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The Point

In Part I of this two-part series, I argued that:

1. Our legal system’s demands on businesses persistently exceed Legal budgets,

2. The lawyers who run the corporate Legal function default to adding lawyer headcount when demands increase, and

3. Only professional management skills can increase Legal’s capabilities at scale, using sophisticated business processes to perform recurring routine legal work — and few attorneys know how to do this.

In this Part II we consider how to begin to bring professional management skills to Legal. Continue reading

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The Point

Purchasing power is the single most potent form of leverage available to a company that wants to keep law firm fees within manageable bounds. But passive acceptance — not robust negotiation — is corporate Legal’s typical response to law firm price demands.

In the 1st Quarter of 2023, predictions of the largest law firm rate increases in 15 years abound — see here (“Those Predicted Big Biglaw Rate Increases? They’re Going To Be Bigger” / Above the Law 1.19.2023 — 7-8% increases in 2023), here (“Raising Billing Rates in 2023 Becomes ‘Singular Focus’ for Law Firms” / Law.com American Lawyer Media 11.22.2022 — 7-8% increases in 2023), and here (“Rising Rates are Law Firms’ Salve Amid Layoffs, Pay Cuts” / Bloomberg Law 1.19.2023 — 8% increases in 2023).

2023 is not the year for your company’s Legal function to be pushed around in such rate negotiations. Those who bargain on behalf of your company should do so keenly aware of market demand vulnerabilities now facing law firms on the other side of the table from them. Continue reading

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The Point

Demands on corporate Legal functions increasingly exceed their budgets, driven by proliferating regulatory and litigation pressures, and due to persistent needs for contracting, compliance, and day-to-day advice (see here and here). Meanwhile, survey data show that 88% of general counsel plan to reduce the overall cost of Legal over the next three years, with 50% reporting that those reductions will come to 20% or more.

Something’s got to give.

Without capable professional management, Legal will continue to overpay for inefficient use of its resources, risking two likely results:

1. Busted budgets in the Legal function, and

2. Lapses in protection from liability and regulatory exposure. Continue reading

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The Point

From Radiant Law Founder Alex Hamilton’s brief interview video contained within LexisNexis’ lengthy new report, Calling Time on the Billable Hour:

“When we started Radiant, what was absolutely clear to us was that the incentives were all messed up within law firms … If you’ve worked … like I have as a partner of a big law firm, you know that there is a huge amount of silly activities that are not really adding value and are being charged to the client at huge rates.

” … We knew that we had to fix the incentive problem … no hourly billing. What has that meant for us? It’s meant that we are at risk … We’ve had to figure out how to do deals or write business contracts in a way that we’re not constantly losing.

“Because we know the game, the initial estimate is always blown through in the hourly billing world. If you have to live with a fixed price, and really live with a fixed price, then you’ve got to get better at how you do it.” Continue reading

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The Point

My previous article reported that an internationally prominent alternative legal services provider (ALSP), Axiom, had launched a law firm as its wholly-owned subsidiary in Arizona — with operations and offerings of both ALSP and law firm fully integrated into each other. Last year, Elevate Services, another internationally prominent ALSP, launched its own, wholly-owned and fully-integrated law practice in Arizona under the same regulatory reform that Axiom enjoys.

(An ALSP is typically owned by a legal entity such as a corporation, and offers automated business processes and technologies that do routine and recurring legal tasks more efficiently, more cheaply and more accurately than law firm attorneys or in-house counsel typically can.)

In considering the implications for businesses located outside of Arizona (and outside of Utah, which has enacted similar reforms relating to law firm ownership), I saw two possibilities.

First, might the other 48 states adopt reforms like Arizona’s and Utah’s that allow a business entity like a corporation operating an ALSP to own a law firm? Very unlikely any time soon, I suggested. In the U.S., our legal profession’s opposition is too united — and too vehement.

