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The New Normal

General Counsel to Cut Legal Spending Up to 25%: Catastrophe or Opportunity?

Posted Oct 22, 2010 5:13 PM CDT
By Paul Lippe

Paul Lippe

Editor’s note: The New Normal is an ongoing discussion between Paul Lippe, the CEO of Legal OnRamp, and Patrick Lamb, founding member of Valorem Law Group. Paul and Pat spend a lot of time thinking, writing and speaking about the changes occurring in the delivery of legal services. We hope you will join their discussions.

When we kicked off this space, we considered a few titles before settling on “The New Normal.”

The phrase was popularized by private equity fund manager Roger McNamee (a classmate and friend) in his eponymous 2004 book, describing how technology and global competition were creating a new normal of relentless change. Bruce MacEwen, whose superb writing at Adam Smith, Esq. has as much as anyone shown our profession’s path to the future, has brought the phrase home in law.

Since graduating law school in 1984, most of my time has been spent as a client, in both legal and nonlegal roles, and I’m constantly struck by how much of the language lawyers use to describe what they do is bewildering to nonlawyers, how different are their views of normal, and yet how unaware many lawyers are of this tension. For most sophisticated clients, change is normal, yet many lawyers believe that change is an anomaly.

You’ve probably seen a recent series of ads by HSBC Bank, showing the same pair of images (e.g., young man in a suit/young man in jeans) and juxtaposing them to conflicting labels, Leader/Follower, flipping the labels from one image to the other. Leader/Follower. The ads challenge the viewer to reframe her thinking—what looks like the conventional image of a leader may in fact be that of a follower, and vice versa. Another ad juxtaposes a very hot pepper and a very long stiletto heel with the labels Pleasure/Pain.

An obvious example in law (and we’ll explore others in the months to come) is “value.” Lawyers define value (even as they deny its measurability) as the quality of the effort and the level of intellectual inspiration; clients define value as the quality and repeatability of the business outcome, as reduced by cost, uncertainty and (usually) time.

The ACC Value Challenge, led by Susan Hackett and chaired by Mike Roster (former GC of Stanford who is among the most innovative and sophisticated GCs, and the rare one who is equally empathetic to clients and firms) is driving today’s value discussion. Along with Michael Shpizner, vice president and general counsel, Fujitsu America Inc., and James Carroll, general counsel of Goldin Factoring Inc., Mike and I were on a Value Challenge panel this week in San Francisco.

As with so many of the HSBC juxtapositions, the starting point of these value discussions can be a bit of mutual incomprehension. Many law firm folks genuinely find the Value Challenge perverse—“how can clients not recognize the value in what we do, how can they insist that it be done for less money?” is often the opening reaction. Many clients find law firms equally perverse “how can you not understand that most things we buy are getting cheaper while law is getting more expensive, how can you say you’re putting our interests first when you don’t realize global competition could put us out of business if I don’t manage every aspect of my operations more efficiently?”

According to Mike Roster, “25 percent in cost savings for 2011 is the new target [he didn’t say “New Normal” but should have]. I’ve spoken to many top GCs, and this is what they’re planning to get to next year, and it’s achievable. And by trying to get there, they’ll actually do a better job.”

So is the goal of a 25 percent cost reduction a Catastrophe/Opportunity?

In the late ‘80s and early ‘90’s, I was chairman of the Colorado Air Quality Control Commission. One thing we’ve seen in environmental regulation in the last generation (and indeed any area of systems design where innovation has delivered major strides) is that seeking modest, incremental improvements usually changes little; seeking dramatic improvements (which requires simultaneously redefining objectives, resources and constraints) often—but of course not always—leads to breakthroughs.

Will reducing legal spending put legal outcomes at risk? There’s no evidence that it will. I know companies that spend relatively little and get consistently great outcomes, and others that spend relatively lots and get consistently bad results.

Intensively managing law to great results requires leadership, focus and discipline; spending more money requires, well …spending more money, and is usually a poor substitute for leadership, focus and discipline.

To paraphrase Tolstoy, “happy legal departments are alike.” They support a culture of integrity and accountability, deeply understand the business, set high clear and measurable objectives, collaborate more closely with outside firms (including aligned fee structures), learn from peers, use technology to manage information more efficiently, leverage a range of skills, and create a learning culture of continuous improvement.

Any legal department that wants to reduce costs and improve value can apply these well-established approaches. Any law firm that wants to thrive in the new normal can embrace them with their clients.

So are the Value Challenge and a 25 percent cost reduction target a catastrophe or opportunity?

Yes.

If you think it’s a catastrophe, it will be; if you think it’s an opportunity, it will be.

Paul Lippe is the founder and CEO of the Legal OnRamp, a Silicon Valley-based initiative founded in cooperation with Cisco Systems to improve legal quality and efficiency through collaboration, automation and process re-engineering. Lippe formerly was an executive at the electronic design automation company Synopsys and later was CEO of Stanford SKOLAR, a medical digital library and e-learning company sponsored by Stanford Medical School.

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