As its first topic of focus, the Council of Luminaries has decided to have regular meetings to discuss the effects of the COVID-19 pandemic on the legal industry as they materialize. The objective is to identify developments in the market, at their firms, and within their teams, and to explore potential solutions and make predictions on where things go from here. Key takeaways from each meeting will be published for the public following each discussion.
The below meeting was conducted primarily with the law firm leaders group.
This Week’s Temperatures
Each week we ask the Luminaries to answer these three questions, on a scale of 1-10 with 5 being what would have been their pre-COVID response.
Observations of Recent Client Behaviors
More law departments have been reaching out to firms to ask for discussions about discounts—with some even notifying firms unilaterally that additional (and often substantial) discounts will be applied to their invoices without any dialogue. Likely there will be more of these kinds of activities as companies and their legal departments better assess their financial situation and mobilize their tactics for conserving cash. While we expect clients to continue to be aggressive, trying to force “one-size-fits-all” aggressive reductions is a very unsophisticated technique. “I’d still negotiate,” said one Luminary. “Never take the first offer, especially if you are in a situation where you are doing complex work that perhaps represents even more value to the company now than in times of stability.”
Some clients have also notified firms about extending payment terms. The ideal response is to acknowledge the ask, and try to open a dialogue to discuss and confirm all the terms. If a discussion is not granted, response and acknowledgement should at least define an expiration date for this arrangement.
It is worth noting that many times these are blanket demands sent to all firms, and while clients should really prioritize by importance of matters to avoid unintended negative consequences on those important, large matters, they do not always think that way.
Efforts to Respond to Current Client Requests
A number of firms have distributed principles to partners on how to respond to specific client asks/demands. It is important to remember the importance of basic negotiation: try to get something in return. For example, try to guarantee more work in exchange for bigger discounts. And for those asking for extended terms, consider offering a quick pay discount for paying on time instead.
The source of the ask will dictate the nature of the discussion (or whether there even is a discussion). A request from a GC or internal business contact with whom there is a business relationship is very different from a generic request from procurement. While a request from a GC is certainly worthy of empathy and negotiation, a GC (or an AGC or even a sophisticated legal ops professional) has a better understanding of the value delivered by the firm, and often has better context on which to base a compromise that will serve both sides’ needs. Sometimes it helps to point out that the value of service hasn’t gone away overnight, and that some creative solutions can be implemented to conserve cash while not de-stabilizing important legal work that could lead to even costlier potential implications.
Purely procurement-driven exercises is a different story. Some observations, implications and suggestions for managing a procurement-driven exercise include:
Negotiating with procurement can be difficult because they often don’t have authority to deal. You can’t trade a discount for a promise of future work—or often for anything beyond what is in the black-and-white letter of the demand—because they are charged with implementing and enforcing rather than negotiating. They are procedural buyers that are authorized to say “no” but not “yes.”
Loop in an operations professional or in-house lawyer or the GC on the procurement demand when it will impact non-routine work that might help save the client from increasing their exposure. Context often helps open doors for compromise, and these internal stakeholders can consider the situation using that filter to appeal for exceptions.
A “one size fits all” procurement demand signals the client is decoupling services from price, and also not differentiating based on importance of the work to the company.
Sometimes a client may push a cost reduction initiative through procurement specifically to try to implement aggressive tactics quickly, vs. incorporating the consumers of the service as those connections can prolong the process of getting to realized savings.
Not all procurement teams are the same, but when leveraging broad-based, undifferentiated tactics, it often costs both the firms and the clients more money in the end, because the internal market for skills at firms can sometimes result in the people in highest demand being fully-committed on the most sophisticated-and profitable—work. As such, any efforts you make to circumvent, while challenging, are likely to serve both the client and the firm.
Low rates do not guarantee lower fees, because a rate is just a unit cost that is not constrained by any limitation on the units that will be purchased. As such, the best ways to minimize cost are to open up a dialogue on priorities, staffing models and timelines, not to cut all the rates. This level of organization and coordination in the approach to service delivery will ensure the lowest cost for the highest-quality outcomes.
