Articles Posted in Cost Disciplines in Legal

A final installment in this three-part post.

What’s a practical basis for placing a value on attorneys’ work for the business?

In Part 1 I addressed the legal profession’s prevailing measure of lawyers’ work:

How long did the attorney decide to take doing the job?

Cost-plus. Bill the client company by the hour.

In Part 2 I addressed “data-driven” methods (with at least one present-tense exception that I’ve found, put this under the heading of maybe-in-the-future).

Here in Part 3 I address:

A price agreed in advance — between lawyer and client.

An example:

Barlit Beck, LLP

From Fred Bartlit’s April 5, 2010 Orr Distinguished Lecture at the University of Tennessee Law School:

In the early 1980’s Chicago trial lawyer Fred Bartlit was head of litigation at one of Chicago’s finest firms. He’d brought in a client whose big case was keeping 8 partners and 30 associates busy for months. “My partners loved me”, he said.

But Bartlit felt that this firm could deliver more effective legal representation to its clients for less money.

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In Part 1 I addressed the need for reliable numbers relating to the value of legal services.

If what gets measured gets managed — and if measuring the wrong thing is worse than measuring nothing at all — then client company executives need a reliable measure of the value of legal services in their budget.

Toting up hours billed gives “certainty” about the method by which attorneys came up with the price that they charge to a client company.

But that total tells us nothing about the actual benefit received by the business.

Hence our consideration of two alternatives: “Data-driven”, and a price agreed in advance.

“Data-driven” calculation of the value of lawyers’ work for client companies.

I refer to “data-driven” in quotes because there’s (a lot) less here than meets the eye when you read legal profession headlines.

In fact, I’ve found just a single instance of data-gathering and analysis as the basis of determining the value of what attorneys do for a company. If I’ve missed something, I invite comment and correction on this point.

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What gets measured gets managed.
This proverb, widely attributed to Peter Drucker, presents a tough question in the context of a company’s legal budget:Measure what, exactly?The cost-plus pricing method of the legal profession’s business model — charging the client company according to hours billed — offers the following answer:You should measure the number of hours that the attorneys decided to take in doing a particular job.This total — according to the view prevailing in 2019 — will tell you what a lawyer’s work product is worth to the client company.
Which calls to mind another proverb, offered by Seth Godin earlier this week, in a different context:“… Measuring the wrong thing is worse than measuring nothing at all.”According to the measure given to client companies by most lawyers — and accepted by the majority of such client companies — a contract that took 20 hours to complete is worth twice as much as one that took 10 hours.

Most business leaders — accepting this time-the-attorney-chose-to-expend measure — manage their legal spending accordingly.

Which brings to mind the experience of Patrick Lamb, who, along with Nicole Auerbach, founded Valorem Law Group (ElevateNext) — one of a tiny few elite law firms who never bill by the hour — in a June 20, 2018 presentation:

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This four-part post’s premise:

A company’s “legal” problems are likely to be — in functional terms — business problems that have a legal aspect.

The traditional impulse to call in a licensed attorney from a law firm or in-house counsel department doesn’t always lead client companies to the most practical choice for their needs.

Hence my introduction of “Alternative Legal Services Providers”, or “ALSPs” — and Georgetown Law Center’s recent, authoritative survey, “Alternative Legal Services Providers 2019” — in this four-part post.

Here are four take-aways:

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OK.

Review of Part 1 and Part 2 of this four-part post:

1. In your company, many “legal” problems are more accurately viewed as business challenges that raise legal issues (as Mark Cohen put it).

2. Delivery of many of the legal services that respond to such business-challenges-that-raise-legal-issues now requires process management and technology skills that attorneys mostly lack (again, Mark Cohen).

3. “Legal services & providers of those [legal] services are ever more important — lawyers, however, are not.” (Jeffrey Carr’s tweet last Monday)

For most of the past four or five decades, the phrase “legal services & providers” has meant one of two things:

1. Law firms, and

2. In-house counsel employed by companies as full-time employees.

Until — that is — a few years ago: With the advent of “alternative legal service providers” — or “ALSPs”.

“Alternative” to what? Alternative to law firms and in-house counsel.

Beyond that, the definition is pretty wide-ranging — except that all ALSPs embody the aphorism set forth in this post’s title: “Clients Need Legal Services But Not Necessarily Lawyers”.

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I interrupt my four-part post on how a company can achieve higher quality legal services, that are faster, more accurate — and cheaper — by “disaggregating” business challenges that raise legal issues into tasks that (often) someone other than an attorney can do better than a lawyer (“Clients Need Legal Services But Not Necessarily Lawyers”).

I saw the following in this morning’s in-box:

“Want a Market-Sized Bonus? Better be Ready to Bill Your Butt Off at this Biglaw Firm”.

