marc Gary, General Counsel, Fidelity Investments

Chief Legal Officer Roundtable Discussion

·        As I made my way though the Exhibit Hall, and observed the interaction among the over 100 exhibitors and the attendees, I understood what many in-house counsel had told me, that they liked the positive, controlled environment.  Members feel this provides them with a “one-stop shop” to speak with legal industry providers and hear about the new resources and services available to them.  The exhibitors, too, were engaged and I was happy to hear a number of positive comments.

“We were very happy with the event. We met a lot of attendees and got to speak to them about their needs and how we can help.”

 ~ Ian Nelson, Vice President of Business Development & Marketing, PLC

ACC Alliance Partner/2009 Annual Meeting Exhibitor

“Everyone has been really engaged and interested …this has been really helpful for our attorneys, to see the number of in-house counsel in attendance and to interact with our clients that are here.”

~ Felice Wagner, Chief Client Service Officer, Sutherland

First Time 2009 Annual Meeting Exhibitor

·       Efficiency, value and cost containment were repeated throughout the conference, both in sessions and during one-on-one conversations, as everyone shared and gleaned insight on streamlining processes without cutting quality. During the session, “The Slow Motion Riot – Revolutionizing Law Department Cost Management,” law department leaders and law firm management discussed the ACC Value Challenge and how the initiative could help to support their efforts.

“Value Day - August 24 - the day the Wall Street Journal covered alternative billing on its front page."

~ Jeffrey Carr, Vice President, GC & Secretary, FMC Technologies, Inc.

The Slow Motion Riot – Revolutionizing Law Department Cost Management

“Value means more than price for legal services – what more do we want from our relationships – CLE, top of mind advice, brainstorming….”

~ Bruce Goldberg, Managing Counsel, Allstate Insurance Company

The Slow Motion Riot – Revolutionizing Law Department Cost Management

“Profit is variable; what is valued is continuing relationships maintained through continuing relationship reviews.”

~ Stuart Pape, Managing Partner, Patton Boggs LLP

The Slow Motion Riot – Revolutionizing Law Department Cost Management

"Once you decide to go down this path, there's only one question you need to ask law firms, Will you do this? Yes or no. If they say no, they are free to work elsewhere. Draconian? Yes. Effective? Absolutely. But it does take some backbone."

~ Jeffrey Carr, Vice President, GC & Secretary, FMC Technologies, Inc.

The Slow Motion Riot – Revolutionizing Law Department Cost Management

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 “Automating broken processes won't make us smarter; it can make us stupider faster.” ~ Steven Levy

Participating in a panel discussion at the International Legal Technology Association (ILTA) conference last month was yet another opportunity for me to engage in a discussion about the ACC Value Challenge.  But, instead of speaking to in-house counsel and law firm partners, this time I addressed technologists.  It was an excellent opportunity to discuss IT’s involvement in the initiative to close the gap between the cost of legal services and the perceived value clients received from those services. 

Tim Corcoran (Altman Weil), John Alber (Bryan Cave) and Constance Hoffman (Bryan Cave) provided a number of practical examples culled from their own experiences, explaining how technologists can play an integral role in strengthening the relationship between law firms and their clients. The questions from those in attendance reinforced the significance of this group’s involvement in the ACC Value Challenge.

Steven Levy, principal of Lexicon Steven Levy & Associates and former senior director of Microsoft’s Legal Information Systems Department, addressed this same topic in a recent Law Technology News article by focusing on trust and productivity. Levy discussed 10 ways IT Departments can work together with their law firms to “deliver more value,” and in doing so, he honed in on how an IT department can not only assist its law firm in strengthening the relationship with its clients, but also help it to be more responsive - and proactive - in this effort.

One of Levy’s suggestions resonated with me: Don’t Automate Broken Processes. Improving processes should not be confused with moving things around to just look different.  This does not work.  I often hear, “Sure things are different, but they aren’t better.”  Technologists need to listen to their lawyers to hear what it is the clients want and how they can help the firm change systems to achieve that goal.  By conducting internal reviews, such as document management system assessments, data can be analyzed to actually improve productivity and not just “shuffle things around.” 

Indeed, it’s a two-way street and the weight of this endeavor should not be dropped on the IT Department’s shoulders.  Lawyers must convey the information correctly and provide their technology team with the necessary information to effectively implement these changes.  The IT Director needs to ask the right questions, repeat the issues and concerns and confirm what he/she believes the intended results should be.

An even better solution would be to bring the IT Director into client meetings. As Hoffman noted during the ILTA panel discussion, she has been involved - on the front lines – working with Bryan Cave clients to identify needs and determining the best practical applications to ensure success.  Her intricate knowledge of the technology involved enables the firm to be better prepared to not only respond to client requests, but to also appreciate how working together can strengthen the relationship between clients and firms.

