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9.1.20: Council of Luminaries CLIENT-SIDE

Updated: Sep 23, 2020

The LVN Council of Luminaries is comprised of veteran thought leaders and pioneers in the business of law community. The objective behind assembling this group is to establish a brain trust of recognized, experienced and progressive leaders who can help interpret developments in the market, provide advice on how to successfully approach and navigate challenges, predict future trends and changes to prepare for, and to participate in targeted special projects to benefit the legal industry as a whole.

The below meeting was conducted primarily with the Council Of Luminaries CLIENT-SIDE group.

Arizona Allows Co-Ownership of Law Firms

Arizona announced it is allowing co-ownership of law firms. What does that mean for law departments? Do we think other states (California) will follow? What will be the impact?

Luminary 1 – I’m on a task force in another state to look at the same sorts of things. It’s been done in other countries. Our committee is charged with recommendations and I don’t think it’s a problem at all. It might infuse some cash into some of these firms. The only negative I’ve heard is in estate planning; the fear is that banks will take away all their work. The joke is it hasn’t really worked in the other countries where it has been available. In Australia the companies that invested have pulled out.

Luminary 2 – Will it add more rigor to the bottom line? As firms will be much more like businesses, with investors who are not looking to throw their money in for the good of the practice of law. They will look to make money from it. Will there be a higher focus on profitability? What does that mean for us from a leverage standpoint – to what extent will they be willing to work with clients?

Luminary 1 - Those worried about the PE firms, etc., getting too involved should know that the banks already have a say.

Luminary 3 – These are already supposed to be businesses. We don’t negotiate with individual partners. Firms are already here to make money.

Luminary 4 – I’m very cautiously optimistic. Many of the problems making new ways to work come down to the partner/owner model. They don’t make long term decisions, investment plans or drive change. There’s no one driving change. There are public firms in UK. We work with them, it’s not clear if it’s changing anything. So far with the Big 4, it’s basically the same as working with a big law firm. The jury is still out of if anything is changing. Ultimately the question is of quality.

Luminary 2 – Will this almost force some law firms to start looking at clients at an enterprise level? Will they ask themselves if they are meeting the needs of this overall client? Will there be a bigger push towards a broader view of service?

Luminary 3 – If the Big 4 can build models with much lower costs to them, but only charge slightly lower fees to us, can they make the difference?

Luminary 1 – most companies of any size are using non-lawyers a lot already. Immigration forms, NDAs, etc., for example. Lawyers in private practice need to understand that.

Luminary 4 – If it takes hold, the business model may change. Having a bunch of partners at the top, taking home multi-million payouts may change, as might the pyramid model. Some firms keep people around who are not making partner, but many get rid of them. Perhaps instead of getting rid of them, they might be efficient people to have around. Efficiency is the premium, and having young associates do your work is not necessarily efficient.

Luminary 2 – Do we see any impact taking hold in the next 2-3 years?

Luminary 5 – I’ll answer on two tracks. Not much is likely to happen until New York or California follow suit. And New York is not likely to, so all eyes are on California. That might be the tipping point. But Australia and the U.K. have had outside ownership for years, and little has changed.

Luminary 6 – It’s limited to Arizona where we don’t use firms. I’m with the majority of the group. I’m not convinced it’d be a bad thing.

Effect of Real Estate on Rates

Luminary 3 – Last year I was thinking a cataclysmic event might make things different, and now we have one. But firms are busier than ever. Zero firms are coming to me offering to reduce rates. It’s really unclear what’s going on out there. Law firms do not seem to be forced to change.

Luminary 1 – I’ve been wondering myself if at one point their real estate costs will push firms to change.

Luminary 5 – It’s an ‘already-budgeted’ expense. Only if revenue comes down will it be an issue

Luminary 3 – The real estate argument is a red herring. Why do they use real estate costs to justify higher costs to justify rate increases? They bake those costs in for 10 years.

Luminary 6 - I’d be shocked if there isn’t a big change in the next 18 months, especially for firms coming up on renewal of leases.

Luminary 5 – But only in firms with space to renew. Due to personal guarantees, it’s really hard for law firms to walk away from a lease or force a renegotiation. It’ll mostly only happens as they come up for renewal.

Big 4 Experiences

Luminary 2 – Is anyone extensively using the Big 4? If so, what has experience your been? Do you notice any difference in legal service delivery models?

