Three Things Keeping Alternative Legal Service Arrangements From Reaching Critical Mass… and How You Can Capitalize on Them

Background

Over recent years, there has been much ink spilled about “Alternative Billing Arrangements”. Generally we focus our attention on the mechanics of common structures, such as volume based discounting, contingency arrangements, flat fee billing, success fees or secondments. Intuitively, this approach seems logical and mirrors how such initiatives are often jointly approached by inhouse and external counsel teams, but it is flawed. As a result, we unknowingly restrict ourselves from unlocking the full benefits of such endeavours, and in turn, the use of alternative legal service delivery models has not reached critical mass.

The Challenge

The challenge for inhouse legal teams, and the external law firms we work with, is creating an innovative and robust platform for legal services delivery properly customized for our respective businesses. A platform is more than just the actual mechanics of the arrangement. It must go deeper than just hours worked, discounts to be received, subject matters covered, experience levels of assigned lawyers, etc. While counsel teams generally focus immediately on the mechanics of arrangements, the underlying platform itself is often missed. Time needs to be spent on the “soft-skills” aspects. Referring to such initiatives as “Alternative Billing Arrangements” sets the wrong mindset from the outset. Instead, create “Alternative Legal Service Arrangements.” I believe to maximize utility, output and efficiency, such arrangements need to capture the entire relationship, not just the exchange of work for dollars.

How you can Capitalize

The opportunity that exists for innovative inhouse teams and the ambitious external counsel we work with can be found by focusing on 3 things that are often overlooked, and which I believe to be critical to how we structure legal services. These are a significant part of what is holding corporate Canada back from unlocking the full benefits of internal and external legal teams partnering together. If you focus on them, you will be well positioned to differentiate your team and capitalize on opportunity. These are:

1) The big picture (treating legal departments as businesses);
2) Attitude; and
3) Relationships.

The big picture – treating legal departments as businesses

Identify your legal department’s strategy. The practice of law is a business, whether it be running a law firm or running an inhouse legal department. Well run businesses have business strategies. Well run legal departments should have business strategies as well, yet few are run with the same level of vigour as a standalone company. This is interesting when considering that some legal department budgets are larger than many small and mid-sized companies. Bruce Henderson of the Boston Consulting Group defined strategy as: “a deliberate search for a plan of action that will develop a business’ competitive advantage, and compound it.” Figure out what your legal department’s competitive advantage is, and then focus on how to compound it.

Communicate your Strategy. Internal and external teams should identify and communicate what their respective department strategies are and share it with one another. I currently work with a network of over 145 firms around the world, and my experience is that if asked, most external counsel acknowledge that one of the best enablers of bringing added value to the legal services they provide is by knowing the client and their business. I believe this is also true from the perspective of inhouse teams serving their internal clients. In order to identify opportunities to help each other succeed, legal partners need to understand the business issues, challenges and goals that each are dealing with. It is only in this context that the proper mindset and approach to legal services delivery can be obtained.

Think Critically about the Metrics you use. Sometimes we get caught up in measuring our performance against set metrics, but do not take the time to question whether the metrics we are using are actually the right ones needed to accomplish our strategy. Reaching ill-defined metrics does not always equal higher profit. Keep in mind your department’s strategy and goals, and critically consider the way you measure success. For example, if a law firm uses Return on Associate Costs as a metric, it may classify a certain alternative legal services arrangement that utilizes associate resources as being below the metric and therefore undesirable. However, if a key goal of the firm is to maximize profit (which I suggest is usually the case), then such a metric may not give due consideration to such things as the ebbs and flows of an associate’s workload, and the systemic opportunities that exist within lower workload periods. (In a future article I will discuss an arrangement that my team has developed with one of our preferred external legal service providers that we call “The Associate Pool” structure, based on the theory that over a large enough sample size, there will usually be underutilized associates that offer unique “workload smoothing” opportunities for innovative inhouse legal teams and external law firm employers.)

Attitude towards alternative legal service arrangements

Inhouse Perspective – More than just cutting costs. I believe that the best alternative legal service arrangements can only exist when parties approach them with the right mindset. From an inhouse perspective, they cannot just be about getting work done for lower fees. For example, they can be a way of growing a roster of talented lawyers who know your business for ensured access to long term quality legal support or developing a way to offload certain categories of work to allow inhouse teams to focus on the most strategic and impactful work. In other words, these arrangements can be used to help inhouse teams leverage their competitive advantages and compound them for the benefit of their employers.

External Perspective – Not about loss leaders. From an external counsel perspective, such arrangements are destined for mediocrity if they are developed with a bias centered on loss-leaders or unprofitability. As discussed, the delivery of legal services needs to be structured as an entire platform. It is only in this context that maximum utility can be unlocked. Law firms need to be aware of their business strategies, and these should be factored when considering what types of arrangements are considered. While it may be true that “If you can’t measure it, you can’t manage it”, I am also of the view that if “You’re not aware of it, you can’t value it.” There are many strategic reasons why certain service delivery platforms may be desirable. If you are not aware of your firm’s strategic priorities, or those of your clients, then you may fail to properly value outside-the-box opportunities. Look at the entire client relationship holistically, and see if there are creative ways to offer innovative solutions.

It is about more than just the files. Alternative service arrangements are about creating partnerships committed to each other’s mutual success. For example, inhouse lawyers can help external partners by leveraging their network of other inhouse lawyers. Just as we often ask our external providers to think about and come to us with business opportunities to help our organisations, ask yourself how many times in the last year have you thought about your external partners, and actively tried to create business opportunities for them. Likewise, opportunities for external counsel to make client introductions for internal teams are usually welcomed. The power of networking can be huge, is of little to no cost, and can have exponential benefits for both parties.

Relationships between the internal/external teams

Long term vs. transaction relationships. There are certain categories of work that, by nature, will always be provided in a transactional manner. However in general, counsel teams should think of their relationships as long term investments, even though a particular file may be of a short term nature.

Trust takes touch, but also time. We’ve all heard the mantra that “Trust takes touch”. I believe that it also takes time. Parties interested in unlocking the most value from their relationships must take the time to get together face to face occasionally, and invest the time required to understand each other’s business, strategy, challenges and priorities. This is a two way street. On many occasions, inhouse teams fail to reciprocate such investments with their external providers. In order to identify and capitalize on innovative arrangements, both parties have to be aware of the needs of each other, and foster a sense of trust that is strong enough that each party knows the other will do what is right even when they do not have to.

A disciplined approach to the above 3 concepts will help enable your team to unlock and capitalize on the potential that exists in creating and exploring an innovative alternative legal services delivery platform. In doing so, you will enable your team to focus more of your resources on your team’s competitive business advantages, and compound them for the benefit of your organisation.

The thoughts, ideas and views expressed in this article are that of the author alone, and do not represent those of his employer. This article was written in the spirit of contributing to the advancement of Corporate Counsel and the organisations they serve. You are invited to connect with Tyler Langdon via the hyperlink on his name, above.