This morning, I had the honour of spending half a day with the famed Daniel Goleman exploring emotional intelligence, focus and leadership as a part of the CEO Global Network – Great CEO Speaker Series.  The room was filled with C-Suite executives from a broad range of backgrounds and professions.  Of course, all I could think about was how to apply the theories and methodologies discussed to the practice (or business) of law. 
Dr. Goleman introduced the concept of “mindfulness”, a meditative practice that originates in Buddhism, but has gained popularity as a distinctive method for managing emotions.  The participants in the room were each asked to close their eyes and focus on their breath for a moment or two, and if their minds wandered, to bring the focus back to breath again.  It is believed that by being able to focus for extended periods of time, over the long term, you will be able to react to stress better and recover more quickly from emotional episodes or outbursts.  Imagine if it got so heated in a courtroom that the judge made everyone stop and focus on their breath for a moment? Or if midway through a tough take-over bid all parties stopped to meditate rather than allow their emotional reaction to prevail?  It sounds a bit foolish but the idea is to train the brain and its related muscles to resist distraction, stay focused and thereby manage the stressful situation more effectively.  Only though practicing when it is not necessary can you rely on the muscle function to be there when you actually need it.  I think six minute meditation should become mandatory in firms, keeping lawyers focused can only be a good thing for the bottom line.    
As important as “mindfulness” is, the concept that resonated most with me from a law firm perspective is the notion of “flow”, and how when in  “flow” or when focused on a task at hand, people are at their peak performance. Great leaders will learn to read those they lead and encourage 
them into a state of flow.  Flow is described in four parts: 
  1. Clear goals
  2. Flexibility – ability to change and adapt
  3. Immediate feedback  – it is believed that a person focused on a task will respond better to feedback during the task, as it is happening and this will make success that much more achievable.
  4. Matching of goals with skills
As we’ve seen throughout the legal community (3 Geeks included), over the last several years and specifically, in the last six months, there has been a great deal of talk around legal project management, AFAs, increasing productivity and process improvement.  Essentially, there’s been talk of wanting to increase the flow between lawyers and clients.  Consider the four parts above in this analogy: 
  1. Define a clear mandate of work or scope for the firm, no periphery or ancillary legal work
  2. Lawyers need to be able to adapt to the changing environments of the market and their clients as the mandate unfolds
  3. Lawyers and clients both need to keep one another apprised of the progress throughout the process with an open and honest dialogue
  4. The firm needs to staff client files with the appropriate balance of expertise and experience to meet the client needs effectively and efficiently. 
If we can achieve the four steps above on every client file, then client service will be in “flow” or at peak performance.  Efforts will be focused and outcomes will be (hopefully) successful for everyone involved.  Sounds utopian, but I believe it is possible, it just make take some mindful work to get firms working and focusing on these steps consistently.

Moving from four to three, great leaders according to Goleman are composed of equal parts:

  1. self awareness,
  2. people or social awareness and;
  3. a wider public awareness. 
I would argue that great law firms are much the same.  First, they need to understand what kind of firm they are and where they exist in a market.  Secondly, firms need to be socially aware of their client interactions – from billing to social events, from blogging to in-person meetings, from CLE and training to regular filings and other client touch points.  And finally, firms need to be aware of the wider world in which they and their clients operate.  As a CI practitioner who often describes my role as bringing the outside world in, this third pillar of leadership particularly inspires me as it positions CI in a leadership context.  Put another way, the firms that will lead the race for client service and  client engagement, will know their role, know their audience, and know their context.
Goleman ended his talk with some tips on how to improve emotional intelligence. These tips can equally apply to firms wanting to increase their wallet share. The tips taken together are a blue print for success and despite their simple message are actually quite difficult to achieve.  Improve emotional intelligence by: articulating a goal, planning for that goal, change habits to meet that goal and making yourself (or your firm) accountable to someone in achieving those goals.  It sounds very basic but when you start to look at even defining a single goal or strategic objective it can become very difficult, and that’s before you tackle setting a plan, acting on that plan, or changing habits (billing by the hour??) in support of that goal.  
Despite all the technological advancement of our time and our ability to do work smarter and faster,  Goleman reminded us several times that the human brain is built for social interaction and the only way to spread enthusiasm is in person.  So while we work on our process improvement plans, firm AFAs, as well as personal and professional mindfulness, always remember to get out of your offices to exploit the best of your firm and explore the parts that may need some tweaking. 

