Change is a predominant theme among global law firms today. Spurred by the global economic crisis, a leading source of change in global law firms has been the development of alternative billing: fee structures that provide alternatives to the billable hour model. As the global legal services industry has shifted to a buyer’s market, alternative billing has become a hot topic of discussion between law firm partners and in-house counsel.
Alternative billing is client driven and is at the core of how the legal industry will be shaped going forward. The change in how global law firms bill for services was originally expected by many to be more profound from the onset. However, reality has seen clients moving more slowly in adopting alternative billing. Many clients are still holding onto their traditional buying patterns of hourly-based billing.
Though increases in alternative billing may be slower moving than some might wish, it is inevitable. Companies and law departments across the board are interested in getting more value for legal services. Improvement of pricing relationships is at the heart of the matter. The encouraging news is that we have seen the beginnings of successful change within global law firms and by corporate counsel: it CAN be done. Examples abound: Cisco Systems, Tyco, DuPont, Levi Strauss and many others.
Global law firms are working to educate their lawyers in alternative billing so they are prepared to discuss the options with clients. A successful relationship can be built when lawyers are armed with communication and knowledge management tools to support training objectives. The key to realize is that the change must come from the client; outside counsel lawyers will be slower to change if their clients are not pushing for alternative fee structures. The clients are truly the catalysts of change and provide lawyers with an incentive to make it happen.
In November 2009, Leigh Dance, President of ELD International global legal services management consultancy, led a discussion on the Martindale-Hubbell “Connected” global legal network regarding “Pros and cons of reducing costs with law firm discounts”. Matthieu Barter, General Counsel EMEA of Lenovo, commented “I have found that outside counsel recognise the pressure in-house legal departments are under to reduce costs. In fact, certain firms have wisely recognised that the downturn has created an opportunity to create or cement a business relationship. Firms that, where possible, are able to adapt with their clients to the difficult environment will set themselves apart from those that rigidly adhere to standard billing practices.” Barter works with Bright Ideas author Michael O’Neill, General Counsel of Lenovo. O’Neill discusses the keys to a successful relationship between inside and outside counsel in his Bright Ideas chapter “Fit for Global: Operating Tenets for the General Counsel”.
Alternative billing will surely expand and transform as change within global law firms continues during 2010. A cookie-cutter solution may not exist – each firm will need to develop its own approach to alternative billing, and the challenges are more complex in global law firms where pricing and billing practices vary from one jurisdiction to the next. The key to success lies in the partnership between global law firms and their clients.
As alternative billing grows in the global legal services industry, it is important to recognize the difference between true alternative fee structures versus short-term discounts. In 2009, in-house counsel were able to take advantage of a buyer’s market by requesting significant discounts on law firm fees. Discounting is not a change from hourly billing, and many believe it is a short term tactic that does not effectively deliver value.. On the other hand, ACC points out on their site that alternative fee structures “is not a zero sum game -- all boats should rise together in a great relationship.”
In Bright Ideas author Deborah McMurray discusses the ACC Value Challenge and “reconnecting cost with value” as it relates to staffing and recruiting in global law firms. McMurray gives ideas for change in legal service delivery by global law firms in her chapter “LAW FIRM 4.0: Considerations for the Global Law Firm in 2020”.
Leigh Dance, President of ELD International global legal services management consultancy and Bright Ideas Editor, discusses how in-house counsel are changing fast in their approach to fee arrangements in her June 2009 guest column on Adam Smith, Esq. Dance states, “Corporate counsel are amazed by the deep discounts they are getting on competitive bids. It's now typical for European corporate counsel to bid out a transaction to a few global and domestic firms thought to have the requisite expertise. Proposals from many firms, including the Magic Circle, are coming in at discounts far greater than 50% of the cost of such transactions 18 months ago. Often corporate counsel choose the firm they prefer on the condition it meets the lowest cost bid.”
Dance highlights the dangers associated with pure discounting: “Discounting is a short-term tactic. In-house, it can't reduce a legal function's outside legal spend by more than 15 or 20% over time, and the inevitable reduction in quality and service creates new and potentially costly risks. For law firms, much of the pricing resulting from pressure to discount is unsustainable.”
So if discounting is not the answer, what is? “Law firms must change the client dialogue from discounts to helping clients build a better legal function for today's corporate demands. Partners should be trained and authorized to talk specifically about alternative staffing and fee approaches.”
