The New Normal
Adding Value and Forging Alliances with Non-Firm Firms
Posted Sep 28, 2011 7:30 AM CST
By Patrick J. Lamb
Paul Lippe recently wrote The Rise of the Non-Firm Firms. The post generated considerable favorable comment, with the majority of the comment agreeing with Paul's premise that "non-firm firms" (NFFs) are challenging traditional firms' monopoly on process-focused work like document review. The reality is that many NFFs perform this work far better—by any standard—than most traditional law firms do. And they do so at a fraction of the cost.
In a comment, Jeff Carr, the general counsel of FMC Technologies, noted the phenomenon of NFFs forming alliances with non-traditional law firms. He was kind enough to identify Valorem as one of the firms who have forged such alliances. The creation of these alliances requires carefully disaggregating a lawsuit (or a deal, for that matter) and determining which enterprise adds the greatest value for each piece of work. In many ways, the process is similar to building a house. Frequently, the general contractor is capable of doing the basic electrical work, painting or carpentry. But he is not as good as the sub-contractor he or she eventually hires. The subcontractor is better because he does one thing, say electrical work, and his attention is not diverted by plumbing issues. Likewise, the plumber's attention is not diverted by having to develop skill as a carpenter. She can simply be the best plumber and be better and more efficient as a specialist than can a generalist. As you move into more complex building projects, the degree of specialization by trade becomes even greater.
Law has always refused to adopt certain practices to the same degree as other businesses. Certainly there are specialists. People hire securities lawyers to defend securities cases, for example. But once in a substantive area, lawyers have resisted further breakdown of the matter. This is, to a great degree, a tradition borne of lack of alternative. When I started practicing law, there were no NFFs or others to review documents, for example. But as documents morphed into data and the amount of data exploded, tradition morphed into economics: Firms made so much money doing "process work" that they developed the PR apparatus to justify the extreme expense of having scores of lawyers earning $160,000 or more per year reviewing documents. Some simple math illustrates the point. Even if a lawyer bills only 1,800 hours a year at $300 per hour, both low numbers, the firm receives revenue of over $500,000. The profit margin is enviable.
Not surprisingly, clients were less than thrilled to pay such sums for this kind of work; but firms resisted letting it go. They needed to "control" the work because other reviewers were of "low quality." They may not have stated things that bluntly, but that was at the heart of the arguments raised. When pressed for evidence that their work in this process area was of better quality, degrees from elite law schools were flashed as if graduation from Harvard or Yale somehow meant that a degree was all it took to have quality.
The NFFs have laid any such notion to waste. Studies now prove that at least some NFFs perform materially better than traditional law firms in the process piece. Imagine—actual evidence. New arguments about security and other such drivel are now raised, but the reality is that the NFFs bring better business practices to the process businesses than traditional firms ever have.
So how does a "partnership" with an NFF work? It starts with ruthless disaggregation of a case and ends with a simple question: "Do we add value by performing x?" If the answer is no, the next issue is who can perform the work as well or better than we could at a lower cost. The last piece is integrating work flow so that it is seamless.
Asking the value add question is not as easy it sounds. It can be hard on the ego to realize that others can achieve better results than you can. If you harken back to Jeff Carr's four buckets of legal work—process, content, advocacy and counseling—you can take comfort that the two areas where you do (or at least should be able to) provide value, advocacy and counseling are the areas for which clients are most willing to pay handsomely. It is far easier to justify compensation in those areas when you are working to provide a value add (or value saved) option in the process and content areas.
Patrick Lamb is a founding member of Valorem Law Group, a litigation firm representing business interests. Valorem helps clients solve their business disputes and coping with pressures to reduce legal spend using nontraditional approaches, including use of nonhourly fee structures, coordination with LPOs or contract lawyers, joint-venturing with other firms and implementation of project management tools to handle lawsuits or portfolios of litigation.
Pat is the author of the the recently published book Alternative Fee Arrangements: Value Fees and the Changing Legal Market. He also blogs at In Search Of Perfect Client Service.