Dan: You may not know this Jane, but I’ve been moving into more of a Pricing role at my firm.

Jane: I’m impressed.  And a little frightened for the well being of your firm.

Dan:  Every firm needs to have at least one person focused on determining the right price and fee structure for every matter.

Jane: I completely agree.

Dan: … But…?

Jane: No but. For once I think you’re right, Dan.

Dan: …really? I’m may need to reconsider my position.

Jane:  No, I think this is may be one issue where the reality of the situation is so clear that we can’t help but agree.

Dan: Wow! That’s kind of strange.  I guess it had to happen some time.  And this is so obvious.  Someone has to calculate revenue and expenses to determine profitability and most attorneys aren’t capable or interested in economics. Without someone in that role, how would you ever determine the lowest possible bid to get more work?

Jane:  I’m sorry?

Dan:  I mean, with so many clients issuing RFPs for new matters now, someone has to have an idea of how  low they can go?  Otherwise, attorneys will just make up a number. And you don’t want them to do th…

Jane: That’s how you’re doing pricing?

Dan: That IS pricing.

Jane: That’s dumb. Pricing isn’t about determining the lowest price you can possibly charge.  That’s a shortcut to bankruptcy.  Pricing is about building a relationship with the client and understanding their needs. Often clients aren’t looking for the lowest price, they’re looking for a firm that is flexible enough to build fee arrangements around their needs.

Dan: I don’t follow. If you bid the lowest, then you get more work.  More work is more revenue.  Which means everyone makes more money!

Jane: And they’re paying you for this brilliant financial insight?  Pricing Legal services is not like selling used cars. You can’t just put out an ad that says, “Will not be under bid! Lowest Price Lawyers in Town!”

Dan: How did you…?  Do you have….?  That ad doesn’t go out until next week.

Jane: You’re an idiot and apparently you have one in marketing too.  Pricing is an offensive strategic business development tool.  The way you do it is entirely defensive and reactionary.  Suppose I was a client and I came to you with an RFP, what is your first move?

Dan: Offer 10 percent off our standard rates.

Jane: And if the client balks?

Dan: 20 percent. We don’t tell them, but 35 is absolutely our lowest offer.  Although, for big clients, we might go to 40.

Jane: And you’re doing this with all of your clients?

Dan: No, of course not.  Just the ones we think might be considering hiring other firms. The rest we just bill at our standard hourly rates.

Jane: What’s the written equivalent of a face palm?  Has it occurred to you to be proactive with your pricing?  Take the time to get to know and understand the client.  Ask them about their concerns.  Where are they getting pressure to reduce legal spending? What headaches are their outside counsel causing them?  Take that information and offer the client an alternative fee structure tailored to meet THEIR needs BEFORE they even ask you for a discount!  Pricing legal matters is not strictly about getting more business, it’s about making clients happier, which WILL ultimately get you more business!  You are an incompetent imbecile, a danger to your firm, and should be fired immediately!  Why are you smiling?

Dan: We’re disagreeing again.

Jane:  Feel better?

Dan:  Much.

Jane:  Me too.

Image [cc] – Tomozaurus

Jane: The billable hour is dead, Dan. It is the sad and lonely remnant of an era when clients were to stupid to realize they were being fleeced by outside counsel. I for one can no longer, in good conscience, blatantly steal my client’s money. I officially declare the billable hour six feet under, pushing up daisies, defunct, deceased, kaput. Never to be heard from a…

