The subject of discounts holds perennial interest for enterprise lawyers. The best advisors tell leading law firms to avoid making fee discounts a strategy, and acknowledge that it often masks issues that run much deeper.
This is the definition of discount typically at issue in the corporate legal space:
A reduction made from the gross amount or value of something: as from a regular or list price.
Aha! There’s that pesky “value” word. Just when we thought we were making progress. Note the concept of “regular or list price.” High-end law firms employing top-shelf lawyers would argue that nothing they do is “regular” and “list price” is their our invoice says it is, and not a penny less. “We’re like Apple in legal” they say.*
Really? For every matter you work on? For all 1,000+ lawyers?
But today I want to look at a different sense of discounting, something more like this:
To leave out of account: disregard; to minimize the importance of.
Outside counsel and In-house counsel approach this sense of discounting from different perspectives. Today a look at outside counsel; in a few days, I’ll return the favor to in-house counsel.
Lawyers in larger law firms discount; here’s a broad brush approach to four discrete groups:
1. Managing Partners: They can discount how much pressure competition is placing on firm clients, and how this affects the procurement of legal services. Some partners with key client relationships tell me that the response they get from managing partners or firm CFOs on discounts (yes those discounts) or AFAs is “We’re better, sell harder. I did.” Perhaps, maybe ten plus years ago, which in the dog years that frame legal change is more like 30.
2. Key Client Partners. This group is the point of the spear in enterprise legal these days. They find the clients and mind the clients. Some may be discount the reality that most GCs can get service X from firm Y or Z (and soon many others). They can also discount the fact that some services that experienced monthly demand may become more episodic. GCs who pay top dollar for all services all the time are known as “ex-GCs” in the industry.
3. Subject-Matter Expert Partners. These partners used to be seen as the real core of larger law firms. Their value was forged in a crucible that mixed the ore of high-end knowledge with the heat of consistent deals, cases or controversies. Alas, what this group sometimes discounts is the fact that when you are seen as a mile deep and an inch wide, it doesn’t take much to knock you out of the game.
4. Hail-Fellow, Well-Met Associates. They are hoping to get to (3) soon, and maybe (2) someday. Or land a gig in-house. There is a lot of virtual ink spilled on the plight of law students these days, and what the future means for them. It’s fair to look closer at law firm associates, since the firm probably doesn’t need more of those in group (3) generally, and jumping the shark to group (2) directly is really hard early in a career. Group (3) can hoard work and not want to train “cheaper rivals;” group (2) wants to grant them some client contact, but will be in hot water with group (1) if anything goes wrong.
So the take-away is this: before you look at a discount in terms of price, consider what you yourself may be discounting in terms of your honest view of the enterprise legal market today. Where do you fit in? Where is your firm or practice specialty headed? What are your competitors doing? (If you think you don’t have competition, it’s OK, but only if your name is Martin Lipton).
Price discounts are a lagging indicator of many decisions that happened much earlier. Next time, a look at what in-house counsel are discounting, and how this factors into what law firms are (or should be) doing.
* NB on Apple: Yes Apple doesn’t discount its latest products and premium prices them to boot. But buried in the latest earnings release was information that Apple’s most supply-constrained product was the two-plus years old iPhone 4. It’s “free” on a two year contract. So a message to all big-time law firms that think discounts are for lesser legal lights: sure, don’t discount. Just be really really confident that your service design and delivery is better than Apple is with its products. And even if you are, somewhere there is a looming Samsung to your Apple.
We are getting personal about 2013 to start off the new year on a positive note. Last week, we learned about the importance of creating more value than you capture.
This week, the reality that what you do today may not be enough next month. Or perhaps sooner than that.
I’ve honestly struggled writing this, because it risks coming off as either trivial or obvious. That said, here it goes…
Here’s the big-picture concept: if we are moving to more of a value-based universe, how are enterprise lawyers supposed to work better? Put another way: how can you price by value but clamber along working as usual by the hour?
The fact is with all the efforts spent to improve lawyerly output, we still work in much of the same way as we’ve done for the past 20 years: spending too much time staring at a computer, and at our email inboxes in particular. When we are liberated, we go to a meeting, and surreptitiously stare at our smartphones, at our email inboxes in particular.
Pam Woldow touched on a part of this last year when she wrote about the inefficiencies caused by “digital distraction.” I won’t try to summarize it; just read it. But it touches on a profound reality for many lawyers: we are told to provide value, yet we aren’t taught how to work better.