The best approach to realign global law firm and corporate counsel thinking is building a relationship between the two which is based on loyalty and trust. “Lawyers must get out and reconnect with their clients, giving them big figurative bear hugs. Don't stay away for fear clients will tell you they're cutting back, and don't just go out and ask for more business. The only way you'll really reconnect is to dig in and understand their issues. Then come back to them with viable approaches and structured options.”
In a November 2009 the California based legal publication, The Recorder, published an article highlighting global law firm Orrick’s success in structuring its “broadest alternative fee arrangement ever” with client Levi Strauss & Co. In the article, Mark Chandler, general counsel at Cisco Systems Inc., endorses the idea that alternative fee arrangements are built on trust relationships between the client and the firm. “Alternative fee arrangements take a little more time to negotiate, and involve building a different kind of relationship with a client,” Chandler said. Orrick’s Senior European Partner and Bright Ideas author, David Syed, discusses these changing relationships in global legal services in his chapter “Changing Supply and Demand for Global Legal Services: The Multi-polar Dynamic”.
In an October 2009 interview with European General Counsel online newsletter, Dance suggests, “In reality global law firms need to look beyond their traditional business model to find ways to structure and deliver some services at reduced cost. It’s not about the legal advice so much as the resourcing and efficient approach to delivery of those services.”
Replacing the quick fix of discounting with a strengthened relationship will lead to sustainable alternative fee arrangements.
In-house counsel are looking for more transparency and predictability from their law firms, particularly for complex assignments that cover more than one jurisdiction. Using a project management approach seems to be the optimal way to deliver on these needs, and manage a budget as well. There is much talk today about whether private practitioners are good project managers, but Bright Ideas editors find that many of the top global law firms are skilled at project management. However, they need to improve the communication and transparency of their project management processes to clients.
In an Adam Smith, Esq. newsletter from November, 2009, Bright Ideas contributor Bruce MacEwen states: “Analyzed dispassionately, any litigation or transaction of scale is a “project,” in business world speak. .. A project is simply a finite endeavor with a beginning, a middle, and an end, undertaken to achieve particular objectives. Salient characteristics of any project are that it must be managed within the constraints of available resources, which usually include people, time and budget, the fact that certain events have to occur and certain tasks have to be completed before others, and the inescapable reality that the only way of getting things done effectively and on time requires allocating scarse resources in an astute manner requiring genuine foresight.
Adam Smith, Esq. president Bruce MacEwen continues, “Milton Friedman was famously quoted in Time Magazine in 1965 as saying that ‘We are all Keynesians now.’ Will the analog in our world soon be that we are all project managers now?”
In a November 2009 discussion between in-house and outside counsel on the Martindale-Hubbell “Connected” global legal network, Leigh Dance asked “How law firms can resource projects better” to maximize their efficiency for corporate law departments. Many in-house counsel are finding that the outside legal advice and the law firm service can improve when the right team is working on the project, and costs can also decrease. Staffing of the assignment has become an important deciding factor in selecting a law firm for each project, based on the particular issues at hand.
Law firms, as they strive to respond to client demands, have made a number of improvements in project management, both in how they put a team together for an assignment and in delivering transparency to the client. Though law firms have varying approaches, resourcing the assignment and project management process are often among the aspects that they raise with the client at the earliest stages.
More and more frequently, law firms have a partner serving as client relationship or account manager, supervising overall project management. Nowhere is this more important than with multi-jurisdiction assignments. Bright Ideas contributor Paul Smith, Partner at Eversheds LLP discusses project management in his chapter “Implementing Fundamental Change in a Global Law Firm”. Smith recalls his introduction to project management, “I came back from a meeting with DuPont’s partner law firms where we were presented early case assessment as a project management approach, and told my partner John Heaps about it. DuPont showed how you could apply these principles to litigation, a practice John headed. A light went on for both of us and we began training all litigators to do early case assessments. That led 10 years later to the launch of Rapid, an approach our litigators now use across our global network to reach a resolution that’s right for the client. We applied similar methodology in the M&A practice which our lawyers use across our offices to take a consistent project management approach to corporate transactions.”
Timothy Corcoran, Senior Consultant at Altman Weil, Inc. suggests, “Using some concepts in the building trade, law firms can act more as general contractors. They have a deep bench of resources to draw from (other partners, associates, staff) at various points in a sort of just-in-time delivery model. Their primary role is to ensure a continuous movement toward the completion of the project while managing expectations, quality and costs. As law firms embrace these project management concepts, they start to realize that profitability can be derived as much from efficient deployment of resources as from billing maximum lawyers at high rates.”
