August 19, 2010
Jordan
Furlong
Letting the Clients Decide
by Jordan Furlong
August 19, 2010
How much should you charge for your work? That’s a tough call for any lawyer to make, which is one of the reasons many of us default to a billable-hour system that we know doesn’t really reflect value delivered. So here’s one way to solve that problem: let your client decide how much to pay you.
In case you think that’s ten kinds of crazy, you should know that that’s exactly what UK firm CMS Cameron McKenna is doing. The 300-lawyer firm is making this and similar suggestions the centerpiece of a new marketing campaign that highlights its alternative fee arrangements (AFAs). The firm’s AFA brochure, reproduced by my Edge colleague Gerry Riskin at his blog, is titled: “The future of fees: your road map to value.” It’s a masterpiece of marketing, because it converts the ethereal notion of alternative pricing into innovative, even radical, real-world examples. Here are a few:
- To an oil major, we offered to match our fee proposal to the oil price, with a cap and collar to limit risk for both parties and to weight our fees to our client’s success.
- To a potential consumer products occupier, we offered a fixed fee proposal based on rent saved in relation to the successful exercise of tenants’ rights to determine leases of properties.
- Offsetting our fees through a “services in kind” model with a leading IT provider, i.e., using a barter model.
- To a major power client, we have offered a one-stop offering for a year for a “no questions asked” fixed price, demonstrating our appetite for sharing risk with clients.
- With an experienced purchaser of legal services, we were able to agree to a “pay us what you think the work was worth” structure.
Out of all these examples, I think my favourite is the proposal to match an energy company’s legal fees to the price of oil. It’s great for three reasons: (1) it shows the firm’s willingness to take on risk on a critical subject like fees, (2) it demonstrates that the firm knows and cares about the industry realities that affect the client’s fortunes, and (3) it’s easy and entertaining to explain to the CEO or board of directors. The fees tied to rental savings in the second example is another good illustration.
But the offer that has generated the most headlines and buzz is to let the client pay what the client thinks is fair. It’s not really novel: several years ago, Summit Law Group in Seattle introduced a value adjustment line at the bottom of each bill, inviting clients to subtract from (or add to) the submitted amount based on their satisfaction with the service. Valorem Law in Chicago has taken the same approach; the offer to subtract has hardly ever been taken up by either firm’s clients. What it’s really about is giving clients the power to have the final word on the price of services.
As you might expect, however, the media and industry commentary to the “pay what you want” option has dripped with sarcasm. One comment on the online article:
“I am the CEO of a large Fortune company contemplating a hostile takeover of a major Chinese rival. Our combined market cap is around USD80bn. Can you handle the M&A work, plus any associated merger filings and regulatory issues? I'll give you a fiver and a bag of revels.
(Actually, that’s pretty good.) There’s a general sense out there that a firm that makes an offer like this must be mad, desperate, or both.
I think that’s the wrong conclusion to draw. Notice that the offer qualifies the type of client to which it was made: “an experienced purchaser of legal services.” That’s code for a large corporate or institutional client with which the firm has had previous dealings, perhaps extensive. In real terms, what that translates into is: you’re a client whom we trust. We trust that you’re not going to pay us ten cents on the dollar. We trust that you won’t betray the trust we’re bestowing on you with this offer. That’s a powerful and positive message Camerons is sending to the marketplace.
The standard lawyer reaction, to mock ideas like this, reveals how difficult we find it to accept the place of trust in the lawyer-client relationship. Many of us are afraid of professional trust, and some of us, sadly, don’t even understand what it is. But as I and many wiser minds have said time and again, trust is at the core of any successful client interaction. Law firms whose clients trust them find everything easier, from delivering work to pricing services to collecting bills. Firms that have failed, or haven’t tried, to earn clients’ trust, find everything much more difficult and struggle to understand why.
Camerons’ AFA brochure is really an announcement: “We are ready to develop professional relationships with good clients based on mutual trust.” If you don’t think that’s music to clients’ ears, you haven’t been listening closely to clients lately. Expect to see more of these types of offers down the road — but don’t expect any of them to succeed unless the groundwork of trust has already been laid.
How much should you charge for your work? That’s a tough call for any lawyer to make, which is one of the reasons many of us default to a billable-hour system that we know doesn’t really reflect value delivered. So here’s one way to solve that problem: let your client decide how much to pay you.
In case you think that’s ten kinds of crazy, you should know that that’s exactly what UK firm CMS Cameron McKenna is doing. The 300-lawyer firm is making this and similar suggestions the centerpiece of a new marketing campaign that highlights its alternative fee arrangements (AFAs). The firm’s AFA brochure, reproduced by my Edge colleague Gerry Riskin at his blog, is titled: “The future of fees: your road map to value.” It’s a masterpiece of marketing, because it converts the ethereal notion of alternative pricing into innovative, even radical, real-world examples. Here are a few:
- To an oil major, we offered to match our fee proposal to the oil price, with a cap and collar to limit risk for both parties and to weight our fees to our client’s success.
