New Routes Into the Corporate Door
Posted Aug 1, 2007 7:33 AM CST
By Terry Carter
If Cisco Systems general counsel Mark Chandler is right, the information superhighway will be littered with law firms like so much road kill.
And if his new initiative succeeds in bringing together in-house legal departments and like-minded law firms that can think outside the clock, a safe route for those lawyers who get it already is being paved.
While law firms have become more like businesses over the past generation, they still lag far behind the business world in controls for value and efficiency—not to mention real-world forces governing profitability. Assigning associates to reinvent the wheel of established law over and over again (and billing for their hours) has pushed profits and revenues per partner ever higher.
However, something else might have been pushed too far. In-house legal departments are going beyond collective grousing at association meetings and joining in efforts seeking to bring change to reluctant—by business standards, fat and happy—service providers.
Chandler’s new baby, the LegalOnramp, is one example of those change efforts. It is a members-only online community of corporations’ in-house legal staffs and outside law firms. Everything about LegalOnramp is geared to information sharing, collaboration and (its main reason for being) negotiating honest value for legal work.
In place of surfing from one law-firm Web site to another in search of legal updates, FAQs, forms, templates and the like, LegalOnramp offers all that and more in a single, limited-access site. Added to that mix are:
The entire knowledge-management databases of individual member firms.
Wiki collaboration on legal knowledge and strategies.
A version of the Facebook social-network site for greater community.
A developing, “craigslist” way of pitching and getting business that avoids the troublesome features of requests for proposals.
LegalOnramp won’t be formally announced till later this year, if at all, says Paul Lippe, a lawyer with expertise in Web technologies who Chandler tapped to build it. But after 15 corporations came together in its legal services network last March along with about 25 law firms, the program started growing quickly. By early June, the tally was 30 companies and more than 100 law firms.
JOB BY JOB
One-stop shopping at a huge, full-service law firm gives way at LegalOnramp to a growing metric for quality, value and efficiency. Loyalty won’t carry cross-selling. A law firm wins a company’s business job by job, according to the buzz-mantra of the companies themselves: better, faster, cheaper.
But, the argument goes, you can’t commoditize the law except maybe for some of the routine work. In a speech last January that is famous among the law-tech cognoscenti, Chandler went beyond that and talked about how “counseling is the next frontier.” As an example that might be replicated in other areas, he described an online community of tax professionals with open and free-wheeling discussions and Q&As that amount to counseling.
But deeper levels of counseling will bring fees, and good ones at that.
“I feel very strongly that my business partners (law firms) need to be profitable,” Chandler says. “Beggaring your business partners is not a good strategy for long-term success.”
In his speech to 500 lawyers in San Diego last January for the Northwestern University School of Law’s 34th Annual Securities Regulation Institute, Chandler said he paid $10,000 for two days’ work by a lawyer, a former ambassador at WilmerHale, who prepped him for testimony before a congressional subcommittee about the Internet in China. The advice was priceless, he told the audience. “I have spent 300 times that amount to get mediocre assistance in patent disputes.”
On the other hand, Chandler says, he recently hired one of his usual firms to answer a question about the use of a certain product in a certain country.
“I looked at the billing at the end of the month and it was $22,000,” Chandler says. “It was a pretty straightforward question and they wrote a long memo about it. We just hired the wrong firm for it. They didn’t know the answer.” He is certain some other firm has a lawyer who already knew the answer and would take about 20 minutes to get it done.
“But I paid $22,000 because I asked someone who did a ton of original research that was unnecessary.”
His counterpart at Sun Microsystems, general counsel Mike Dillon, offered similar thoughts in a May blog entry titled “The Way of the Mastodon.”
Dillon wrote: "My point is that the epoch of the current law firm model—which derives its profitability from growing scale and raising hourly rates—will soon be over. The firms that will survive and thrive are those that recognize this change and focus on how to maintain margins by focusing on efficiency.”
Cisco and Sun Microsystems are in what is arguably the fastest-paced, fastest changing, highest-impact business of our time, information and networking technology. That happens to be what they believe is bringing us the end of the leveraged-associates, billable-hour business model.
“I have to show productivity improvements every year and show as the company grows that the costs of legal services as a percentage of revenue declines,” says Chandler. That’s today’s business model for major corporations—they die quick deaths if lagging in better, faster, cheaper.
When some top firms upped the pay for some of their new associates to $160,000 this year, a quick survey of general counsel for the Top 200 corporations, done by the consulting firm Altman Weil, found 58 percent of them saw the raise as “outrageous.” The hike prompted 13 percent of them to change policies concerning work by outside law firm associates, and half of those said they would look at such work on a case-by-case basis. A couple said they now won’t permit first- or second-year associates on any of their matters.
“They’re not really going to control costs by saying ‘No’ to first- or second-year associates,” says Daniel J. DiLucchio Jr., an Altman Weil principal. “But they’re making a statement.”
Enough separate statements aimed at the same problems and solutions indicate something might be in the air. At about the same time LegalOnramp was forming, a similar venture, Law Department Consortium Marketplace, was launched.
As did LegalOnramp, the consortium starts out with some heavyweights. Among them are AT&T, Johnson & Johnson, Intel, United Technologies, eBay and Honeywell.
While the law firms and corporations in these networks develop ways among themselves to place a value on legal work other than the billable hour, other benchmarks might come from the outside.
For example, the Open Legal Standards Initiative, in which the Association of Corporate Counsel is a founding partner, says its mission includes “the development of business process and metrics classification systems for the legal industry” and benchmarking surveys.
And the fast-growing wiki approach is already working at all manner of legal tools, from contracts to securities regulations in other countries to employment and benefits law in various situations.
SAME OLD SONG?
Chandler says that after his speech he heard from several lawyers who said it sounds right, but the same was said five years ago and likely will be the same in five years. He asked if they believe the law firm business model will be the same in 100 years, and the response was that it will be totally different.
“My reaction is we’re not talking about what, we’re talking about when,” Chandler says. “So it may be that some people are very comfortable talking about change as long as it happens after their retirement. But the world doesn’t wait.” It seems inevitable that LegalOnramp and the consortium are accelerators. So the arrival date of this change is a question of speed.
“The tipping point will probably come when firms that ‘get it’ as far as efficiency and value are concerned also start getting other firms’ clients because they can do the work better, faster and cheaper,” says Jason Anderman, general counsel for Becton Dickinson. And that global medical technologies company, based in Franklin Lakes, N.J., has joined LegalOnramp.
Check out Who's Using LegalOnramp here.
Also read the related cover story this month, The Billable Hour Must Die.