Luminary 1 – We invited them in on a project recently and they were more expensive than other providers, both law firms and ALSPs. We went with a law firm with an international presence.

Luminary 2 – I’ve heard that too from a lot of folks I’ve talked to who considered the Big 4. Their case wasn’t compelling enough to move from a traditional firm. Not enough quality, efficiency or price advantage to stick a neck out there and be exposed if something goes wrong.

Luminary 1 – Law is not their primary focus.

Luminary 2 – We ran a similar project on a tax matter. We invited law firms and Big 4. The Big 4 were competitive but not much better, so everyone felt more comfortable going with a law firm.

Luminary 3: The Big 4 views this as a professional services package deal.

Enterprise Tech vs. Specialized Legal Tech

This article claims that law departments are "trying to shift from the legal tech stack to try and leverage the enterprise tech stack to have a common platform,” Is he right? The large investment in legal tech, combined with simpler implementation via cloud, would indicate the opposite is true. Are we finding success with using the enterprise stack rather than legal tech?

Luminary 6 – We’ve bought solutions that are specifically built for legal, but we get challenged a bit. We implemented iManage in 2018, but there was chatter from IT that there’s a good enterprise solution already in place. We went with iManage anyway.

When Microsoft Teams became huge at our company, the question was whether we wanted to use that enterprise-wide solution. But I’m not convinced that anything but iManage would work for us. It’s tied into e-billing, there’s an activity tracker, and it’s all fed into each other. If we were forced to blow that up, it would destroy our strategy. We’d have to start from scratch.

If were looking at new document mgmt. today, I might approach it a little differently. But I don’t think our decision was wrong or misguided. We get a lot of functionality that we wouldn’t have gotten from enterprise tools.

Luminary 4 - We’ve been using Microsoft Office 365 more. People will gravitate toward it. While iManage has more matter centricity, O365 is easier to access. Maybe they’ll develop some additional functionality. If it’s easier to access, that could push us in that direction the next time this comes up in a few years.

Luminary 3 – A lot of this article is like “it’s all coming to us” at the Big 4. It’s not that simple. The focus is on value – how are we making sure we are getting the most value from tech, outside counsel, and everything else? That’s what focuses our decisions. Not “We’re going to focus on tech. Or ALSP.” It’s finding value where we can. Why would we go with a legal tech solution where a lot of the best talent is not in legal tech, but is instead building enterprise solutions. But for better or worse, legal is still different sometimes. And we need to take advantage of the tech.

Luminary 2 – I am skeptical of these articles. And the calls from Big 4 and others offering big savings.

Justifying Rate Increases

Luminary 3 – Their tech spend is another argument firms use to justify their rate increases.

Luminary 5 - Why do firms need to justify increases at all? Shouldn’t the market dictate that?

Luminary 2 - They hate talking about money

Luminary 3 – They do it so I can justify it upstairs. But I’m done with billable hour. How do we combine quality with efficiency? I don’t care who it is, but we want to have a primary firm and tell them this is how we figure it should work – and then let them figure out how to do it and come back to use with a project plan and a budget

Luminary 2 – If you leave the billable hour, you can say to firms that if you want to make money, let’s agree to a flat fee, then it’s up to you to deliver. And the better and more efficiently you deliver, the more profit you make. If you can deliver for less than the flat fee, then good for you. You’ve built a better mousetrap and you should be rewarded for it.

Luminary 1 – Next time let’s discuss how we come up with those prices. There are matters where it is difficult to figure out.

Luminary 4 – Let the market drive it. You can put guardrails in. Or success incentives– so the firms are not too cheap on the matter

Luminary 2 – Figuring out what the market will bear is how. We get asked, “how do you know you’re getting a good fee.” We know because we went to market.

Luminary 4 - The more you do this, the more you’ll understand what matters should cost. If you use firms that never use AFAs, they’ll claim they can’t price. The billable hours is like buying a car part by part, but if you know is what other cars cost, then you can be roughly comparable. It’s a bit of a chicken and egg thing,

Luminary 3 – I’d like to circle back to this in future weeks. Let’s do a deeper dive. We’ve run into some challenges on these approaches, and the market has some problems. I don’t even know what the legal market is right now. Let’s dig in.

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