When I talk with people in the legal marketplace about alternative fee arrangements, I often hear two common objections. Interestingly, one is raised by lawyers and the other by clients.
Lawyers say they don’t want to offer fixed fees because they figure that the client, having bought what is essentially an unlimited amount of legal services, will then deluge the lawyer with phone calls, emails, and tasks of varying complexity, burying the lawyer in work for which he or she will never be compensated. Clients, on the other hand, say they don’t want to accept fixed fees because they figure that the lawyer, always having his or her own financial interests uppermost in mind, would only offer an AFA if it was guaranteed to produce more revenue than the billable-hour model would have generated; if the lawyer wants it, it must be bad for the client.
Basically, this means many lawyers and clients believe that, given the opportunity, the other side will exploit any given pricing system to its own advantage. We should take a moment to reflect on how sad that is, and how dangerous.
The trust deficit between lawyers and clients has been growing for many years and is now as wide as I’ve ever seen it. And the chasm has deepened at the worst possible time for lawyers, just as clients are learning about new providers and new delivery methods for legal services. Not only are lawyers no longer the only game in town, we’re also at risk of losing our default position as the primary go-to manager of legal solutions. Competition has finally arrived and it has found us generally unprepared to defend our territory, largely because we’ve let our relationships with our clients languish and fall into disrepair.
Lawyers will lose the battle for lead position within clients’ portfolio of legal providers if we cannot restore the sense of trust with our clients. Clients say they want their lawyers to provide excellent service, at competitive and predictable prices, in a timely and professional manner, and all of this is true. But what clients most want from their lawyers, what they’re really purchasing, is peace of mind. When a client buys a legal product or service, he or she is buying reliability, security and assurance — in a word, trustworthiness. And you can’t sell trustworthiness unless you yourself are trusted.
Where do we start the monumental work of restoring a precious resource that has taken decades to wear away? I might suggest we begin by reframing our attitude towards the people who hire us.
I’ve heard it said, more frequently than usual recently, that people in my line of work (consulting) should serve either law firms or law departments, but not both. The reasoning is that any advice that serves the interest of corporate clients will by definition operate to the detriment of law firms: if you save GCs money, that’s less money to go into partners’ pockets. I have both practical and philosophical issues with this line of thinking.
My practical objection is that the lawyer-client relationship demonstrably need not be a zero-sum game: both sides can benefit from a better approach. Jeff Carr, the forward-thinking GC of FMC Technologies, uses an incentivized pricing system by which he pays law firms a bonus for succeeding but extracts a penalty for failing to meet expectations. He reports that the average payout is something like 106% of the originally agreed fee — the law firm consistently comes out ahead. Yet Jeff is happy, because he’s able to guarantee a price range for his budget and he knows he got the firm’s best and most motivated work. There are other examples out there of firms on fixed-fee retainers that charge less and less every year yet turn more and more profit every year, thanks to better workflow efficiencies.
But the philosophical objection is even stronger: your client is not your enemy. Law firms that stand in adversarial relationships with their clients not only misconceive the fiduciary nature of that relationship, but they’re also asking for trouble in a market like this one. Yes, there will always be a degree of tension around negotiations for price in any exchange between buyers and sellers, even in the friendliest relationships. But when those negotiations are carried out in good faith, with the recognition that both sides can legitimately seek to maximize their own value within the context of a long-term, mutually beneficial relationship, those tensions are kept in check and are quickly forgotten afterwards.
If your practice needs a new year’s resolution of any kind, make it this: resolve to restore trust to, and increase trust in, your relationships with clients. With a solid foundation of trust, everything becomes easier; without it, everything becomes harder. And you simply will not be able to compete in this new marketplace without it.