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.
We've stopped polling on the topic of how the pandemic has impacted this community as the data has stabilized. We are now working to pivot from this crisis series to focus on a broader set of topics. Be on watch for the change in our coming posts.
Today’s call started with an attempt to answer the following question from the Client-Side Luminaries: With the state of the economy, how can firms deliver greater value and/or new ways of working?
Reacting to client pressure
Clients are feeling a lot of pressure and looking for leadership and solutions. They can’t pull the levers they pulled in the Great Recession, like demanding significant discounts and write-offs, but instead are trying to focus on approaches like insourcing and rationalization of work to be done. So the question is how to solve for more routine work that has to get done, now that the low hanging fruit of rate/price reductions from last recession has been exploited. Firms cannot absorb straight discounts; they are looking for opportunities to help on routine work that can lead to higher level work.
Given Deloitte’s recent moves, one question is whether clients are going to start turning to them vs. firms? But clients are not necessarily ready to make an immediate leap without addressing change management and integration issues – ops people have good ideas, but it has to be propagated throughout the department. The e-discovery evolution started the same way where at first clients had to get comfortable with it. But they did.
Nevertheless, some pieces of the established processes of successful firms can be replicated by the Deloittes of the world. And we may see unbundling. Mark Ross at Deloitte has been pretty clear that they are an ALSP. Their advantage is that they are already in the door as an advisor. But he was very adamant that they will not provide legal advice.
But the question is “are we getting another pass?” The pandemic has not (yet) systemically changed the way lawyers are delivering service. But law firm leadership at many firms has changed their approach due to the pandemic. For example, forecasting. Previously, other than budgets, there’s never been forecasting. Now partners and management in many firms are expected to forecast every month, if not every week. But the lawyers have not changed service delivery much in practice, despite increased attention on new methodologies. As stability/normalcy starts to return, how much focus will there be on following through on these changes?
Clients have a real desire to evolve how service is delivered and priced, but they don’t seem to know how to get through to the changes they see being needed/beneficial. One indicator of the climate for change on the client side is that there’s a lot more focus on fixed pricing/pricing certainty that are real and being pursued. Fixed pricing is a higher priority, and firms have to meaningfully determine how they can do work on a fixed fee basis, which forces other discussions around how work is being done. Unlike during the Great Recession, clients are more frequently actually engaging under these models rather than asking for them, getting intimidated and reverting back to discounted billing rates.
Clients are putting a greater priority on delivering on promises from these proposals, meaning partners being pushed to work with internal pricing/innovation teams to change. It may not be enough to call it a trend, but unlike during the Great Recession, clients are more frequently actually engaging under these models rather than asking for them, getting intimidated and reverting back to discounted billing rates. Pricing focus from clients emphasizing certainty can be a lever to drive law firm change, as had been intended before.
There is more concern in firm management about loose budgets and estimates typically thrown out by partners with no diligence or back-up. Maybe they’ll start to do something about the partners that seem to always be a problem in this area. Scoping and budgeting are not that difficult, but are so often overlooked historically by partners, and from-the-hip guesses are almost always wrong and based on opaque assumptions. The increased scrutiny on certainty and accuracy can serve as a catalyst for improving processes and diligence when it comes to budgeting and monitoring of scope.
Legal project management and staff lawyers
LPM teams have been busier as well, and are seeing a significant uptick in demand for non-partner track lawyers. But will staff lawyer hiring ever surpass associate hiring? The consensus is probably not, but it will increase. We are, however, starting to see greater diligence and attention on composition of engagement teams due to price sensitivity that can help incentivize growth of low-cost resource pools and technology. Also there’s a big opportunity for growth in work where there is scalable process.
One Luminary described that their firm has LPMs inserted at the beginning of any process to get the discussion on resourcing initiated out of the gate, and over certain fee thresholds, engagement with those teams is mandated. Injecting process and cost allocation discussions at that point is productive.
A dilemma in firms, however, is now that there are a lot of lawyers who aren’t busy, moving some work historically done in the firm to ALSPs and other resources is a tricky proposition. We are in a chasm, where we want to become more efficient, but we have resources that are not utilized. If we are going to keep them, we have to bear the cost, so the rationale is that we might as well use them. If the firm is going to plug a senior lawyer into work that should be done by an associate, they can’t bill that lawyer’s high rate for that. It can be hard to use underutilized high cost traditional lawyers in a way that is not destructive. This should only be a short-term tactic because it’s not sustainable. If you commit an 8th year to do 4th year work, you may not be able to take on a more profitable project that requires that 8th year because they’re tied up on that lower-level work that was assigned to them just to keep them busy.
The right move for underutilized associates may be to cut them loose and focus on reconfiguring staffing, and hire them back if necessary. But will firms have the guts to do that?
Proactivity vs. responding to client requests
Firms tend to want to wait for clients to specifically ask for changes, while clients are frustrated for firms for not coming to them proactively with them. Many lawyers were trained in big law firms, so that poses a challenge for developing and delivering change.
Outside of legal, it’s usually sellers who are the ones innovating for competitive advantage, but that doesn’t happen in law. These kinds of changes are often perceived as having a first-mover disadvantage. Possibly because clients came from firms—they hire from law firms and big law. So why would they be able to think differently?
Many times there is a need for someone on client side to take a risk and demand change internally because in-house lawyers are comfortable with big firm lawyers and approaches. The change management issue for clients should not be understated.
Clients understanding better what the implications of budgets are for the GC having to report to CFO every month can help make the sensitivities more real to them. This can also change behavior on the part of the firm – for example this would provide a window for discussing scope changes.
Ways to deliver more value
A key theme is the focus on increasing efficiency by focusing more on internal costs. We’ve all got some uncertainty driving us, so it’s a good time to drive more efficiency.
Proactive process improvement – The best thing we can tell clients is you don’t have to oversee us and it will drive costs down. Clients like when we can provide them feedback on how to work better with us, where we present better AFA opportunities. One of the challenges is that clients throw this lob out there “Just give me an AFA” and they get very different suggestions from different firms. They need to come up with a normalized, objective process. Tell firms what to price, have them do it the exact same way, so they compare apples to apples. And then allow firms that have come up with a better approach to share that.
Digital transformation holds great potential—helping direct and define workflows, managing simple technologies like eSign or providing workflow and notifications that allow teams to be more effective remotely.
Real estate footprint and costs is being revisited by many firms to both save costs and to signal to clients that the firm is also making tough decisions and moves to be competitive and leaner.
Firms are cutting human capital expenses, but cuts to staff population vs. lawyer population can be a bad look. The service delivery people may be staying, but cutting staff—particularly those ingrained in the more efficient management of the firm and legal engagements—may not send a good message. It may also require higher priced lawyers to be less productive, increasing costs for clients. Cutting underperforming income partners is likely a very promising—though also very difficult—option that many firms will likely be pursuing.