There is clearly an opportunity for law firms and in-house counsel to improve communications to agree on what sort of team is needed and how responsibilities can be allocated to drafting, to legal research, and to other aspects of the project. Bright Ideas contributor Simon Slater, Director of First Counsel in London, summarizes the importance of managing resources in project management, “From where I sit, it is clear that there is a need for ever greater emphasis not only on project management skills but on good old-fashioned manpower planning and this applies to internal as well as external counsel.”
Global 100 law firms represent a giant share of the global business law market, whether defined by American Lawyer, Legal Business or Wikipedia http://en.wikipedia.org/wiki/List_of_100_largest_law_
firms_globally . More than ten of the authors in Bright Ideas: Insights from Legal Luminaries Worldwide come from Global 100 law firms. Lower-ranked Global 100 law firms can move up to Global 50 law firm status only by expanding their international reach. This book provides strategies to improve your firm’s ranking in Global 100 law.
Success as a Global 100 law firm requires excellence at advising senior corporate counsel on global business law. Bright Ideas Editor E. Leigh Dance explains that global clients know that it takes huge breadth and depth of legal skills, capacity and geographic reach to serve their international business needs today. According to Dance, the Global 100 law firm ranking is proof of that capability.
In Bright Ideas, senior partner David Syed of Orrick talks about the multi-polar dynamic among Global 100 law firms: “They propel themselves in the direction they want to go from no specific origin.” He cites as examples Latham and Sidley, both Global 100 law firms that are “not defined by their headquarters either financially or operationally. These firms develop by aggregating businesses across the world that make sense, to produce something better than the sum of the parts.”
What are the challenges of becoming a Global 100 law firm? We know the rewards are more cross-border work for major global companies, work which is lucrative and presents exciting global legal issues. The challenge for being a Global 100 law firm is increasing costs. International law firm expansion is expensive: new offices are costly. Many Global 100 law firms have had problems due to spiraling expenses. Bright Ideas gives law firm leaders invaluable insights to reduce the risks, reap the rewards, and claim your place among the Global 100 law firms.
“Global law firms will add value if they can stay on top of the rapid pace of global change and adapt along with their clients,” say Jolene Overbeck, Chief Marketing Officer of global law firm Latham & Watkins and Mary K Young, Zeughauser Group consultant. The global recession is pushing many global law firms to re-think their growth strategies and align their operations to respond to a new global balance of power and a new financial order.
Bright Ideas: Insights from Legal Luminaries Worldwide provides a range of expert views, including those of Overbeck and Young, for global law firms re-thinking their global strategies and management approaches. Global law firms have focused much of their energy on expansion and high-margin transactions and now must focus on profitability and superb management.
According to Bright Ideas essay author and Paul Hastings partner Bruno Cova, “Outside counsel may be part of global law firms or alliances, but few truly and consistently work in a cross-border context.” David Syed of Orrick concurs: “Global law firm clients are looking for a synthesis in the sense of bringing knowledge and information together to give a global solution.”
Bruce MacEwen, founder of Adam Smith, Esq., says, “Growth for global law firms is not to be taken lightly, and critical thinking is required in at least three areas: geography, talent, and what I’ll call management structure and leadership.” His Bright Ideas essay addresses those topics for global law firms.
The wounded economy and financial crisis means that global law firms need to re-think their strategies. Bright Ideas editor and global law firm consultant Leigh Dance explains, “Many global law firms focused first on their investment banking clients and centered their talent in two or three world financial centers. The world has changed, and global law firms now face a multi-polar situation. Emerging and recently emerged markets offer great opportunities for global law firms, but if not carefully managed, the costs can be debilitating.”
What will global law look like tomorrow? What about global business ? One thing is for certain—both global law and business will look different. If you want to be a player in global business law, this is no time to stand still.
Globalization and other factors -- such as more government regulation and more aggressive enforcement, increased sophistication of financial instruments, the expansion of vibrant commerce into many new geographies-- have caused a landslide shift in global law and business. Highly experienced, skilled and proactive legal advice is indispensable for day-to-day business management around the world. To practice law in any global business today, one needs an international perspective and cross-border experience.
Business, culture, economics, law and politics are interlinked elements driving global law and business. How will corporate legal departments better deliver legal services worldwide? Global law and business connect within company law departments in relation to contracts and agreements, cross-border transactions, international trade, regional and country-specific compliance, and many other areas.
Global law and business connect for law firms with multiple offices worldwide, as they aim to provide legal advice to the world’s largest companies. In delivering legal services on transactions, finance, dispute resolution and in many other areas, will global law firms succeed at providing seamless cross-border service? To play in global law and business, requires agility, speed, skill and stamina. The top international law firm competition is diverse and strong.