Dan: OK, OK. I get it. You do realize, Jane, that repeating something incessantly doesn’t make it true, it just makes you slightly more annoying than usual. Also, as a graduate of North Tuvalu Online Law School, I’m pretty sure you’re stealing your client’s money regardless of the billing arrangement.
Jane: Woo hoo! Go Land Sharks! I choose to ignore your petty insults, Dan. They are nothing more than the last dying gasp of a big dumb lizard.
Dan: What is that supposed to mean?
Jane: It means that you, my unfriend, are a post-asteroid BigLaw Dinosaur. Desperately grasping at the last lingering rays of light before the sun is forever blocked out, the plants all die, the critters that eat the plants pass away, and your BigLaw Tyrannosaurus — still billing by the hour — ignominiously starves to death.
Dan: OK, first of all, paleo-breath, the dinosaurs that survived evolved into birds not reptiles.  Secondly given your ridiculous scenario, my Tyrannosaurus would die of dehydration or disease long before it starved to death. And finally, you’ve taken this metaphor waaaaay too far. I have no idea what your original point was.
Jane: My point IS that the billable hour, by its nature, creates terribly perverse financial incentives for the attorney and provides absolutely no value whatsoever to the client.
Dan:  I have no idea how that relates, but let’s move on. Perverse financial incentives?
Jane: By rewarding the total time spent working, rather than the actual work completed, the billable hour incentivizes attorneys to either do more work than is necessary, or to work more slowly. Either way, the client is paying more for less relevant work product.
Dan: I’ll keep this really simple for you Jane; the method of billing doesn’t incentivize anything.  The structure of attorney compensation is the problem. Take for instance the guy that changes the tires on your pickup truck. He doesn’t care whether the garage charges you for parts and labor (hourly billing) or a flat rate. He only cares how HE is compensated. If he is paid based on how long it takes him to change the tires, rather than the number of tires he changes, then he’d be a fool not to double tighten your every lug nut and thoroughly polish your rims.
Jane: You pig!
Dan: What?
Jane: I… don’t know, but it sure sounded… Anyway, your argument fails to take into account that by artificially increasing revenue, the billable hour incentivizes the owner to create those bad compensation structures in the first place. Any way you look at it, the billable hour amounts to little more than institutional theft and I, for one, am shocked that you would defend, even advocate for such chicanery!
Dan: I’m not advocating for anything! I’m saying that, as usual, you have entirely missed the point! For certain engagements, certain clients will always be best served by aligning effort and outcome, not just focusing on the outcome. Your attempt to prematurely bury the billable hour is severely hampered by the fact that it is still the most prominent method of billing for legal services. I’m not saying it is the greatest thing ever, or even appropriate most of the time, just that the problem for clients is that the cost of legal services has steadily risen, while the value they have received in return has stagnated. This is not a problem of billing practices; this is a lack of management oversight. Law firms need to completely rethink the way they manage their practices, the way they compensate their attorneys and, yes, the way they bill their clients! But even if the billable hour as a concept were to completely disappear from the face of the earth tomorrow, the vast majority of the problems facing BigLaw and their clients would remain entirely unaffected!
Jane: ….
Dan: C’mon, Jane! No snappy comeback? No witty repartee?
Jane: The last dying gasp of a big dumb turkey.
Dan: I’ll take that as a no.

Please submit topic suggestions or make your own arguments at dandj3Geeks@gmail.com.

Image [cc] Fox3siu

A good friend recently switch from BigLaw to in-house, not as a lawyer but on the business side. He shared a story about working with some consultants on a project. The story caught my attention not for the subject matter, but instead for the billing practices of the consultants.

The company is revising its records management practices. Although simple sounding, these efforts involve all kinds of issues both legal and business related. Companies have so much data and so many compliance rules to follow and they need to minimize risk at the same time, So these efforts are not for sissies.

The story involves some consultants from an unnamed provider; not a law firm. At a recent meeting ten Subject Matter Expert (SME) consultants attended. They covered compliance, technology, economics, etc. Some were even PhDs … which I read as “expensive.” And these consultants fly in for regular meetings from around the country. I didn’t ask, but would venture they bill for travel time.

Is anyone at the company screaming about this service approach? No.

If this was a law firm instead of a consulting company, you know there would be screaming.

Where am I going with this? It’s not to defend law firms, but instead to gain perspective.

Why aren’t people screaming? Because they expect consultants to behave that way. They used to expect lawyers to do the same, but something changed and they no longer abide such behavior. What changed was Trust. In the market it appears that clients are treating their lawyers as opposing parties instead of trusted advisors. They feel lawyers are there to just bill as many hours as they can and get rich at the client’s expense.

With consultants, I figure clients trust that they will bill as many hours as they can. Either that, or the client is focused on an end-goal (in this case a new records management practice) and are less concerned about how that goal is achieved. So the clients have some level of trust or understanding about the service model of the consultants. This makes it clear what law firms need to do: address the trust issue.  Yes – firms still need to “reinvent” and join the future, but more importantly, they need to re-establish a trusted advisor role with their clients. Without that reaffirmed trust, all of the efforts on efficiency and cost savings may well fall short of meeting clients’ expectations.

