The quarterly publication of the International Legal Technology Association
Issue link: http://read.uberflip.com/i/11430
ASK THE EXPERT THE FUTURE OF LAW FIRMS industry is accustomed to a linear model — graduate law school after three years, become an associate, work seven or eight years to make partner, work for 30 years, and retire. But that’s changing. The traditional upward progression of higher compensation and higher billing rates each year has started to disappear in recent years. The constant push for rates to go down and productivity to go up has spawned things like the ACC Value Challenge and the legal indexes that measure everything from pro bono to diversity — concepts that are outside the traditional culture of the law firm which tells us to do great work, be a great lawyer, and expect the phone to keep ringing. But as Sally pointed out, just being a good lawyer isn’t enough anymore. Lawyers have to be good business developers, too. They have to be business partners and consultants to their clients. They have to be mentors. They have to share and work with offices around the world, not just keep their practice in a silo. Why? Because the client demands it. Clients want collaboration between their lawyers, between different sections of the firms, associates and partners. And they want greater transparency internally in the law firm. Speaking of transparency, with growing regulatory constraints and the need for transparency more critical than ever, anyone want to tackle the question of how firms might do a better job in this regard? Preston: I think that this phenomenon of transparency is being driven by something you’re seeing in society at large — the mistrust in institutions that resulted after the economic downturn of 2008 and 2009 — the shock of realizing our vulnerability and interconnectedness. That deep, deep level of mistrust in banks, the financial system, the corporate world and government is evident in every market segment. How do you regain trust? Only by doing things — and the only way you can demonstrate you’re doing things is to give people an open view into your efforts. From healthcare and financial regulatory reform to business-to-business types of relations and client-firm relations, transparency is essential. Firms will regain the trust of their key clients after years and years of increased rates and fees only by being more transparent via systems and protocols that — guess who? — the CIO will be responsible for developing. Okay, let’s talk about the coming tide of “alternatives” such as alternative fee arrangements, alternative staffing and alternative offices. Comments? Darryl: You know, people keep talking about the death of the billable hour, but I’m betting it’s just going to expire of old age. The billable hour is a component of how we traditionally determine value — a certain amount of time for a certain expected result. But now there’s more competition than ever before; it’s a buyer’s market. Clients have the same mentality as any kind of buyer — they continually want a better result for less investment. And when they hear, “that’s just what it costs,” that shopper, that client just goes somewhere else. That’s why we’re seeing firms looking for alternative ways to serve clients like outsourcing, where certain parts of the matter — discovery or document review, for example — can be done in smaller firms or even virtual firms here or abroad. And we’re seeing the rise of things like fixed fees, flat fees, any kind of fees that can minimize the unpredictability of how much a legal matter can cost. Based on our surveys with firms and clients, we’ve concluded it’s not the type of billing that’s necessarily wrong, but rather, the lack of defined value. It’s like you’re driving off the new car lot thinking, “I hope I didn’t pay too much.” And the car salesman is thinking, “I could have gotten so much more for that car.” Buyer and seller are both unhappy. And so again, that’s where something like the ACC Value Challenge comes in — it’s an attempt to start setting some parameters to better align cost with value. Given the changes you all see, how can firms become or remain sustainable? Darryl: Law firms traditionally have three primary assets that contribute to sustainability: experience/expertise, their clients and their people — the people asset perhaps receiving the most focus. Attract and retain the best individuals and keep them happy so they don’t leave. Rules, culture and compensation are built around that. Unfortunately, that’s sometimes at the expense of clients because it tends to raise fees and to put systems in place that don’t reward cross-selling or sharing information across offices. That hurts clients because they may need a service that their lawyer doesn’t provide or isn’t incentivized to provide, and it hurts the firm because if the lawyer leaves, the client may well leave, too. In one fell swoop, the firm has lost all three of the aforementioned assets. Putting in knowledge systems, client management relationship systems, looking for ways to tap into billing systems to be able to see what’s been done before, how we use it again in the future, and how to modify it to another practice — these are ways firms can counter this people- dependent culture. But that’s just the beginning. They must learn more about their clients and what they need in order to proactively serve them, because our studies show that once you cross the third or fourth practice group there’s almost no risk of the attrition of a client — it plummets to below 10 percent. Number of practice areas, number of partners, a certain level of revenue — all this creates a safety net to where that client isn’t going away. This addresses not only the compensation issues, but also the technology that allows a global firm to be big and interconnected and therefore able to leverage its people and the work they’ve done in the past for the total wellbeing of the client. No more silos with only a firm logo in common! Sally: In my view the American model has never focused on sustainability. In the partnership model, the view is to take the profits out of the firm on an annual basis. It’s a short-term focus, basically — I’m not going to plan for that because I won’t be here; it’ll be someone else’s problem. Obviously, Peer to Peer the quarterly magazine of ILTA 23