Corporate law departments learn from each other about ways to best conduct global law and business. Global corporate legal departments benefit from benchmarking structures and approaches, and sharing best practices.
There are so many questions to be answered in global law firm expansion: which markets and what practice mix? Multinational client targets or local targets? Buy or build? US law, local law, third-country law? What support infrastructure? Law firm expansion is a lot to manage, yet for all its complexity, law firm growth internationally inevitably comes down to some basic rules and practices.
Successful global law firm expansion can bring huge value to your firm in terms of lawyer retention, lateral hiring, competitive distinction and client development. It is difficult to measure, yet in hindsight very apparent (think of the super globals such as Linklaters who struggled with law firm expansion in the mid to late 90s) and now thrive.
A sort of Farmer’s Almanac could be useful to collect all the global law firm expansion lessons. We see successes and failure with global law firm expansion efforts, and an almanac of these lessons would help.
Imagine law firms as big plantations or gardens-- with partners as the farmers. These experienced farmers start with basic questions, and partners addressing global law firm expansion should ask the same:
What can we grow most successfully?
What are the crops in greatest demand?
How can we learn to grow more of the crops that are in demand?
Where else can the crops that are most successful for us be cultivated?
What are the environmental conditions we need for a plentiful harvest?
What can we realistically take on this season, from cultivation to harvest?
Like successful gardening, successful global law firm expansion requires information, perseverance, resources, stamina, some luck… and a plan. The rewards can be great, as we can all see from the client rosters and profits per equity partner of many global law international firms. Here are a few tips to approaching global law firm expansion so that your international offices bloom wherever they are planted.
1) Make sure you have a global law firm expansion plan. If you want successful law firm growth, you need to know who you are, why you want to expand and how you intend to succeed with your new offices. Planning ahead seems so obvious, and law firm management may think the vision and objectives are crystal clear—but often they are not.
2) Global law firm expansion should start with your strengths. Wherever you go, focus on what your firm does best. Any new office capability should be reasonably consistent with the firm’s overall practice and industry expertise. Buyers of legal services around the world seek expertise and experience more than ever, and studies continually show that this expertise is the motivation for them to try your firm’s lawyers in a new location. After all, you’re not building new out-posts, you’re building bridges for your clients. The firm’s strengths are the foundation of those bridges.
Much of the effort (and the pay-off) of global law firm expansion comes only after it is integrated effectively with the rest of the firm. To clients, the new office must have a viable connection to the firm’s value proposition.
3) Do your homework: due diligence and competitive analysis. Employ these business disciplines to evaluate the economics of opening an office in a foreign location. One of the biggest challenges for global law firm expansion is determining scale of the local offices. Can firms with a limited presence take business from premier local firms for major transactions? Often they cannot. The most successful global law firms have thought this through, and possess either a well-defined target market and niche expertise to make them a formidable competitor in a selected area, or they have established loyal clients at home who agree to retain them in the new market.
4) Pay attention to the typical issues of launching an international office. Whether in Beijing or Berlin, global law firm expansion must address specific local issues. This is not rocket science, but if you are a novice, it is easy to get it wrong. You will undoubtedly make mistakes, but learn how how to avoid the typical areas where global law firms continually trip up, such as:
5) Get ready for a major time commitment. Be realistic about the leadership attention and management focus required global law firm expansion, and dedicate what it takes. Because of the pressure to for law firm growth internationally, many firms overlook the substantial time and attention needed to be successful in each new market. Without the right oversight, problems typically arise, it is harder to get the talent or clients it needs to gain momentum, and law firm performance eventually suffers. Institutional assets may begin walking out the door.
6) Keep your eye on the local ball. - Avoid the cultural pitfalls. Local offices of law firms, whether in Abu Dhabi or Amsterdam, must be prepared to understand and address many different and very market-specific issues. Every international firm is wise to have consistent processes and steps for opening international offices, so that the wheel isn’t reinvented each time. But every country is different (to put it mildly), the law is different and local adaptation and flexibility is always required in certain areas. The issues can range from complex approval processes and bar regulations for the new office, to widely diverse approaches to serving international corporate clients, to different traditions and mores for client entertainment.
For the complete article go to : http://www.eldinternational.com/Downloads/PDF/1220527476.pdf
Want to learn more about top global law firms? Get your copy of Bright Ideas: Insights from Legal Luminaries Worldwide today!
Profits from Bright Ideas book sales will go to Advocates for International Development, an international pro bono organization. www.A4ID.org