And, oh yeah … the service being provided by the consulting company could easily be part of a law firm’s offerings. I’m just sayin …

Perhaps Law.com was just fishing for traffic by choosing a controversial headline (something we at 3 Geeks would never condone!) but yesterday’s article, misleadingly entitled AFAs Trending Down in U.S. and U.K., got a lot of attention. To be fair, the data gathered in the 9th Annual Litigation Trends Survey Report, does indeed show a decrease in AFAs from 2011 to 2012.  And it gives some indication that those numbers MAY go lower again this year.  However, there is one big problem with the headline, the second word.  The appropriate headline would have been AFAs Down in U.S. and U.K. There is no trending about it.

The survey has been asking “Does your company use Alternative Fee Arrangements?” since 2009.  If we add 2009’s survey results to the data published in this year’s report, we see a different story emerge. Plotting the percentage of positive responses to the AFA question over the last 4 years (solid lines), and then using handy dandy Excel to plot linear trend lines (dotted) over that time, you’ll see that even with last year’s drop in AFA usage, the trends are still pointing up.

Now, a relatively small drop in use of AFAs in the U.S. – from the current 51% to less than the 48% reported in 2009 – would turn the US trend line down over the five year period from 2009 to 2013. But, to do the same in the U.K. would require AFA usage to be cut nearly in half to only 32% this year. A very unlikely occurrence.  
The Law.com article correctly points out:

“…in 2011, some 52 percent of U.S. respondents said they intended to increase their use of alternative fee arrangements. But only 39 percent this year said they expect increased use over the next 12 months…”

But from this they conclude:

“…indicating the downward shift will continue.”

This is an example of statistics that seem meaningful until you tease them apart.  In 2011, at a time when AFA usage had just gone up 17% in the previous year, 52% of respondents said they would be doing more AFAs.  In 2012, when AFA usage had diminished by about that same amount, only 39% said they would be using more AFAs. This does not indicate that the downward shift will continue, it indicates that people tend to assume this year will be pretty much like last year.  Sometimes they’re right, often they’re wrong.

It will be very interesting to see the 10th Annual Litigation Trends Survey to see how the trends actually play out in 2013, but a single Year-Over-Year drop in usage, does not a trend make.

Jeff Brandt shared a great video in a recent Pinhawk newsletter. The video was produced by Riverview Law, an innovative provider of legal services.

The video, which I thoroughly enjoyed, is a conversation between lawyer and client about a fixed fee. As Riverview Law is based in the UK, so is the scenario. The client asks for a fixed fee about 20 times, meanwhile the lawyer does his best to redefine fixed fee as ‘hourly.’

In many respects the video represents reality … for both sides.

My thoughts:

Law Firm Side

The law firm guy struggles to grasp doing it differently. Any fixed fee in his mind will come from an accounting of the billable hour. When it appears he may be succumbing to the fixed fee concept, he lays out a list of incomprehensible caveats as some lengthy and easy to invoke list of out-of-scope assumptions. When the client doesn’t buy that, he reverts to his known quantity – hours.

Client Side

The in-house lawyer gets points for sticking to her guns. The video is obviously meant to show her in a reasonable light, as opposed to the blundering law firm guy. However, what is unspoken by her, and is definitely part of the challenge, is that she gives no scope or parameters when requesting her fixed fee. Somehow her outside counsel should be able to produce a fixed fee on a complex matter with Zero Scope.

I recommend you watch the video. It’s a great lesson in how not to have the conversation – for both sides.

Image [cc] Magic Trax

[Recently I was asked by Bridgeway to write a section for an AFA Handbook for Clients. My section is meant to give clients a look in to how law firms are approaching AFAs and give clients some tips on how they might better partner with their outside counsel on this subject. In my usual fashion, it’s too long, so the handbook will have a shortened version. Since I spent the time writing it, I thought I would share the full version here. Enjoy.]

The Law Firm Side of AFAs

Many clients are exploring Alternative Fee Arrangements (AFAs) as a means for controlling their legal spend. AFAs do present many opportunities for attaining this goal. However, clients will find that their best chance of meeting this goal is in partnership with their outside counsel. This approach makes the goal a shared one and allows the law firm to focus the types of AFAs and its service directly towards that goal.