By involving IT in the process – from the start – law firms are better equipped to manage client expectations.  As Levy so aptly noted, “Unlike Wine, Bad News Does Not Get Better with Age.”  Law firm attorneys cannot afford to be in the dark, nor can they keep their clients in the dark.  When an open dialog between attorneys and technologists exists, there should be no surprises.  No surprises means keeping clients abreast of the progress – and the delays. For those of us who travel frequently, we know the feeling of sitting on a plane, delayed on the tarmac … wondering what’s causing the holdup.  When the pilot explains that air traffic control has delayed our take-off by 20 minutes due to incoming traffic, our expectations are managed and we can relax.  Without the pilot giving us an update, we’re left to fret and to worry (or get agitated!). Being honest, upfront and providing assessments throughout the process ensures a win-win for all involved.

An underlying principle of the ACC Value Challenge is to “promote a dialog among corporate counsel, law firms, law schools and others who are interested in driving an alignment and focus on value.” The success of the initiative encompasses the participation of everyone within the legal services industry.  The ACC Value Challenge is not a “silo” initiative where everything is compartmentalized. It’s an initiative based on collaboration and sharing, and IT’s role cannot be overemphasized. Value is in the eye of the beholder and without effective communication and sharing, this, too, will fall into the bucket of automating broken processes that yes, “will make us stupider faster.”

Frederick J. Krebs

Next Up: The Chief Marketing Officer’s Role in the ACC Value Challenge

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“Your problem is to bridge the gap which exists between where you are now and the goal you intend to reach.” ~ Earl Nightingale

 Accountability, efficiency and value --- three words that are reverberating throughout the legal services industry these days.  In-house counsel are being held accountable by their companies to contain costs and predict expenditures; law firms must demonstrate efficiency and provide metrics to help communicate the value of the services provided. We’re in an era of transparency, one that demands, as Association of Corporate Counsel (ACC) President Fred Krebs, recently noted, “open communication and dialog.”

The recent International Legal Technology Association (ILTA) conference, held August 23-27 at the Gaylord National Resort & Conference Center near Washington, D.C., provided a forum for discussing technology’s role during this period of intense scrutiny.  One of the final sessions of the conference, “The ACC Value Initiative and What It Means to Technologists,” brought together the following panel with vast experience and insight from both sides of the legal aisle:

Fred Krebs, President, Association of Corporate Counsel

John Alber, Partner and Leader of the Technology Group at Bryan Cave, LLP;

Constance Hoffman, Chief Information Officer at Bryan Cave, LLP; 

Timothy B. Corcoran, Senior Consultant, Altman Weil

Alber, a practicing attorney with over 25 years of experience who also served as CEO for a software and database company, opened the discussion with an analogy, “Ten years ago newspapers made most of their money from display ads. That was also the start of monster.com and the dot-com explosion. Well, we’ve seen what can happen over a ten-year period to one segment when a critical mass bands together to affect change; and the legal industry is not immune to succumbing to this type of pressure to change.”

A recent study by Corporate Executive Board, found that over the past ten years costs to U.S. companies went up 20%, but that legal costs went up 75%. Law firms and clients are both under pressure to reduce legal spend, while still performing many of the same functions. Clients are now creating joint and highly-structured initiatives, such as the ACC Value Challenge, aimed at closing the perceived gap between what legal services cost and the value clients receive from those services. Law firms are finally sitting up and paying attention and as they develop ways to demonstrate their value to clients, those working with - and inside - legal technology departments can play a vital role.

“The ACC Value Challenge developed in response to member dissatisfaction,” explained Krebs.  “Rising costs, the disconnect between costs and services delivered in relation to hours billed and lack of communication, have all contributed to the development of this initiative.  ACC is calling for an increase in communication between in-house counsel and law firms to bridge the gap and work toward value driven solutions.”

In painting the picture of what it is clients want, Krebs highlighted the numerous opportunities that exist for technologists to help their firms respond to client needs.  The key areas where they can help, from the client’s perspective, are:

        1.    Better management; lean/efficiency (two-way) 

2.    Certainty /predictability (up-front budgets/scopes that stick)

3.    Focus on outcomes and results, not just on process and analysis (driven by evaluations and metrics)

4.    Costs that equate with value received

5.    Outside counsel and firms whose motivations and business models are aligned with the client’s

“The emphasis on predictability cannot be stressed enough,” explained Krebs. “This is where technologists can make a real impact.”

Coinciding with the ACC Value Challenge is the “Value Index,” an evaluation tool that will allow ACC’s in-house counsel members to rate their law firms and exchange information amongst each other.  Scheduled to be unveiled in October 2009, during ACC’s Annual Meeting in Boston, the goal of the Value Index is to enable in-house counsel to “tap into the wisdom of the crowd,” and gauge first-person feedback on the performance of outside counsel.

Law firms need to communicate with their clients and ask the hard questions, “Are they performing to the level expected? What is [their] perception of the firms they engage and the legal teams working on their matters?” Lawyers need to address these concerns, because soon, their clients might just be sharing their dissatisfaction with their colleagues.  Law firms cannot afford to be in the dark and must identify ways to not only address concerns, but also head off problems before they occur. 

The smart use of technology (making sure systems work efficiently), metrics (analyzing the data and improving processes) and collaboration (internal dialog) all play a significant role in helping firms to be more responsive to their clients’ needs.  Technologists, working closely with the attorneys and other administrative departments, can develop streamlined solutions and processes that can help with efficiency, reducing costs and long-range forecasting. 

Improving processes, however, should not be confused with “moving things around to just look different,” explained Krebs.  Referencing an article by Steve Levy in the August issue of Law Technology News, Krebs noted that, “Automating broken processes won't make us smarter; it can make us stupider faster.”

Having worked in-house with a law firm, as well as with a leading legal service provider and now with Altman Weil, Corcoran draws from his experience, and agreed with Krebs that, “After years of training, change is upon us and our time has come….but it’s not going to be easy.”

Corcoran referenced a recent Altman study, which showed that, in 2009, 40% of the In-House counsel surveyed planned to reduce the use of outside counsel, and almost 30% had reduced their internal staff. 

“We grew up with the belief that property values will always rise, and we see where that got us,” Corcoran said. “The same has been the case for lawyers, believing that demand will continue to rise and clients will continue to pay.  But clients are insisting on change. We’re hearing more about the challenges our clients are grappling with, and our surveys confirm, there is a movement going on. ACC has provided a framework – a voice  – to hear and respond to those challenges.”

While the use of outside counsel is declining, the work still needs to be done.  Corcoran believes this presents firms with a challenge, as well as an opportunity, to do things differently. “Firms need to look at the cost base and figure out a way to deliver their services at the lowest cost and in the most efficient manner.”

 Law firms must acknowledge that this is not “everyone else’s problem” – they must face reality and recognize that they are part of the solution.  Culling from other industries, Corcoran outlined how law firms can be more responsive to the changes taking place:

 ·      Cross-Selling:  For law firms, the concept of cross-selling is seen as a “nice to have,” and one that is inconsistent throughout law firms around the country. For most corporations, however, the idea of looking for opportunities for more business with the same client is “a matter of life or death.” It’s the lowest cost of sales – expending less on an existing client than trying to woo a new one. Having technologists’ insight and input – to better understand client needs (from a technology standpoint) - will help to strengthen the relationship.  Law firms need to make cross-selling a priority.

·      Project Management: Lawyers need to have more than just legal skills – they need to have an aptitude for project management. They would be wise to look to their own clients as models for project management – construction, transportation, manufacturing – all industries that require intense, seasoned managers to ensure projects are on target and within budget. Clients don’t like surprises. Without an experienced project manager to ensure matters are on track, law firms are exposed to unknown risks. Technologists have the knowledge from a project management standpoint and can convey to lawyers similar insights.  Law firms need to recognize the importance of project management skills and tap into technologists’ skills, as well as increase training in this area. 

 ·      Outsourcing:  When some think of outsourcing – they automatically equate that with legal departments using “non-traditional sources for their legal work,” but in actuality, outside law firms are an “outsourced provider.” Companies focus on their products and core competencies; they don’t do legal work. Law firms are one of their solutions. Technology departments and legal resource vendors, provide law firms with the necessary tools and resources to get the job done.  They are an integral part of the success – or failure – of a relationship and should be seen as a necessary partner in the firm/client relationship. In addition, a law firm can find ways to do some tasks a lot more cheaply, so the client does not turn to outside vendors.   

Companies, such as Practical Law Company, a leading provider of practical know-how for business lawyers, can help law firms provide their clients with the resources needed to practice more efficiently and deliver greater value. NOVUS Law, a document management provider, is another example of an external company that can help firms understand how to eliminate redundancy and find ways to do things more quickly, with less people, and improve the quality of the work provided. Off-shoring/outsourcing companies can help firms improve their business processes. Law firms need to embrace this concept and see the value in their technology departments and outsourcing companies to help them to be more efficient.

