“A Good Crisis is a Terrible Thing to

Waste…”

The ACC Value ChallengeReconnecting Cost with Value

ACC Charlotte, NC ChapterJune 3, 2009 Sponsored by Womble Carlyle Susan Hackett, ACC

The 2008 AmLaw 200 Report• 1991-2008: “The Golden Age of Law Firm Profitability”: the

largest firms doubled in size and gross; profits increased an average of 215%. Their profitability and business model trickled down to mid-tier firms, too.

– After 17 years of stunning growth, 2008’s report detailed the first signs of decline. Predictions for 2009 are even worse. And the pain stretches far beyond top firm partners.

– The law firm market is headed for seismic change: but not a crash that requires a law firm stimulus or bail-out plan / profitable work hasn’t disappeared; but it must be earned.

Do clients really mean it this time?• Decades of escalating legal costs without

improved efficiencies: The Tipping Point• Economic pressures on both sides – now

emphasized by the downturn• Not a matter of blame; both sides need to

change / have responsibility for driving value

What clients wantThemes from the regional sessions (2008-9)

1. Better management of the legal function2. Certainty / Predictability (costs, process, outcomes)3. Focus on outcomes and results:

-Counseling (not just content) / Advocacy (not just process)

4. Costs that equate with value – often lower costs5. Outside counsel and firms whose motivations and business model are aligned with the client’s

This suggests that firms might consider…

• Fixed fees for entire matters or stages • Taking on whole portfolios of work• Other alternative billing approaches and alternative

relationship structures• Setting budgets, then holding to them• Leaner staffing with greater continuity• Better training and mentoring• Don’t reinvent the wheel; pass along the savings of

knowledge management and expertise

This suggests thatclients might consider …

1. Better articulation of expectations and scope of appropriate budget up-front

2. A return to long-term trust and continuity (versus default reliance on RFPs, audits, etc.); hire the firm and not just the lawyer

3. Institutionalize relationships to create greater alignment with the client

4. Reward firms that demonstrate value/innovate

In the end,

it’s all about value.

Value topics for discussion1. How can we improve? How do we drive the message (or not)?2. Does decreased cost to clients equate to decreased profit for firms?3. How do we assure adequate work flow so outside lawyers

understand the client better and are incented toward efficiency?4. How do we get junior lawyers better trained, more reasonably priced,

more on the front line, with less turnover?5. What’s lawyers’ highest contribution: how do we focus on doing that?6. How can we better budget, and manage costs and staffing?7. How do we align comp, incentives, & staffing with client interests?8. How do we create sustainable practices for profitable law firms?9. How do we evaluate progress and performance? What is success?10. How do we create a culture of continuous improvement?

What is it …

… that you need in order to change?

Costs & Billing: Alternative Fee/Relationships• The economics of what clients want and firms provide• Is fixed fee anything more than a (good) budget? • What’s your appetite for risk? Who assumes risk?• Is a movement away from the billable hour default better

or worse for your lawyers / your firms / your client?• Will clients reward firms for moving to alternative fees

(even when they say they want them)? Or just ask for the discount and feed the billable hour model beast?

Alternative Staffing• What options can firms offer to clients / what options can

departments offer firms? (Horses for courses)• The “quality” conversation: it’s the floor, not a bar• How is staffing related to cost containment?• What do clients want to pay firms for? What are clients’

strategic needs and how can they be served?• What is your plan for arranging/training your lawyer talent to

leverage client service?• What distinguishes one firm’s talent/ability to align expertise

with desired outcomes from other firms’?

Performance Metrics• What do you measure when assessing performance?• How do you evaluate lawyer / team performance? • What is good performance for: in-house managers,

partners, associates, paraprofessionals?• Is performance outcome-based or activity-based?• Is comp driven by performance? What do you reward?• What role do clients play in firm performance evals?• What do firms know about clients’ performance metrics?

Of the law dept’s performance concerns?

Technology and Knowledge Mgmt.• What data do we currently have, even if we don’t use it?

– For use in determining costs/pricing– For use in delivering services; invent the wheel once

• How can matter management systems and billing systems help or hurt this process?

• Do you need tools that currently don’t exist?• Does knowledge mgmt. pose “professional” problems we

can’t resolve? Privilege/confidentiality, conflicts, etc.

Law Schools/Education/Associates• Whose problem is “the associate crisis?”• If we agree that most students graduate from law

school very smart, but not ready to practice, what is the role of law schools, firms, clients and students, as well as other associates in driving the law school model to change? Or in finding solutions to these problems?

• Do you see solutions that are already forming?• What do firms owe their associates? What do clients

owe their firms who train associates?

AVC - Actions underway• Chapter and regional sessions where firms and

in-house counsel can talk candidly• Toolkit on the ACC web site, including economic

model – showing folks how to get it done.• Publicizing success stories/best practices• Better metrics (not average profits per partner,

but leverage, turnover, overhead, etc.)• ACC Value Index

What you can do . . .

“Meet. Talk. Act.”• Pick your three best clients or firms• Schedule a brown bag lunch with each• Talk candidly: “Working together, how do we

improve the value of legal services?”• Try out some of the ideas, even on a small scale• Periodically assess efforts; expand what works• Share success stories

ACC Value Challenge ContactsQuestions, ideas, success stories to share?

Please contact us:

Susan Hackett, ACC’s General Counsel (hackett@acc.com)

Renee Dankner, ACC’s Associate General Counsel (dankner@acc.com)

Michael Roster, Chairman, ACC Value Challenge Steering Committee Chairman. [2001 Chairman, ACC Board; retired General Counsel, Golden West Financial and Stanford University; former Managing Partner of Morrison & Foerster, Los Angeles (mroster@earthlink.net)