Since most of us were historically taught to work more, when time comes to provide added value, we are left to our own devices. Figuratively and literally.
This is nowhere more apparent in the admonitions to “work as a team,” to “collaborate,” to “run a winning project.” Many meetings resulting from these worthy goals involve a bunch of people sitting around a table waiting for someone to take the lead; for anyone to point the way.
That won’t work if you want to get better. You will have to take the lead.
I think getting better in 2013 will involve more lawyering skills than just additional legal knowledge. I know that this sounds a bit squishy; I have the first verse of “Kum Ba Yah” running through my head as a write this. (Although when you sing it around a campfire, just think of the teamwork, and collaboration!)
In the coming weeks, I will outline what some of these new skills are. I am testing them in other places. In the meantime, I suggest this. You look around your workplace or your circle of influence. Find someone you admire for a personal quality or skill, and invite them to lunch. Somewhere between sports and the weather, ask them how they “got good at X.” Most people worth learning from are happy to help if asked sincerely.
This isn’t about trying to set up a formal mentor-mentee relationship. Those are not easy to come by, and can end up in some people losing their jobs.
Try it. See how it works. And don’t thank me. Thank Bueller.
(Apparently the German version of YouTube hasn’t gotten a C&D letter yet. Bonus points in the video for Gordie Howe’s No. 9 Red Wings jersey. Yes, hockey is back in Hockeytown! Teamwork on ice; with skates, sticks and a hard rubber disk…).
As we enter a new year, we want to be positive, as the last five years have been challenging for all lawyers. I would even suggest that for many lawyers an element of fear has manifested itself from time-to-time. Of course, as stolid advocates for our client’s interests we can’t really show fear. And I think that’s why so few lawyers talk about it.
It’s human nature to be afraid of the unknown. Much of what is the enterprise legal market these days feels like the unknown. Worse yet, it sometimes feels unknowable.
But while it’s natural to sometimes be afraid, it’s essential that you move forward. One way is to (a) look at things honestly and then (b) take steps to do something about what you see.
When we go from the macro legal economy (things are tough, highly competitive), to your own micro economy (what am I doing, where am I going?) here’s one litmus test question to ask yourself:
Do I create more value than I capture?
I think this concept was first outlined by Tim O’Reilly almost four years ago.
This isn’t an exercise that goes out to four decimal points. It’s basically three steps:
1. What do I spend most of my time doing, and what is its value (Create)?
2. What is my fully loaded cost in doing it (Capture)? and
3. Is 1 greater than 2 (the Calculus)?
[NB 1 for extra credit: What does the market signal about me in terms of what others cost who do the same thing? (price and trend.)]
[NB 2 to value-pricing mavens: Yes I have heard about AFAs and no I don't think charging by the hour is the only way to do things. But for all the time spent and ink spilled on new pricing models, costs are costs, and someone (the client!) pays them somehow. And if you truly think that what you do is unique, and you really have no competition, then I'd say get back to work and stop reading here.]
Let’s see how three hypothetical enterprise lawyers fare when doing the value-capture three-step:
Valiant In-house Counsel
This one is typically easy. If you are doing any legal work that used to be done by outside counsel, you win. For now. The fully loaded cost for many in-house counsel is less than $125 per hour, and some law firms may charge out their messengers for that. But note the words “for now.” If what you do is a lot of rather mechanical drafting of low end contracts or doing various research projects, watch out. You may wake up one morning and find someone (or some thing) out there that does this for $50 per hour. Maybe in a few years for $5 (and works via this website) That’s $5 per deliverable, not per hour, by the way.
Intrepid Law Firm Associate
This one is a bit harder. If you are a newly minted law school graduate, you better be at a firm that emphasizes investing in you now for a pay off some years down the road. Clients don’t want to pay for this. And managing partners don’t like anyone working “off the meter.” If you are a five to seven year associate, good news! Chances are you can and do some of the work that junior, non-equity partners do, but you don’t have to charge $200 per hour more. So be glad now, but stay tuned for tomorrow’s post here, because things will change when they make you partner. Someday…
Stalwart Law Firm Partner
Many partners can pass the create/capture test with room to spare. Interestingly, its often those at both ends of the hourly rate curve. Those newly-minted partners, if they were really really deserving of non-equity knighthood, still charge a lot less than others at their firm (or in the rest of their relevant market). The stars, those partners who ask for and get $750 per hour and more, might do work that’s worth way more than $1,000 per hour. But the mendacious middle is where things get tough. If you are a partner who doesn’t have many (any?) of your own clients, you charge $500+ per hour, and your specialty is a mile deep and an inch wide, hold on. Take a deep breath and a long hard look in the mirror. The good news: you’re not alone. The bad news: you’re not alone; many large law firms have tens if not hundreds of such partners. Once upon a time, they were on the right side of the create/capture ledger. (Mainly because some GCs thought most lawyers were unique and felt that their budgets were fungible. Now it’s the reverse.)