In pursuing healthy fee partnerships with their outside counsel, clients will benefit from a deeper understanding of how law firms are approaching AFAs. What follows is a brief description of the internal workings of how a firm might be responding to requests for AFAs. As part of this description, also provided are ideas for how each step in the process can be improved with better levels of trust and communication

The Request

Currently most law firm AFAs are generated at client requests. A partner receives a communication from a client about a potential matter. In addition to the legal issues, the client will request a quote on rates along with a note about being open to alternative fees. Sometimes the request is more direct, suggesting that the law firm “be creative in proposing some sort of AFA.”

This is a key point in time when a partnership between client and outside counsel should be established. Law firms can be creative and propose all sorts of fee options. However, for a fee option to be successful it needs to be crafted with a client’s specific fee concerns in mind. As a client, your fee drivers will change from matter to matter, for each type of legal practice need, and maybe even over time. Sometimes risk sharing will be the right approach. Other times monthly predictability will be best suited. The main point here is that to get the best suited fee type, you should meet with your law firms and have an open conversation about those needs. Without that information, your outside counsel is making a wild guess as to how best to help you meet your fee goals.

The Fee

Once a firm has an understanding of your fee needs, they can prepare a specific AFA proposal, including fee amounts as appropriate. Using best practices, the law firm should be modeling this fee arrangement to know whether it is profitable or not. I suggest you will want these to be profitable. Doing business with a low-cost provider who is not profitable is unsustainable. This is not to say that firms are not able to lower your fees while maintain profitability. In fact it is quite the opposite. Firms must find ways to meet this challenge and many are devoting expanded resources to this goal.

With a specific proposal in hand, another best practice is to meet in-person to present the proposal and discuss it together. Too many intentions can be lost with just the written word. As noted above, the best approach is one where you develop a common goal. A conversation about the proposal leads to refinements and improvements that stay focused on the goal while generating a win-win option.

Providing the Service

Many clients have “efficiency” as a stated goal. However, much like the AFA request, efficiency can take many forms. This presents another opportunity to forge a healthy partnership with your outside counsel. With a fee arrangement in place, or perhaps as part of establishing that arrangement, you should consider engaging in a dialog about efficiency with your outside counsel. Efficiency generally means: a) doing less, b) doing more with less time, or c) doing the same, but with lower cost resources. Your dialog can explore each of these aspects, helping focus on which of these make the most sense for your situation. For instance, a firm could expand its use of staff lawyers (a.k.a. non-partner track lawyers) to move work to lower cost resources, but only if that approach aligns with your needs and goals.

Both the efficiency and fee dialogs need to be on-going conversations. In the past, a single conversation at the onset of a matter was too common. In this new environment, with these new dimensions, conversations need to be before, during and after. Too many things can change during the course of an engagement. What neither party wants is a big surprise when a course change is made, but not calculated in to the fee deal or the delivery model. For instance, a decision to join a third party to a litigation case, results in a substantive change. Regular conversations (e.g. monthly or quarterly) will catch these modifications and keep both the fee and the delivery model clearly aligned with the goal.

Law firms are committing a growing level of resources to concepts like Legal Project Management (LPM). These LPM efforts are focused on both efficiency and quality. Smart firms know that in order to help clients meet their changing goals, they need to change their approaches. An excellent question to add to your outside counsel conversations is: “What are your efforts related to efficiency, including process improvement and the use of technology?”

Concluding a Matter

Perhaps the single most important conversation about the fee and service needs to occur at the end of a matter, or in the case of on-going work, at the end of each year. These meetings should be open, honest assessments about how things went. The lessons learned from these conversations will lead to better defined goals for the next matter and continued success towards goals of cost savings and efficiency gains.

Conclusion

Law firms really want to help clients meet their legal needs in a cost effective manner. Most firms are trying very hard to adapt to changing demands and realign their business models to continue to meet client needs. The theme from this section should hopefully highlight that whatever steps are taken by both client and outside counsel, they will be best taken together. As I like to say, the keys to all successful fee arrangements are trust and communication.

Image [cc] Mike Licht, NotionsCapital.com

Recently Lexis released its findings from a new survey on Non-Billable Hours. Lexis had previously done a survey on Billable Hours and their curiosity lead them to the second one. Both surveys focused on the solo / small firm market with firms of 20 or less lawyers. I was able to talk with some of the Lexis people to get a better sense of what they found.

First they shared an interesting finding: Lawyers spend their non-billable time on practice management and admin tasks. And they do this over and above efforts on client development. Why is this interesting? With all the talk about LegalZoom and threats to the legal market you would think lawyers would be refocusing their efforts, but alas, they are not.

