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Changing Stripes: How to Work Collaboratively on Alternative Fee Arrangements

Posted Mar 23, 2012 1:19 PM CDT
By Susan Hackett

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Susan Hackett

I was just at the Ark Group's AFA conference Thursday in New York City, and the sentiments that Roya Behnia details in the New Normal column "Alternative Fee Arrangements Are a Tool, Not a Strategy" were in the fabric of pretty much every conversation we had with speakers and participants in breakouts.

Based on those conversations, and my experience working with the Association of Corporate Counsel Value Challenge, here are a few additional thoughts for the pile:

On client reticence: It's really important to remember that law department leaders are trained and experienced in the same work environments as their outside counsel peers. So it's no wonder that so many of them are just as unfamiliar, ill-equipped or skeptical on the topic of implementing AFAs as their colleagues in outside practice. "Hours" is what they know, too.

The key for those who have stepped beyond their comfort zone and traditional experience to try new ways of valuing legal work is to adopt the thinking and disciplines of their end-clients in companies, who are both expert and supportive of moving away from hourly billing (except in those few situations when it really may be the best or only way to perform the work). Take, for example, the excellent thinking of one of my table-mates from yesterday's program, Stuart Dodds, who is the Director of Global Pricing at Baker & McKenzie, and who worked for non-legal consultancies and in corporate procurement before bringing his show to the law. Stuart dubs AFAs "appropriate fee arrangements," not "alternative fee arrangements." His head is in thinking about the right horses for the right courses, not whether he can incite colleagues at his firm into thinking about the most outrageously innovative strategies to complicate pricing. For him, it's simple business principles: How much does each stage cost? Which staff or lawyers are best suited for this work, and what is the value of their contribution? What can we predict and price and what should be share risk in setting on contingencies? We all need a Stuart to help us learn to feel comfortable participating in valuation conversations.

On working collaboratively: Another stumbling block, from my experience, is when law department leaders sit around thinking about what they need, while the law firm folks are hosting the same but separate conversations at their offices, and nary the twain shall meet. Clients issue demands or requests for proposals, and firms write proposals or hatch plans to offer a novel arrangement that's never been done by the client. Neither is sitting with the other, talking through the options in the same room at the same time. This is really hard stuff for a bunch of risk-averse, high-performing lawyers–they are engaging in conversations that are way outside their comfort zones. I'm not apologizing for or excusing our discomfort, but recognizing its impact and the behavioral defects that result.

Working more collaboratively to find new valuation strategies is not a guarantee of success, but firm proposals and client needs are less likely to align if they're not crafted with both parties present. If you're thinking about new ways to make a relationship work that contemplates both sides' best interests and efforts, then it's harder to do it successfully by yourself–it's like one hand clapping.

Let's assume the point of a different fee structure is as follows: from the client side–cost savings, cost control, better results, greater efficiency, faster turnover time, etc.; and from the firm side–stronger/deeper institutionalized relationships, greater client satisfaction, predictable profitability, full deployment of their lawyers on great work, etc. In order to re-jigger the way the work has always been done, it will be necessary for the parties to design solutions through transparent conversations, that better align their goals. If both sides aren’t staked in the outcome and if everyone doesn't see their incentive/reward to do something different, it's pretty sure that there will be more failure than success in the model.

It's hard for the tiger to change its stripes, on both sides of the relationship: for the firm to believe that the client is actually going to reward something new and for the client to believe that the firm is going to redesign its model to be client-facing (rather than just self-serving). There has to be more than a client demand and a corresponding firm proposal on the table. There has to be an agreement to experiment together, to share risks and rewards, and to create collaborative new practice and pricing models.


Susan Hackett, CEO of Legal Executive Leadership, is the former senior vice president and general counsel of the Association of Corporate Counsel.

Editor's note: The New Normal is an ongoing discussion between Paul Lippe, the CEO of Legal OnRamp, Patrick Lamb, founding member of Valorem Law Group and their guests. New Normal contributors spend a lot of time thinking, writing and speaking about the changes occurring in the delivery of legal services. You're invited to join their discussion.

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