Times have changed, however, and in this era of big data and small analytical tools, it is simply harder to hide. And with no clients, there may be nowhere to run.
Hope for Change, Plan for Better
Let’s end this part one on a upbeat note: 2013 can be a year when many lawyers replace fear with hope, and then hope with a plan. That’s next week, when we learn that even if we create more value than we capture, we can’t stop there.
Today, we talk about The Practice. Years ago, “practice” referred to what an outside counsel called his work, for his clients, charging what he wanted, thank you very much. And yes it typically was a “he.”
Today, though, I am referring to practice not like that, but more like what a team does that wants to score better and win.
You know, like what Allen Iverson spoke eloquently about in 2002, when he had “creative differences” with 76ers coach Larry Brown about whether, he, “AI” (aka The Franchise) had to attend practice (like everyone else):
People who watch this video focus on the classic repetitions of the word “practice.” But the true lesson for today’s intrepid lawyers is in the single Q&A at the end of the video:
Is it possible though, from where he is coming from that, with practice, not you would be better, but your teammates would be better?
How the hell can I make teammates better by practicing?
I’m not saying that some superstar lawyers agree with Mr. Iverson, but at least he is a refreshingly honest person, who could not hew the company line if he tried.
We are entering an era when even superstar lawyers need a team. And to score well together requires some practice at key skills.
New technology (for project management or collaboration, for example) can’t easily take hold because people don’t know how to (or don’t want to) work together. In fact, I think many lawyers today think that technology is more often the problem, not the solution.
I know that “practice” is a hard concept to explain without it degrading into visions of firewalks and rope ladders and teams of people zip-lining over crocodile-infested waters.
Not that there’s anything wrong with that.
I will offer some examples of what to practice early in the new year.
For now, I think 2013 will show us that when a well-selected small group (a team) uses a few key metrics (the score) and takes seriously the importance of working together well (the practice), they are more likely to best the competition than those who continue with the status quo.
And they just might have a bit of fun in the process. Here’s to more fun in the new year.
This is the second installment of predictions for 2013. The first was “The Team.” (No, I didn’t think about a sporting tone at the start.)
Number two in this hit parade is “The Score.” As in lawyers working in the enterprise space (inside or outside) need to know that some things count and other things are just part of the process in getting there.
It used to be easy for outside counsel to keep score. They counted hours, and regaled peers about going beyond 2,000 hours posted and paid in a calendar year.
In-house counsel also kept score years ago. They typically regaled their former peers in firms about how they did not count hours.
Now in-house counsel need to keep score about how their corporate legal function drives top line revenue, removes costs to bolster bottom line earnings and controls risk so shareholders see gains (and keep them).
It’s harder for outside counsel to keep score now, since they are being pressed by those same in-house counsel to lower costs. Billing higher rates by the hour is a luxury for a few law firms, not a strategy for the rest.
As a general counsel, I remember when an outside lawyer would push back on a given issue when I tried to calibrate it by linking it to a discrete corporate result. The refrain on at least one occasion:
That’s a business issue.
(I wish I had an iPhone then and could have grabbed it and played this. Loud.)
Part of keeping score in 2013 will require an understanding that if something isn’t a “business issue” then it probably shouldn’t be worked on by corporate counsel in the first place.
Pursuing legal questions for the law’s sake is great. It’s just not part of the corporate landscape any more (if it ever was).
We have heard this through the Great Recession:
Do more with less.
I think in 2013 many in-house counsel will move past that bromide. They will be part of growing the enterprise, which will involve handling more work with existing staff.
The “less,” if at all, may refer to fewer outside law firms, charging lower unit costs. And getting better results along the way.
That’s how we keep score today.
OK, I’m going all in. We needed Herm Edwards in law school, or a least as a keynoter for an Association of Corporate Counsel annual meeting: