Choice Determines Direction

Author: Richard G. Stock;     Lexpert     February 2002

The relationships between corporate counsel and their law firms do not change very quickly. In some cases, they are personal, and, in other cases they are more commercial than anything else. Usually, they are a blend of the two. In the more than 10 years that I have been working with law firms across the country, there has been very little change in the business model. It is not apparent whether the initiative for change will come from law firms or from their clients. A cursory review reveals the opportunities for change.

Challenges for Law Firms

There are at least seven initiatives that law firms can take to change their business model. Some are structural, some are cultural, and others are outright heresy. The risk-averse, incremental ways in which law firms operate present real obstacles for these changes. No one wants to go first. In no particular order, and in the belief that change begets change, the seven initiatives are as follows:

1°    Secure a critical mass of work from preferred counsel.



The recurrence of clientele allows practice groups and firms to plan. Clients cannot be taken for granted. Even law firms with multi-year agreements to provide legal services to institutional and corporate clients will have a falling-out on occasion. Yes, a solid client relationship program will help a law firm to keep a good client satisfied. Firms would do well to approach their top 25 clients to enter into two and three year agreements for services, especially if the client distributes work to more than one firm. Why wait around for a file like the Maytag repair lawyer?



2°    Create legal teams that are small and client-specific.



Our analysis of the number of partners, associates, students and paralegal employees from one firm doing work for a single client reveals that many of the partners responsible for the relationship with the client are not managing the deployment of resources. One can regularly find larger law firms with in excess of 50 individuals providing chargeable time to a single client each year. Interviews then reveal that the core number is one-third and that there could have been more effort to control how many individuals touch a file. The same interviews reveal that law firms work hard to offer quick turnaround and top-calibre service, but that they know very little about project management for files with 75 or more hours.



3°    Take work off of partner's desks.



Almost every law firm partner, when asked, and we have asked about this at least 50 times, will say that at least 20 % to 40 % of the work on their desks ( credenza, guest chair, floor ) could be delegated to someone else in the firm if that person could be available or interested. Put another way, lawyers spend 20% to 40% of their time doing work for which they have too much experience. Easier said than done, because then it is a question of deciding what to do with the "free time". Correlate the compensation system with delegation initiatives. Sophisticated clients are concerned about the steadily increasing unit costs of legal services.



4°    Use qualified paralegals.



There is an enormous variation between similar law firms in their attitude towards and use of qualified paralegals. This is a cost-effective solution for clients and can ease the pressure caused by volatile associate mobility. Law firms of all types have demonstrated that they can push from 25% to 40% of their legal work to paralegal teams.



5°    Use case plans and budgets



Files that will take more than 50 chargeable hours to complete should be targeted for case planning, using project management techniques that are adapted to legal environments. This is not just for litigators called to comply with uniform task-based billing management systems. Regulatory work, administrative tribunals and transactions lend themselves to a measure of "best practices procedures". It is the only way that a practice group and a law firm can offer value for money: by stripping out unnecessary hours (up to 20%), delegating to appropriate levels, and finally moving away from hourly-based work.



6°    Reduce the cost of production



Law firms have not reduced their operating costs significantly in the last 10 years, and they have not been pressured to do so, even though there are annual reviews to look at staffing ratios. The availability of technologies that are practice specific, for document management, for time and billing, and the presence of outsourcing for accounting, IT, reprographics and telecommunications are a start. The shortage of qualified legal secretaries is apparent in many markets, and it will not abate. Lawyers will need to become much more self-sufficient in the management of their firms and in the delivery of services. It is possible today to reduce the operating costs of a law firm by 30% and fees by 25% and still keep the same level of profitability for partners.



7°    Get off the Clock.



Few practice groups, and fewer partners, know how to estimate the cost of a file and few want to take the risk of getting this wrong. More than 85% of all legal work in the country is still billed out on an hourly basis. This has not changed much in 30 years. Few firms know how to price a file, and few partners can distinguish between price and rate. Most would say calculating profitability per file or by client is an endeavour best left to accountants, and certainly NIMBY (not in my backyard). There is little doubt that results-based pricing or even fixed-fee pricing can deliver higher profitability per partner.