Of Clouds and Silver Linings
Author: Richard Stock - Lexpert (Vol 10, No 8) June 2009
"It was the best of times, it was the worst of times." Sometimes we need a bit of perspective to understand and to improve on legal services delivery. It is no longer enough to simply "do good legal work" and the files will come - at least for the vast majority of partners, associates, and technical staff that have served their corporate, institutional and government clients well in recent years. While lack of good service will result in the loss of a client, good service is no longer a differentiating factor that will secure a client.
There are regions of the country and types of legal practice that are much more severely affected than others by difficult economic times. There are industry sectors and partners in law firms that are more affected than others. Things will never be the same again for law firms. And things will never be the same again for corporate counsel who retain lawyers in private practice. Yet, why should anyone want the "world to stand still " ? The last four years saw a growing malaise with law firms by their key clients when it came to retaining professional services.
The informal, collegial model is simply no longer cost-effective. The cost of associates and of partner mobility in law firms has escalated in recent years as firms struggled to get the work done. Retention rates stayed high, Corporate and institutional clients in-sourced legal work as law departments grew in size and specialization. Throughout all of this, the law firm business model remained intact. Corporate law departments could not f make the time to re-design and introduce long-term business relationships with their preferred law firms.
Perhaps we have reached the tipping point and maybe there is still time to innovate. There are three things that a law department can do to better manage to the end of 2011. Firstly, it can estimate its demand for legal services from its legal team and from law firms by becoming much more precise in quantifying and in specifying its requirements. Business units usually prepare their part of the corporate business plan each year. Most legal departments are somewhat aware of what such plans entail. But corporate counsel does not translate this into a detailed estimate of the type of legal work, the number of matters and hours, and the regional requirements for internal counsel. This is the essential next step beyond aligning a lawyer with a business unit and identifying a preferred law firm with a discount arrangement. It is not enough to be a legal goaltender. Everything should go into the demand forecast: commercial legal support, unique projects and transactions, labor and employment work, litigation, regulatory and compliance work. Some General Counsel divide their estimates between regular (recurrent) work and exceptional work. The demand forecast can then go on to segregate work which is kept inside the department, work that is co-counseled, work that is given to independent contractors, and work that is referred to law firms.
The second essential step for a law department to manage, and not just survive across the next 3 years, is to influence the workflows and workloads of the law department. There are a number of ways to do this which, when taken in combination, will free up to 20 % of every week for more strategic and interesting work. Introduce protocols to guide the business units on when to call on the law department - and when not to. Reduce the demand for operational support work by making the business units more self-sufficient. Eliminate the open-door policy for the law department and manage telephone and e-mail interruptions rigorously. Spend less time in meetings unless the agenda item is of strategic value to the corporation. Remove all practice management and administrative responsibilities from the lawyers and concentrate them with a professional legal administrator. And, finally, simplify the routines needed to manage relations with external counsel.
The third essential step for the law department is to introduce Key Performance Indicators ( KPIs ) that will change the priorities and behaviors of business units, internal counsel and external counsel. The first KPIs relate to service delivery and usually measure accountability and meeting deadlines. Business units should be surveyed annually on the same indicators. The second set of KPIs deal with effectiveness. Business units are formally asked to score the department on whether they were helpful to the business units in delivering the planned results. In the case of special projects or of higher profile litigation, the CEO or other executive helps the General Counsel assess the contribution to the outcome. The results should speak for themselves, and invariably include the contribution of the law firm. The third performance indicator is efficiency. This KPI should measure the extent to which the General Counsel is able to plan and manage the total external legal spend of unique projects, litigation, and for the full spectrum of services provided by external counsel.
Law firms can help their clients, and themselves, by re-thinking their own fundamentals. Many are doing this by examining the hourly-based model ( hours, rates, leverage, expenses and practice patterns ). Some have re-thought their priorities by industry sector, specialization and regions. Others are examining the ownership structures. These are important matters, but of little direct concern for busy corporate counsel. There is a whole generation of General Counsel and Assistant General Counsel that have never been equity partners in private practice or that are not conversant with the intricacies of law firm economics. At the very least, law firms would do well to concentrate the financial elements of relations with primary clients with practice group leaders or even with the firm's CEO / Managing Partner.
Failure for all stakeholders to act in a timely fashion on all fronts adds to the uncertainty and frustration of legal services delivery in current economic times. Who was it that said " it's a shame to waste a good crisis? "