Lessons from a Few GCs

Topics: Billing & Pricing, Corporate Legal, Law Firms, Thomson Reuters

Small Law

I recently had the opportunity to attend the Legal Marketing Association’s Annual Conference in San Diego. Like so many of these events, the content as a whole was incredibly interesting and engaging. But perhaps the most valuable session at the conference was the chance to hear directly from law firm clients—corporate general counsel—about their priorities and how law firms are meeting (or failing to meet) these priorities.

The discussion at this particular session was wide-ranging and featured a few divergent perspectives.

All the members of the panel agreed on a few topics. For example, when a firm is answering a request for proposal (RFP), it is “vital” that their answers directly address the requests in the RFP to respond to what the client is actually concerned about. As one of the panelists put it: “Lawyers often have a desire to answer the question they wish they had been asked.” Resist that desire.

The panelists also agreed that the first procurement process that a company goes through is probably the most important one for the firm. Once the corporation sets the pool of firms it plans to work with, the corporation is more likely to continue working with the same firms and try to improve what those firms are doing, rather than starting from scratch. Don’t overlook the importance of new procurement processes for clients, as these can be tremendously significant events.

The panel also hammered the point that they want to see more of what they called customized fees (a.k.a., Alternative Fee Arrangements). John Otterstetter, Managing Counsel for 3M said, “If I had my way, it would be 100% [customized fees].” He highlighted the cognitive disconnect he sees in the use of the billable hour, wondering why he would reward one attorney for billing more time when a different attorney got to the answer more quickly and added more value. As Otterstetter put it, customized flat fees can “take a lot of tension out of the relationship.” He’s not the first to make this point, either.

“If I had my way, it would be 100% [customized fees].”

—John Otterstetter, Managing Counsel for 3M

On a positive note for law firms, Otterstetter emphasized that customized fees are not about “squeezing every nickel out of firms. It’s about asking to pay for value.” Clients aren’t opposed to firms making a decent profit—they just don’t want that profit to be made as a result of inefficiency. “We want you [firms] to bill us less and make way more money.”

Interestingly, the panel was largely unified in their rejection of reverse auctions as a way to find representation (which was met by applause in the hall). They highlighted that aggressive pricing does not help to build a relationship between attorney and client. As Otterstetter put it bluntly: “I’m not interested in speed dating.”

The panel agreed that fee tactics like incentive bonuses can play an important part in pricing arrangements. Virginia Sanzone, Senior Vice President of CareFusion shared that they use varying definitions of “win” to trigger incentive bonuses. For example, if a case ends in their favor at summary judgment, CareFusion may go as far as doubling the fee. Under the billable hour model, there may be an unspoken incentive to draw a matter out so hours can be maximized. It’s not that a law firm wouldn’t aggressively pursue a win at summary judgment, but doing so may hurt the matter’s revenue potential as it limits the number of hours that can be billed. Imagine the boost to profitability a firm would experience by making twice the amount of money for wrapping a case quickly.

The panelists were also quite clear about things they wanted to see change. A few highlights:

  • Continuity of the attorney-client relationship is very important. Firms need to do more to retain key talent.
  • Firms should ask their clients to what extent a given attorney is key to retaining each client’s business.
  • “Value-added” firms that bring more than just matter-by-matter representation to the table are stickier.
  • It’s harder to leave firms that are truly innovative. Come forward with new ideas and tools.

Another point that struck me was where the panelists differed. Darragh Davis, General Counsel for Petco, placed a high value on actually seeing their firm’s realization rates and having control over how matters are staffed. 3M’s Otterstetter seemed less concerned about how matters are staffed or managed within the firm; he was more interested in the outcome, however derived. CareFusion’s Sanzone seemed to be in a sort of middle ground. She had a definite preference for customized fees, but was not vocal to the same extent as her co-panelists.

My take-a-way from the session was that if I, as a representative of a law firm that had all three companies from the panel as my clients, had not done my homework regarding the unique preferences of each of these individuals, I am highly likely to lose at least one if not all three of them as clients.

GCs like these three know what they and their companies want and they’re willing to share that knowledge with their law firms. The key for firms is just to ask the question.