While technology can enable business process improvements, the answer, Tim noted, “isn't technology, it's the business process that needs fixing.”  Too many IT leaders get hung up on the technology and miss the wider point, which Krebs emphasized earlier: “good technology on top of a bad business process is meaningless. 

Understanding the kinds of technology initiatives clients expect firms to undertake in order to reduce costs and increase value is key.  Hoffman, who has been involved in identifying these needs for Bryan Cave clients, recognizes the practical applications of what can be done to transform relationships – bridge the gap - between clients and firms.

In order to be responsive, firms must have an open dialog with their clients. This dialog, explains Hoffman, “will provide law firms with the insight needed to develop systems and processes that will keep clients informed and abreast of issues that might change the timing, or even, budgets. “

Again, clients do not like surprises.

“By having that in-depth conversation with clients at the onset, explains Hoffman, “firms can put systems, such as detailed databases, in place to track progress on a continual basis. Not only can this help to reduce transactional costs, but it also allows for better reporting and transparency for the client.”

“The efficient use of junior lawyers or contract lawyers, with assistance from technologists, to collect the necessary data,” explained Alber, “enables senior lawyers to adequately analyze the data to evaluate the situation and keep clients informed throughout the process.”

This streamlined process helps eliminate surprises at the end of an engagement. Law firms can better manage expectations and in-house counsel have access to the necessary information to keep their CEOs apprised. 

This is a fundamental concept of the ACC Value Challenge, to bridge the gap of uncertainty, encourage transparency and connect expectations of value to the costs of the services provided.   The momentum for such discussions and frank negotiations is gaining and law firms are responding.  For those firms just now reacting, Corcoran noted, “they will not be first – they will be trying to keep up with the pack.”  Law firms cannot afford to lose their role as trusted advisor, because if they do, it will be years before that relationship is salvaged. 

Technologists’ ability to help streamline processes, improve efficiency and provide measurement tools is a reality in today’s legal environment.  Technology experts need to be part of the process from the start and valued members of the law firm/client team. Paraphrasing Churchill, Krebs noted that in discussions about the death of the billable hour, “never has so little been accomplished by so many for so long” the time for change is now.  Real change has begun as clients and firms implement value based arrangements.

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Susan E. Jacobsen, President of LUV2XLPR, Inc. has over 15 years of experience helping attorneys and corporate executives with public relations, business development, not-for-profit and advocacy communications, and continues to work with clients to developing successful new media and traditional public relations strategies.

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Recently, a colleague sent me an article from Forbes entitled “Kill the Billable Hour”. The author was a self proclaimed trial lawyer from a large law firm began by telling his readers how he was able to charge a lot for each of his hours and he could bill as many hours as he wanted for him and his associates. However, he and his wife had new kitchen installed and they agreed on a turn-key price with a contractor. Apparently, this experience resulted in something akin to rebirth in which in the spirit of altruism he wanted to inform his clients and all clients of lawyers that they should treat their lawyers like a construction contractor. Kill that billable hour he argued; get that fixed price he urged—well, not really a fixed price because he tried complicated cases which were highly unpredictable so he could only sort of fix the price.

The problem with this analysis is that I would not put in a kitchen the way he did. I have a heavy duty Delta shaper and a Delta Unisaw, as well as an 8” jointer and a 13” thickness planer among other tools so I built and installed my own raised panel cherry cabinets. Similarly, with plumbing, electrical and plaster board—I can do it all. So, how did I deal with the billable hour decades ago—I told my outside lawyers they could bill whatever they wanted as long as it was less than I could do it for, or learn to do it .

Needless to say I tried a lot of my own cases.

I know you cannot do that—trust me I have heard every explanation as to why, so don’t try to explain. But don’t worry the altruism of the lawyer in the article is a sign that there is a lot less litigation—in fact chances are really good that there is so much less litigation that this lawyer is not being altruistic at all—he is looking for business and his discovery of flat rate billing version 10.2 is simply a ploy to attract clients who he believes will be lured by his new found generosity.

Why am I so cynical? First, if he really had the license to steal he claims he has, which presumably he developed his career on, he would be reluctant to part with it for the good of mankind. Second, although the present attack on the billable hour seems new and creative; those of us with a few years tend to look at it and moan; “Here we go again.” Finally, for those of you who read this blog regularly you would have seen my blogs on flat rate billing and the difficulty firms have in selling this concept to the very customers who claim they want it.

The article is about the economic state of the legal profession—not the billable hour and perhaps the fact that lawyers’ ability to pay for new kitchens might not be as easy as it has been in the past.

Check out ACC's Value Challenge on the changing landscape of working with outside counsel and the billable hour.
 

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