Years back when I did presentations on law practice management 101 I would hammer on the theme of focusing on revenue instead of expenses as the Path to Profitability. All these years later, lawyers still devote too much time to admin tasks. My advice – hire someone to perform these tasks (or outsource it). Your time is worth a lot more than that.

Lexis also shared with me the rankings of which practices have the least amount of non-billable time per day – averaging about two hours. The top three: Insurance Defense, Labor and Litigation. As well, they shared those with the most non-billable time per day – about four hours: Personal Injury, Criminal and Immigration. I then shared my perspective on that list. The practices that ‘waste’ the least amount of time on non-revenue generating activity are those most driven by the billable hour. All three of these ‘efficient’ practices have rate pressures and bill primarily by the hour. The most inefficient practices bill with Alternative Fee Arrangements (AFAs) using contingency and fixed fees.

Now this may appear to be counter-intuitive as you might think AFAs should drive efficiencies, but I think it makes perfect sense. Lawyers wearing a billable yoke around their neck constantly fill the need to respond with billable hours. Those without it are much less compelled.

So I guess the lesson here is that making people’s income subject to them working harder seems to work. Now we just need to help lawyers understand that there is a bigger reward for working smarter.

Which brings me back to where lawyers spend their non-billable time. My advice: If you are a lawyer with two to four hours a day to spend on non-revenue generating activity, spend it engaging clients.

[This experience advanced my appreciation for Jeff Carr’s frustration. He is tired of talking about the need to utilize AFAs. He’s been doing it for years and no one seems to be listening. I’m feeling much the same way. Jeff, Next time we meet – I’m buying.]

Toby Brown sat down with Shy Alter on Monday and had a great conversation on where law firms (and clients) are in the transition to Alternative Fee Arrangements (AFAs) versus traditional Billable Hour work. I’ve embedded the video (and it will pick up right as Toby is being introduced. It is a very informative 6 minutes, and is well worth your time regardless of if you know nothing about AFAs, or you’re the expert at your firm. I quickly put together a transcript of the interview, and really enjoyed the part where Toby talked about not doing AFAs or Legal Project Management (LPM) in a vacuum. Have the conversation with the client and find out where they are really wanting to go.

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Transcript (after Shy Alter’s intro)

SA: Toby, thanks for taking the time to join me today.
TB: Happy to be here.

SA: You’ve been on board last year [ILTA TV] and we had a great conversation. You’re out there on the ground dealing with issues related to AFAs, Alternative Fee Arrangements, and even more important, Legal Project Management (LPM), which makes it all happen. Without that, it would be very, very difficult to offer clients a compelling model that actually works, and for the firm to actually remain profitable. Which is very, very important. So, maybe I’ll start with AFAs. To what extent have they actually taken hold? To what extent do you have a higher percentage of matters that deal with some type of an actually AFA model?
TB: I think that’s a good question, and I think you see some of the articles and word on the industry that “no, they’re not here” because not 100% of our deals are AFAs. It’s a constant growth. It just continues and it starts to spread out into all the practices. I’ve been at three AmLaw50 offices in the past year and a half so I have a broader sense of knowledge. If I had to put a number on what I think, at the market level, are “non-hourly,” I’ll call it — we might redefine AFAs here in a minute — fixed fees, and what most people consider to be alternative fees, I’d guess it’s around 20%.

SA: Which is a significant change over the last five years?
TB: Oh, yeah. I would say that five years ago it would have been 5%. Because then you’ve had your long-term, contingency fee work that firms did. So, 5%. It’s been around for a really long time. It’s just been growing and growing.

SA: So, clients are demanding these obviously. That’s always where it’s coming from, and the firms are actually responding. Do you have a sense of whether it is taking hold more in larger firms as opposed to medium or smaller sized firms?
TB: Yes. Definitely more so with larger firms. However, in fact, through ILTA we are forming a group of Alternative Fee and Legal Project Management people, which is growing by leaps and bounds. But, when we tried to reach into the more mid-sized firms, we’ve had a hard time finding people that do this. I know there has to be people that are touching it in some way, but not to the level that larger firms.

