A Return To Business, But Not As Usual

We are an optimistic species.

The ABA Journal ran a recent article titled "Managing Partners More Confident, Expect Increased Legal Work".

The upshot of the article is that a recent survey showed that the "confidence index" of managing partners is at a three-year high based on a belief that the worst of the recession is behind us, coupled with an anticipated increase in demand for services.

However, the article then slides in one other bit of information, almost as an afterthought:

"Managing partners aren’t as confident about revenue increases as they are about an increase in demand. The reason is client pressure to discount fees or offer alternative billings."

That's one heck of a caveat.

The literal translation might be: "Business demand will return to normal, but "normal" might have been redefined in the interim."

An interesting parallel can be found in the recent Detroit Auto Show. We all know the automotive industry is the poster child for the economic challenges of 2008/2009, so it was interesting to read this one-two punch from a recent Reuters article:

"In 2009, we discovered we have a new competitor that we have never dealt with before, and it's savings," Jim McDowell, American head of BMW's Mini unit, told Reuters. "Anything that throws major elements of uncertainty in front of the consumer are the kinds of things that could depress sales."

Followed by:

"But ultimately sales will increase because the car fleet is getting older and older," he added.

The parallels between the industries are apparent: Demand will return, but the nature of the game has changed.

The lesson here is that the impact of 2009 is not going to gently fade away. 2009 seems to be solidifying itself as a bell that can't be un-rung.

2009 was traumatic enough -- the ground shook enough -- that our perspective seems to have irrevocably shifted.

Legal Outsourcing Update

The London Times ran a feature Saturday profiling the outsourcing of certain legal tasks.

Obviously, it's no huge disclosure to point out that LegalEase Solutions is a firm specializing in legal process outsourcing. But in terms of the blog, we try to explore all relevant trends in the business of law, of which outsourcing is just one movement.

As frequent readers know, the goal of the blog is to explore the commoditization of certain associate-level deliverables, the breadth that the internet has eliminated traditional office walls, the calls for change to 'business as usual' from clients and corporate counsel, organizational evolutions, alternative billing practices, and other paradigm shifts in the business of law.

But since the London Times article just fell in our laps, let's give it a look.

While the article focused on one legal outsourcing company, the underlying fundamentals apply to all reputable outsourcing firms.

"... an army of young Indian graduates, most of them from the country’s top law and engineering schools, sits before a barrage of computer terminals. Many are working on legal documents digitally accessed from the servers of blue-chip Western clients via transcontinental fibreoptic cables. Others are engaged in research for upcoming litigation to be fought out in American courtrooms, or are analyzing patent filings registered by British companies."

Bottom line: Highly trained international attorneys are performing associate-level work (deposition summaries, litigation support, legal research, preparation of pleadings, contract/document review, and more) at a fraction of the cost of BigLaw associates.

"Together with the fingerprint scanners that operate the locks on the doors, they lend the premises a sci-fi feel."

Bottom line: Data security and client confidentiality are imperative, and outsourcing firms are completely aware that their success depends on implementing a multiple-level approach to security.

"Much of the work... was once the preserve of trainees and associates at big City law firms. Some of those firms racked up annual revenues of more than £1 billion during the boom years, in part by billing out teams of junior lawyers for up to £300 an hour for even the most routine tasks."

Bottom line: Significant financial savings are possible -- without sacrificing quality -- when international attorneys provide the same deliverable at a cost 50 - 70% less.

LegalEase white papers on data security, ensuring confidentiality, and protecting against conflict can be read here.

Monthly Subscription Plan

Alternative billing models are a frequent topic of conversation these days, with the focus primarily on a fixed rate or flat fee for a specific deliverable.

San Francisco firm Smithline Jha, though, is putting another option on the table -- the monthly subscription model.

According to Northern California legal newspaper The Recorder, 90% of Smithline Jha's revenues are now generated via monthly subscriptions.

While clients are purely on a month-to-month contract, a projection of overall annual expenditures is prorated to calculate a monthly charge. For new clients, an exploratory month is used to familiarize Smithline Jha with the client in order to help project annual services.

Law.com's profile of Smithline Jha notes that the monthly subscription model seems inherently geared for clients with consistent, measurable work taking place over an expected period, which does seem to fit the firm's focus on IP licensing for software and internet companies.

The value add, though, is that clients are more eager to spend time leveraging Smithline Jha's experience, which fosters a legitimate relationship.

Now clients tend to invite them to the deal table earlier, while terms are still being discussed, rather than bringing them in to review a ready-made contract. "They're not afraid to call anymore," Jha said. "They didn't feel like the meter was running every time they talked to us. The net effect was we got so much closer to our clients."

It's the difference between simply receiving a product and experiencing an actual working relationship.

This allows Smithline Jha to produce invoices which list only deliverables, not hours.

In other words, invoices document collaborative goals achieved, not a divisive accounting of my time versus your money.

And maybe that should be the first consideration of any paradigm shift -- how can we improve the relationship between attorney and client.

Lean and Mean

We've recently discussed the surge in public airings of client dissatisfaction with Big Law, as well as calls for change in some key areas of Big Law business practices.

Obviously, a situation in which the client base yearns for new products or alternative pricing typically results in the market rewarding the innovative and proactive.

It didn't take long for 2010 to offer a concrete example.

Law.com recently profiled Chaffetz Lindsey, a boutique firm founded last year by five former partners of big law Clifford Chance.

While Chaffetz Lindsey is gaining traction with referrals from other large firms due to conflicts, they've also crafted a business model positioned to appeal to clients turned off by large firm cost structure.

"The partners say the ability to offer billing rates lower than their large-firm counterparts is attracting and keeping clients. Chaffetz Lindsey lawyers have been able to bill up to 20 percent to 30 percent less than they did at Clifford Chance, said partner Charles Scibetta. The firm's preference is to try to negotiate with clients to sign a fixed fee agreement or make a deal with a contingency fee component, Scibetta said."

"What I believe is going to be important to a client is we have the big firm expertise but we're at a smaller place now and we're able to be more flexible on rates" said Cecilia Moss, 40, another partner who was previously counsel at Clifford Chance.

While clients say they appreciate the flexibility of fixed fee or contingency pricing, strategic alliance is also part of their business plan.

"Chaffetz Lindsey is relying on a low-leverage model to keep costs down, but it has also made arrangements with Jaeckle, Fleischmann & Mugel, a Buffalo, N.Y., firm where Scibetta used to work, to staff cases should the need arise."

Lean, mean, and nimble. Definitely a model to keep an eye on.