- To a potential consumer products occupier, we offered a fixed fee proposal based on rent saved in relation to the successful exercise of tenants’ rights to determine leases of properties.
- Offsetting our fees through a “services in kind” model with a leading IT provider, i.e., using a barter model.
- To a major power client, we have offered a one-stop offering for a year for a “no questions asked” fixed price, demonstrating our appetite for sharing risk with clients.
- With an experienced purchaser of legal services, we were able to agree to a “pay us what you think the work was worth” structure.
Out of all these examples, I think my favourite is the proposal to match an energy company’s legal fees to the price of oil. It’s great for three reasons: (1) it shows the firm’s willingness to take on risk on a critical subject like fees, (2) it demonstrates that the firm knows and cares about the industry realities that affect the client’s fortunes, and (3) it’s easy and entertaining to explain to the CEO or board of directors. The fees tied to rental savings in the second example is another good illustration.
But the offer that has generated the most headlines and buzz is to let the client pay what the client thinks is fair. It’s not really novel: several years ago, Summit Law Group in Seattle introduced a value adjustment line at the bottom of each bill, inviting clients to subtract from (or add to) the submitted amount based on their satisfaction with the service. Valorem Law in Chicago has taken the same approach; the offer to subtract has hardly ever been taken up by either firm’s clients. What it’s really about is giving clients the power to have the final word on the price of services.
As you might expect, however, the media and industry commentary to the “pay what you want” option has dripped with sarcasm. One comment on the online article:
“I am the CEO of a large Fortune company contemplating a hostile takeover of a major Chinese rival. Our combined market cap is around USD80bn. Can you handle the M&A work, plus any associated merger filings and regulatory issues? I'll give you a fiver and a bag of revels.
(Actually, that’s pretty good.) There’s a general sense out there that a firm that makes an offer like this must be mad, desperate, or both.
I think that’s the wrong conclusion to draw. Notice that the offer qualifies the type of client to which it was made: “an experienced purchaser of legal services.” That’s code for a large corporate or institutional client with which the firm has had previous dealings, perhaps extensive. In real terms, what that translates into is: you’re a client whom we trust. We trust that you’re not going to pay us ten cents on the dollar. We trust that you won’t betray the trust we’re bestowing on you with this offer. That’s a powerful and positive message Camerons is sending to the marketplace.
The standard lawyer reaction, to mock ideas like this, reveals how difficult we find it to accept the place of trust in the lawyer-client relationship. Many of us are afraid of professional trust, and some of us, sadly, don’t even understand what it is. But as I and many wiser minds have said time and again, trust is at the core of any successful client interaction. Law firms whose clients trust them find everything easier, from delivering work to pricing services to collecting bills. Firms that have failed, or haven’t tried, to earn clients’ trust, find everything much more difficult and struggle to understand why.
Camerons’ AFA brochure is really an announcement: “We are ready to develop professional relationships with good clients based on mutual trust.” If you don’t think that’s music to clients’ ears, you haven’t been listening closely to clients lately. Expect to see more of these types of offers down the road — but don’t expect any of them to succeed unless the groundwork of trust has already been laid.
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The more we progress into the future, the further we reach back to our past. If the foundation is trust, can we be experiencing a renaissance of the gentleperson's 'handshake'? What a revolutionary thought.
Excellent post, and something that we overlook at our peril.
Ultimately this comes back to how we train our lawyers, and to some extent how we train our clients.
I have just agreed a fee with a client on a not very complicated transaction, which took much longer than it should have done, and where my client asked for a greater degree of handholding than usual. I looked at the original estimate against the time on the clock (a large discrepancy but we had kept the client abreast of the time build). I then offered a price to the client, well below the time cost, but one I felt was reasonable and fair, and that I was happy with. I also told the client what the time was but made it clear that I was happy with my proposal. He wasn't. He went back to his board and then made a counter offer, increasing the fee by 20% on my proposal. In his words, "We think that is a fair value for the work".
It is all down to trust.
George
A few of these proposals seem like champerty to me. Especially:
To an oil major, we offered to match our fee proposal to the oil price, with a cap and collar to limit risk for both parties and to weight our fees to our client’s success.
To a potential consumer products occupier, we offered a fixed fee proposal based on rent saved in relation to the successful exercise of tenants’ rights to determine leases of properties.
Allowing such arrangements sets a dangerous precedent. Tying a lawyer's fees to the business fortunes of a client is just another step in the horrible slide of the legal profession into a position as just another customer service industry.
It is one thing to create contingency fee arrangements for those who could not otherwise afford legal services or to set a flat rate for services for a year or to bill per project rather than hourly. It is quite another thing to tie one's own fortunes directly to the fortunes of a corporate client in litigation.