SA: What are the most popular modules within AFAs?  There’s all kinds of ways of slicing this one.
TB: In terms of the types of Alternative Fees?
SA: Yes, in terms of the types of Alternative Fees.
TB: You know, I did a presentation about a month ago with a guy that is very well known in the AFA world, Jeff Carr. He is with FMC Technologies which is in my hometown of Houston, and he and I have become good friends. And, he calls it a “Budget with Consequences.” And, I think that is a good way of putting it and it might encapsulate a few different types of AFAs, but that would focus more on a ‘fixed-fee’ or a ‘fee cap’ or some level where you’re saying “I’m buying whatever type of service, and this is the amount I’m going to pay.” I would say that that one is growing. However, I still see quite a mix.

SA: I’m going to jump into the Legal Project Management because I know we are spending more time on it now days. It is kind of the framework that makes AFA’s possible, to a large extent.
TB: Yes. Well, I’m going to redefine AFAs. I’ve defined it as … well, I sort of undefined it and say “What’s not an Alternative Fee?” and that is “Anything where we get to name our rate as a firm bill how many hours we think is appropriate.” — How much of our work is that?? I think a significantly diminishing number. And, so when it comes to the (LPM) Legal Project Management stuff, I see it applying across a very broad spectrum. Because if we’re in, even if you might call it a ‘soft-cap’, and we have a budget and the client has an expectation on it, we have to manage to that number. We can’t go back and say “Oh, whoops! This was twice as much as we thought it was going to be.” The client’s not going to pay that bill. So, Legal Project Management is becoming important in a very broad sense to say “Budgets with Consequences: How do we live by those?”

SA: It is tempting for me to finish this interview by saying “It is really difficult to sell Legal Project Management to law firms, attorneys and lawyers.” But, I’m actually going to flip it around and say it is probably difficult to also get your clients to really, truly understand what it means. Because it’s a two-way street.
TB: Agreed.
SA: What do you do about that?
TB: I think that, just like Alternative Fees, you need to have a conversation with the client about that. Because clients are saying “I want efficiency.” Great. What does that mean? Does it mean fewer hours? Does it mean more technology? Does it mean Project Management? So, I don’t think you do Project Management in a vacuum and then you go back to the client and go “Look, I’ve solved all your problems!” Because that won’t go over well. You need to have the conversation with the client. So, I think that the same concept, AFA to LPM, it’s knowing what your client is really trying to get to.

SA: Toby, thank you so much.
TB: Thank you for having me.

Image [cc] lightsight

Although more than enough has been written about the impending demise of Dewey and the relative causes, I decided to go ahead and add my 2 cents to the dialog. 

A recent blog post on the subject caught my eye. It made the assertion that, “Whether it’s Davis’s earlier “10-to-1″ spread, the more recently reported “20-to-1,” or something in between, the income gap within equity partnerships has exploded throughout big law. That’s destabilizing.” The author goes on to say, “The gap results from and reinforces a failing a business model.”

I disagree with the assertion that a big partner comp spread is bad and argue the exact opposite. A gap is healthy, but only when properly spread. From the stories I have heard about Dewey, it did go overboard in lateral comp deals, essentially paying new partners more than they were worth. Or at a minimum, lateral partner comp was not tied to performance and value in a meaningful way, some times for 4 or 5 years.

This is not a spread problem, it’s a comp-to-value problem. 

Having some partners paid “as little as $300,000 a year, [while] other partners were pulling down $6 million or $7 million …” makes sense when partners are paid at their value level. Much like the AFA dialog going on, this is really a price-to-value problem. In a rational market, high value resolves to high price.

In my experience, a bigger problem for firms is having too narrow of a compensation spread. In these circumstances, you have partners paid at $1m who are more likely worth $500k. This scenario presents real problems for firms. Here the current $3m partner may actually be worth $5m. A firm has much more risk in losing the high-comp lawyer and her book of business, than they do losing 8 service partners being paid above their value.

Law firms need to reward their partners based in large part on their contributions to the bottom line. Partners who generate high levels of profit need to be paid at high levels of comp. Otherwise the Managing Partner’s nightmare of a partner exodus begins. And the first ones to leave are the ones you most want to keep. The last ones are the 8 noted above. 

IMHO – the Dewey lesson centers on over compensating laterals, divorcing comp from value. And it appears they did this on a significant scale, over investing in laterals as a growth strategy.

Is aligning comp-to-value a lesson the market will learn from this experience? Or will all the firms scrambling for Dewey laterals be destine to repeat history?