Non-Price Related Approaches to Delivering Savings
There is a lot of potential for leveraging the shift to remote work to start driving adoption of a variety of changes to the traditional law firm engagement model. Forcing tech on people to do their work, without basing it all on a paper trail out of habit, has perhaps created a window of opportunity to spur adoption of other practice tools, such as efficiency-oriented applications (e.g. AI doc review, document assembly tools, etc.) because customary work disruption has forced everyone to adopt technology in a variety of ways. It has also lowered psychological barriers to integrating technology and new approaches to traditional work into their normal routines, which can be a powerful platform to drive sustainable changes. Training on tools that support the move to remote has increased because of timing and relevance, and in the process, has lowered the aversion to taking the time to engage in such training as there is a recognized, immediate and tangible benefit afterward. For example, one positive impact of the remote shift is has been the quick shift from paper billing to fully electronic billing. It’s a huge modernization and efficiency gain that might otherwise have taken years, and there is little incentive to revert to old manual processes after more normal operations resume.
There is also now a more level playing field for exploring these new approaches. All firms have the same remote-work implications and are working to establish continuity of services at the same time. Nobody is out there doing things the stable, known, and sub-optimally manual/analog way, so each firm (and client legal department) can leverage this as an opportunity to modernize and streamline service delivery.
Remote work is also changing the scope of how people think about their work—geographic silos are removed as a remote environment incentivizes the development of engagement teams based on who possess the best skills and abilities for the work at hand, and who has the most capacity, without the constraints often imposed by geographic proximity. Rather than a partner walking down the hall to someone to help address a client need, now that there’s no “hall” to walk down, the partner can establish greater understanding for the internal talent landscape, and forge relationships that otherwise would not have been as likely to materialize. The perceived advantage of working with someone nearby also no longer exists, because there’s element of visual observation that the work is being done. If these practices can be carried through to the post-crisis period, it’s possible not only to have even stronger engagement teams, but to validate that trusting, professional work relationships can be established and flourish as a truly integrated enterprise rather than a collection of geographic production centers.
Efficiency Gains Aren’t Immediate or Easy
If pricing pressure persists, we should look to change how we work to improve margins rather than sustaining long-lasting negative impact resulting from lower prices but the same service delivery. It is important to acknowledge, however, that there isn’t a switch to flip to digitize/optimize legal work; planning for implementation of technologies and related changes is necessary. Sloppy, hasty or uncoordinated change initiatives can defeat the purpose and waste the opportunity, as can lack of focus on diligently developing requisite skill and knowledge of the teams and proving the efficacy of technology.
Driving change through this opportunity needs to be done thoughtfully and with focus on the problem trying to be solved. It’s counterproductive to simply deploy new tools for new tools’ sake without proper orchestration and implementation. The focus should be on delivering high-quality, predicable, effective outcomes rather than jamming software into people’s lives without considering the intended—and needed—outcomes to client needs as the paramount concern. Anything less can actually be damaging over the long term.
Because of these difficulties, giving discounts in exchange for the prospect of working more efficiently without proper preparation needs to be seriously considered. An immediately price reduction can easily turn into losses when the tools and processes meant to deliver the efficiencies have not yet been tested and optimized. A failure in this regard can seriously jeopardize the stickiness of these evolutionary gains after the crisis. The question partners ask is “What’s in it for me?” which has us wondering if the compensation/evaluation process is the only way to incentivize desired behaviors.
While there was unanimous agreement that this current shift to remote work, and the technology focuses on work processes that enable it, can help bring about the adoption of many productivity and efficiency changes that have been challenging to implement in normal times, it begs the question of how sustainable these changes will become when everyone is back in the office. How seductive will all that paper, and all those conference rooms specifically made for face-to-face interactions, be for legal teams to relapse into? Will they be able to carry over the productivity improvements, or will they run back to the warm, familiar embrace of “tradition”? Perhaps the real question, which the Luminaries will explore next time, is, “what can we do to make these changes stick?” More on that—and a variety of other topics—next week.