Articles Posted in Cost Disciplines in Legal

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The Point

Over the past four decades, the constant law department refrain, in response to rising costs, has been: “bring more work in-house” (see here, here, and here). Swap out on-demand law firm specialists who charge (high) fees, for full-time in-house generalists who receive (lower) salaries and benefits.

This “cost-saving” method hasn’t worked — a consistent 50 to 60% of law function spending has long consisted of payments to law firms (see here). And, excepting the 2008 to 2009 Great Recession, companies’ legal spending has consistently spiraled upward.

This Matters 

Most industries charge more per unit for purchases made in small numbers, or only occasionally, than they charge for purchases made in bulk, or on a regular basis. But the waste that the legal profession’s hourly billing business model builds into law firm charges multiplies any variable cost premium to grossly excessive extremes.

So, to an extent not true of most other industries, the legal industry offers corporate law functions no economically viable way to manage their variable costs — at least when it comes to sourcing help from lawyers. Continue reading

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The Point

In a recent post, this blog covered the FisherBroyles law firm, which recently won acclaim for becoming one of the 200 highest revenue U.S. law firms (“AmLaw 200”). It has no offices, no associates, and no secretaries—what partner James Fisher calls, “the headwinds of profitability.”

As to “no associates”, since its inception 20 years ago, FisherBroyles has guaranteed that everyone it designates as a “lawyer” or “attorney” on a client company’s bill (whose work that bill describes as “legal services” or “legal advice”), is a fully-qualified attorney of at least 7 years experience — more typically 15 to 25 years experience practicing law.

This Matters

This is not true of the traditional U.S. law firm.

Whose hourly billing business model relies on adding more recent law graduates to pump up total charges for the work of mature, accomplished attorneys. Continue reading

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The Point

Factor is a prominent “alternative legal services provider”, or “law company”. That means it offers technology and workflow process professionals to support delivery of legal services; but, unlike a law firm, it has no attorneys who offer legal advice directly to clients. In June Factor announced a “Legal Transaction Optimization” service to automate routine transaction tasks for law firms that do complex corporate deal work:

“By unbundling transactional tasks from legal advice, law firm juniors billing at high rates are replaced with tech-enabled teams specialized in producing better output.”

This Matters

1. Factor’s service costs a lot less than what law firms have been charging for these transactional tasks (50% less in a recent reported deal).

2. Factor’s technology-enabled, automated process is likely to be more accurate than junior lawyers’ manual efforts at due diligence, document assembly, and other repetitive, error-prone tasks (for instance, see here). Continue reading

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The Point

Earlier this month several top U.S. law firms announced that they’d be paying 2021 law graduates $200,000 per year (Wall Street Journal: “Entry-Level Lawyers Are Now Making $200,000 a Year”).

Whether the law firms account for this as overhead (very unlikely), or pay for it by charging clients for the time of such novices (much more likely), client companies will shoulder the bill for this largess.

This Matters

Any U.S. law graduate will attest to the reality that a freshly minted law graduate — without any experience in or training for actual practice — is unqualified to perform as an attorney.

As the founders of AmLaw 200 firm FisherBroyles have described it (before this month’s announcement of $200,000 a year salaries), assigning such unseasoned individuals to perform legal tasks for clients, and then charging clients hundreds of dollars per hour for their work, amounts to, “the $180,000 a year associate being trained on the client’s time“.

Continue reading

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The Point

This year FisherBroyles became the first virtual law firm to be included in the AmLaw 200 — The American Lawyer’s yearly ranking of the 200 largest U.S. law firms.

What’s distinctive about this law firm: Its business model removes two key items of overhead from all of its client bills: (1) lease payments for lawyers’ offices, and (2) payments to junior attorneys to “assist” partners with their work for clients.

This Matters

FisherBroyles’ logic:

1. What you need from a law firm is the best lawyer you can find for the type of problem you’ve got.

2. A fancy office doesn’t advance that goal. Neither does addition of junior attorneys shoehorned alongside that best-lawyer-you-can-find to bulk-up the total bill.

3. Pay that best-lawyer-you-can-find handsomely — but ruthlessly avoid overhead that doesn’t add value. Continue reading

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The Point

“Law department leaders report that one out of every five in-house [lawyer] hours is currently spent on low-complexity, repetitive or routine tasks, with 87% confirming that their department spends too much time on these tasks.” 2021 EY (Ernst & Young) Law Survey.

In Legal, as in any other corporate function, aligning talent with the work to be done is a task for a proven manager. Lawyers in-house and in law firms are not trained in this, and they’re not good at it.

This Matters

The corporate law function’s largest expense category is lawyer pay, so squandering 20% of costly in-house counsel time on “low-complexity, repetitive or routine tasks” is a major, self-inflicted setback to Legal’s mission.

Allocating complex work to expensive talent — and routine work to automated processes or to cheaper talent — is Management 101. It’s second nature to businesspeople. And the other corporate functions like finance, IT, or marketing have successfully done this for years. Not so, Legal. Continue reading

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The Point

Over the weekend I heard a veteran of a Silicon Valley-based, Fortune 100 tech company say this:

“When I started, the legal department was 200 people … by the time I left it was 1500 people.”

This Matters

When its workload increases, the corporate law function has one primary, go-to move: add people to the team. But raising headcount does not create economies of scale.

When demands exceed budget, Legal’s standard response — “Bring more work in-house” — replaces high-cost specialists in law firms with lower-cost generalists on the corporate legal staff. But either way, it’s about adding people.

And that’s a big problem as the legal system’s demands on business continue to proliferate. Continue reading

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The Point

I’m qualified to discern fat-vs-muscle in Legal spending from firsthand experience on both sides of the lawyer / client table. I’ve practiced business law for 25 years, and I ran divisions as a general manager and then served as an M&A executive for 12 years.

This Matters

To cut corporate law function spending — and to do it safely — a company needs both an attorney’s technical grasp of the legal system’s demands, and a businessperson’s cost control and management savvy. Continue reading

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The Point

Corporate legal costs have risen steadily for the last 40 years (including 2020 — and excluding the Great Recession of 2008 to 2009). Meanwhile, the legal system’s demands on business increase relentlessly.

So, CFOs, or other business executives, need to step in and impose spending discipline on the corporate law function. Because lawyers in-house and in firms have not.

Continue reading

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THE POINT

Reports about pricing “compromises” between law firms and client companies in the wake of Covid-19 simply reflect attorneys’ intransigence about hourly billing — not a real willingness to remove that business model’s waste and cost uncertainties by agreeing in advance the value they promise to deliver for a predictable dollar amount.

DISCUSSION

An example:

The American Lawyer / Law.com, January 4, 2021 (paywall): “Constrained by Crisis, Law Firms and Clients Are Learning to Compromise on Pricing“:

“The pandemic and its economic fallout have driven legal departments to turn to their law firms for help. With a toolbox of old and new ideas at their disposal, firms are showing that they’re willing to listen ….

“The circumstances are giving rise to conversations about pricing and driving both sides of the law firm-client relationship to seek common ground ….”

But “common ground” between lawyer and client is precisely what the hourly billing model makes impossible. Pricing risk remains Continue reading

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