After hearing about some of the trends inside legal departments during the first part of Viewabill‘s webinar last week, the moderator opened it up to all of the panelists for their thoughts. Since panelists included both those inside legal departments, and those in law firms, it was a fascinating look at the push and pull of their relationships.
To remind you of who the players are:
Panelists (corporate counsel):
Daniel Baker, Sr. Operations Lead, LinkedIn Legal
Connie Brenton, Chief of Staff/Director of Legal Operations, NetApp
Panelists (law firms):
Vincent Cordo Jr., Global Director of Client Value, Reed Smith, LLP
Peter Lane Secor, Director of Strategic Pricing and Project Management, Pepper Hamilton LLP
Michael Hourwitz, Chief Financial Officer, Venable, LLP
Robbie Friedman, CEO + co-founder, Viewabill
Finally…A Paradigm Shift
Friedman indicated that he’d recently been in a meeting with a large law firm and one of their large clients. The person in the pricing role at the firm was explaining to the operations person from the client why metrics, visibility of information, and working together are so important. This may seem like a switch, but Friedman realized that in order for the pricing person to create change within his law firm, he first had to get the client on board.
This symbiotic relationship between operations at the client and operations at the law firm is very interesting. His first question, to Brenton, was to ask how law firms react to these initiatives – do they get on board easily, or are they more silos within the firm?
Brenton sees a complete range of reactions, including a very deep interest because legal departments have the ability to get and gather metrics that outside counsel have not been able to get their hands on. Benchmarking numbers are also useful for them internally, and as an industry.
Brenton observed that this movement has been going on for so long that many times, the information and analytics that are shared are discounted because, despite talking about the shift for so long, not much has happened. However, in the last couple of years, there has been a paradigm shift. The numbers that they’re getting, the access to data, the change in expectations for how a legal department functions are requiring that they manage their businesses differently. Brenton is starting to see interest in outside counsel in partnering in a very different way as a result.
No Longer Just Inside Versus Outside Counsel
Friedman turned to Dan Baker – he has only recently begun to notice the dynamic between legal operations people and the in-house attorneys, whereas it used to be just the idea of law firms versus legal departments. He asked Baker to comment on the types of initiatives that he sees as driven by legal operations, the dynamic that exists, and whether this relationship is something that we haven’t been paying close enough attention to.
Baker was quick to say that the answer to the latter question is yes – this relationship should be something that the industry pays attention to. How that occurs is a different story. But in order to effect changes, to have real change management as part of legal operations, it’s not often that operations is able to accomplish that on their own. He used implementing Viewabill as one example, saying that when operations suggests that to their in-house legal department, the lawyers want to know why, what they have to do, what will changes, etc. They can be blockers, so having them on board is incredibly important.
Baker added that when you talk about the kinds of things that legal operations drives, they’re focusing on things like outside counsel management, vendor management, financial management, etc. Their job is to free their in-house attorneys from most financial and managerial tasks, so that they can dedicate more time to substantive legal work and client face time. In order to do that, they need to be able to get them good information – and that good information has to come from outside counsel.
Empowering in-house teams is difficult if they don’t get the information that they need from outside counsel – that’s something Baker talked a lot about in his interview with me.
Looking for the other side, Friedman turned to Vince Cordo, the Global Director of Client Value at Reed Smith. He asked him to comment on the reciprocal dynamics within a law firm, specifically whether it’s the same type of perspective that a legal operations team has within an inside legal department.
Cordo said that the law firm department is connecting more with clients, though it depends on the culture of the firm. At his firm, they encourage this communication dialogue, so operations is working with clients hand in hand. Clients are also receptive to it, because they’re still not seeing it regularly in the marketplace yet. So he’s involved with building these new models with clients.
Friedman asked what the clients’ role is in building these models, and Cordo said that it’s an integral one. Clients have items on their side that they need to review, while firms have others that they need to monitor. They have been working to put together scorecards that clients can use across multiple firms, rather than each firm offering ideas on what to measure.
A Shared Management Approach
Friedman said that at Viewabill, they talk a loy about pre-billing insights in real time – from their perspective, that conversation is the impetus or foundation for the types of things that Brenton, Baker and Cordo touched on. He asked Peter Lane Secor to address the types of opportunities that he sees, which can be leveraged using real-time communication, not just limited to billing.
Lane Secor sees the key to this as being a shared management approach. He noted that he’d had the opportunity to meet with some procurement professionals, and his counterparts on the legal side, and they spoke about the idea of getting information to people early. There was some pushback on the client side, because people felt that the law firm should be the ones to monitor the costs, not them.
But, if we’re really approaching this on a shared mechanism, there are fewer surprises – if someone is working on something and the client wasn’t expecting that, or if they’re working on part of a matter or a particular matter that’s unexpected, they can address this more quickly.