Second, might integrated ALSP / law firm services authorized by Arizona or Utah law be offered outside of those states under the existing regulatory framework that has long enabled, say, a New York-headquartered law firm to service clients throughout the U.S.? This looks a lot more feasible. Continue reading

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The Point

In every U.S. jurisdiction except Arizona and Utah: “A lawyer or law firm shall not share legal fees with a nonlawyer ….” (With exceptions set forth here that don’t apply to this discussion).

In plain terms, American Bar Association Rule 5.4, and its counterparts in the legal “ethics” canons of the other 48 states, says that lawyers — and no individual or entity other than lawyers — may have any ownership interest in a law practice.

Not a Big Four accounting firm that fields its own teams of attorneys. (In contrast with England & Wales, or Singapore, or Spain, or Canada).

Not an alternative legal services provider (ALSP) that “segments” services ranging from the most sophisticated one-on-one legal advice to automated business processes that do routine and recurring legal tasks more efficiently, more cheaply and more accurately than law firm attorneys or in-house counsel. (Again, in contrast with England & Wales ….) Continue reading

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The Point

I once asked Ben W. Heineman, Jr., legendary GE General Counsel under Jack Welch during the years I served as an executive at GE: “What’s the one key to managing resources in a company’s law function?”

Heineman’s unhesitating reply: “Segment! Segment! Segment!”

As he explains in his book, The Inside Counsel Revolution:

” … Law departments must prioritize and segment the work (his emphasis) from routine with low risk, to recurrent with moderate risk, to repeating cases with high risk, to one-off consequential cases, to one-off potentially catastrophic or transformative matters.” Continue reading

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The Point

Where corporate Legal needs the services of a specialist, it should look primarily among law firm partners for the practitioner who has spent years — more typically decades — focused on the narrow legal area in which the company’s need arises (more on this here and here).

Surprisingly, attorneys employed by such firms as associates — especially the larger ones — receive very little training for their work (see here, here, and here). Yet these law firms assign such associates alongside such partners and bill them at hundreds per hour for their supporting role.

Management lesson: Corporate Legal, to get the expertise its client company requires, should maximize the services of the specialists it really needs, and minimize the services of associates who role is mainly to bloat billable hours (see here and here about the law firm financial technique called “associate leverage”). Continue reading

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The Point

D. Casey Flaherty, legal technology consultancy LexFusion’s Chief Strategy Officer, released an important essay earlier this month. Along with colleagues, he conferred with 435 corporate law departments and 250 law firms in 2022. And with 327 corporate law departments and 240 law firms in 2021. His conclusions:

1. For most companies, the legal system’s demands on corporate Legal exceed that business function’s capabilities to respond. And the gap between those demands and those capabilities have relentlessly widened. So some tasks vital to a company’s legal safety go begging, exposing those companies to potentially catastrophic litigation and regulatory exposure.

2. Meanwhile, corporate Legal has been overwhelmed meeting current needs so that it can’t take the time and money to invest in better ways to do its work. Preoccupied with urgent tactical matters, Legal drops the ball on important long-term strategic needs. So it fails to increase its capabilities at scale, directing almost all of its resources to putting out fires.

3. Despite this precarious mismatch between resources and needs, corporate Legal’s leaders say that they intend, by a large majority, to reduce the budget of their function. Without explaining how they intend to scale capacity to keep pace with law’s relentless, increasing requirements. This is, as Flaherty puts it, “bonkers”. Continue reading

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The Point

Some contracts are more important than others. Figuring out what’s “good enough” depends on the deal’s potential consequences — both good and bad.

Some are considered “bet-the-company”. They call for a degree of quality, investment of time, and costs (especially lawyers’ fees) commensurate with their potential benefit and potential risk. Other, more routine, “run-the-company” agreements might not warrant the same mix of quality, time, and costs.

In business contracting there is no such thing as perfection; only compromises in the allocation of a company’s resources. Continue reading

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