For avoidance of any doubt, this meant that a large and prominent law firm issued new, formal guidelines by which it will now require the lawyers they employ (associates) to charge a quota of specified hours in order to receive a particular bonus. I don’t know if this firm previously had such a quota — though they are common in the legal profession. My point here is simply that hourly billing quotas like these are very much a part of the landscape, and that they’re widely accepted among conventional law firms — and the in-house counsel who hire them.

Regarding this law firm and its employee-lawyers, the article included a chart with two axes.

The vertical axis denoted the “level” of the associate in question. “Level” was expressed in terms of years out of law school. Nothing about demonstrated skill or competence. Just: How long had it been since this employee-lawyer graduated with their J.D.?

The horizontal axis: Increasing dollars of bonus for “1,950 billable hours …”, “2,100 …”, “2,250 …”, and “2,400 …”

Raising the question — as use of the billable hour invariably does:

Was this hour billed for the client’s good? Or for the lawyer’s good?

I always do a double take at such a headline.

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Part 1 of this four-part post introduced a February 19, 2019 Forbes article, “Clients Need Legal Services But Not Necessarily Lawyers” — by Mark Cohen, both an accomplished business attorney and former chief executive of his own (non-law firm) business.

Part 1 introduced Cohen’s observations about the process management and technological benefits of “disaggregating” what law firms and in-house departments traditionally have viewed as “legal” tasks. In this connection he wrote about “alternative legal service providers”:

“Law is not solely about lawyers anymore ….”

“Several new-model legal service providers … have replaced law’s brute force, labor intensive lawyer-does-all model with data-driven, customer-centric, automated, corporatized, scalable, collaborative, multi-disciplinary, and well capitalized service models.  These providers are often managed by business professionals and entrepreneurs, not licensed attorneys …”  

Why this “disaggregation” of “legal tasks” now?

Because, says Cohen:

“‘Legal problems’ have become ‘business challenges that raise legal issues.’ The complexity, speed, and new risk factors impacting business—together with the impact of the global financial crisis, technological advances, and globalization—have changed the legal buy/sell dynamic.

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My client was an Amsterdam-based investor who wanted to build an aviation services business in the United States.

As a corporate and commercial lawyer whose practice largely emphasized the transportation sector, I needed to get this client the best advice possible on positioning its new business from a U.S. federal income tax perspective.

This meant choosing between tax attorneys who practiced in a law firm versus tax accountants who practiced in an accounting firm.

Minimizing tax and keeping the IRS off their back was not just a “legal” problem. It was more like a business problem that had a legal aspect.

For their business savvy, tax law expertise, familiarity with how the IRS treats such foreign investors — and a cost advantage — I recommended a regional accounting firm instead of tax attorneys in a law practice. 

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Business people care about results.

That was the biggest lesson I learned upon crossing to the client side of the lawyer / client table.

After spending a decade as a practicing attorney.

Kind of a “duh” factor for my friends who’d lived and died by the P&L all their careers.

But for a lawyer whose career had been devoted to the analytical preoccupations and time-honored how-to methodologies that occupy 99.9% of a lawyer’s education and daily focus — it was a revelation.

Until I’d shouldered executive responsibilities, I was tone-deaf to what business “results” actually were.

Because he began his career in software engineering, Jason Barnwell, Microsoft’s Assistant General Counsel – Legal Business, Operations and Strategy — appears to have launched his professional life with a focus on “results” akin to that of a general manager.

So — as a software engineer — it was only natural that he offered to write computer script that would enable one individual to complete all of a document creation-and-collation task to which his law firm had assigned six team members.

Just as naturally Barnwell’s law firm employers — practicing under the legal profession’s hourly billing business model — found a way to stretch out their document creation-and-collation task to six people. Presumably charging for the time of all six people — performing manually what Barnwell’s computer scripting would have automated.

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Part 1 of this three-part post described software engineer-turned-attorney Jason Barnwell’s introduction — two months into his first law job after graduating from USC Law School — to the legal profession’s idea of “productivity”.

As the junior lawyer on a deal team, he offered to automate the process of creating and collating the shareholder consents necessary to close an M&A transaction by “some basic scripting”. As he put it in an article published earlier this week: “I was still an adequate software engineer back then”.

My guess is that his skills were in fact more than “adequate” — with four years of software engineering experience in the Bay Area — and a mechanical engineering degree from MIT.

Anyway, Jason Barnwell reasoned that reducing the individual bodies required for this paper shuffling from six down to one would be a good thing. Ditto the fact that the five team members thus freed up would be able to, “focus on other aspects of the transaction rather than walking laps in an ozone filled copy room”.

He was rebuffed — without explanation. Pressing for an explanation he was again rebuffed. Undeterred, Mr. Barnwell resolved to “revisit this for the next M&A deal”.

He remained undeterred until six weeks later:

“I saw the itemized bill for the transaction … There was a line item for my contribution. My hours worked multiplied by my billable rate. My client paid a lot for me to make copies“.

The legal profession matter-of-factly defines “productivity” as the number of hours an attorney billed the client and then got paid for.

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