It’s All about Partnerships
Friedman observed that Michael Hourwitz recently transitioned from the title of CFO after 27 years to "Chief Practice Management Officer." He asked him to comment on what the role means, its purpose and goals. Hourwitz said that the firm was looking for a business partner to work with their division chairs and practice group leaders in order to share information from a business perspective.
Their mission, from a practice management standpoint, is to help the practitioners grow revenue to maintain and improve their operating margins, and to be more efficient and effective in terms of their solutions. They also want to really understand their client businesses more effectively. By so doing, by putting someone inside and their team inside, and partnering with the lawyers directly in how they service their clients, their observations give both sides the same goals and objectives to try to gain efficiency. This helps to focus the objectives that they want to obtain in terms of profitability, so that they can establish a long-term partnership in the best fashion possible. They recognize that this is different from client to client, but the idea is the same.
Aiming at Different Targets?
Brenton observed that Hourwitz was focused on profitability, and added that this is where the disconnect is. As the client, they’ll often come to the partner review meetings with massive amounts of data – benchmarking, eBilling, staffing, etc. – and in the past, they’ve gotten very little input from outside counsel in terms of metrics and analytics. She asked whether the two sides are simply aiming at different targets.
Hourwitz didn’t think so – he agreed that their topics have to be aligned. For a law firm to be successful going forward, they need to understand the business model of their clients – and their clients need to understand their business model. Profitability is a two-way street: one of the things that they’ve found in working with some of their clients is that they have to deal with budget managers and corporate executives. In many instances, it’s viewed as a cost burden. They have to view the value of the services that they’re providing in the context of an overall business strategy.
As an example, he shared that they do a lot of patent prosecution work for a larger pharmaceutical company. They partner with the firm to budget for each matter that they do for them – and they do over a thousand matters a year on the patent prosecution side. They establish a budget, explain it to them, and explain any deviations if they need to increase the budget to justify it. They’re working with the general counsel on the IP side in the sense that they’re sharing a risk with them.
They have to understand their business, and the client has to understand theirs – they have a partnership in that regard, because they’re helping each other’s bottom line. It’s not necessary to know exactly what that bottom line is, but they have to set certain targets that they believe are correct. They partner to further each other’s value.
Differentiation, Fees and Results
Brenton said that they’re getting into an era where there is some concern about the profit margin on the outside counsel side, so they are bidding work. She asked how that impacts their side of the business, prefacing the answer by adding that the only way a firm gets a ticket to bid is that they deliver a top quality service every time.
Hourwitz said that it depends on the individual philosophy of the firm. Theirs is a value proposition – the highest quality for the best value. For example, with the client he mentioned previously, they’ve established that while there are difference matter by matter, they’re able to group matters together. So they rely on the firm, and review their output in order to budget their work, so there’s an incentive for the firm to hit their target, because they won’t get an increase. They benchmark this over a number of matters, and based on setting their targets, there are mutual incentives to achieve their goals.
In this particular series of matters, they’re all flat fee budgets, based on the type of work that’s entailed. Brenton was pleased that this was the first mention of fixed fees – she said that this was a big plus from the inside counsel perspective.
Lane Secor jumped in to say that when he started in legal in 1999, from the revenues that firms were generating, he couldn’t understand why they didn’t have systems in place to do a better job of monitoring. Since then, the legal industry has come a long way, and both inside and outside counsel are being more proactive. As far as fixed fees, Lane Secor sees the focus as being more on tying successes and results to fees – that’s a huge part in helping both inside and outside counsel come up with better alternative arrangements that benefit the needs of clients. There is an earning and a profits component to this, and when firms have these discussions with clients, they need to be clear that they’re not only talking about profits.
Brenton agreed, and to put some numbers behind the conversation, she mentioned that inside counsel are paid, on average, a third less than outside counsel. That needs to be an element in many of the decisions that are made when deciding where to send work.
Friedman asked how much of these types of conversations clients and law firms are having before an engagement starts. Baker said that these happen more in-house, which influences the meetings with outside counsel as well. Where he sees a disconnect is the level of understanding of the concept of spending to budget. He said that their in-house counsel, along with outside counsel, come up with a budget, for example, and it will be fixed fees for myriad types of non-provisional patents. But he doesn’t think they have the individual in place to oversee it completely in terms of the billing that makes up the budget, and the types of line items that may be outside of those fixed fees.
Hourwitz reubutted, saying that in the example he’d given, the client does have someone on their administrative side to manage this, and they understand the complexities of it. They have a level of sophistication, and in those cases where the complexity is greater, there is a lot of thought that goes into the decisions that need to be made.
Lane Secor said that the key is that rather than looking at the budgets, it’s more important to understand the pieces of a matter. For example, in litigation, there should be discussions of how long it will last, what the document review side will look like, and how the case will be measured. That’s the approach his firm has been using – rather than looking at the numbers, they identify what they need to do in a case to get to where the clients wants to be. Then, based on that, they find out what the right price is, and how to risk-share that.
Friedman identified this as a good segue point to the next section of the webinar, which we’ll cover in a future post!