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January 10, 2011 6:50 PM

The Pfizer Model, One Year Later

Posted by Aric Press

From the January 2011 Issue of The American Lawyer

A year ago, as the client-to-law firm conversation had fully entered its give-me-a-discount or give-me-death phase, The American Lawyer put Amy Schulman, Pfizer Inc.'s general counsel, on our cover. Fresh from a stint as an enormously successful DLA Piper litigation partner, Schulman had a different idea about how customers and lawyers should relate to each other. Building on work done at DuPont, at United Technologies Corporation, and by her Pfizer predecessors, she abandoned the billable hour, created an alliance of 19 law firms that would get a disproportionate share of her half-billion-dollar budget, and insisted that the lawyers find new ways of assessing the value of the work they did. All that, and save 15 percent off the top.

A year later, she's made a few midcourse corrections, but she says that she's even more convinced that Pfizer's choice was the right one, both for her company and for the profession. To get the prurient detail out of the way: Schulman says that she hit her budget target and is busy fashioning another one for 2011. But more important, she says, is the progress that the alliance has made toward being a relationship-driven operation. Bigger than cost savings, the real goals are better legal service and protection. And that, she says, grows out of client and firms investing in each other, in guaranteeing work, in setting priorities, and holding each other accountable.

Amy_Schulman "We haven't experienced any diminution in the quality of the work we're getting," Schulman, pictured right, says. The firms are staffing Pfizer's work with the lawyers she was promised at the interview stage, and they seem as engaged as she could have hoped. "Lawyers want to make a difference for their clients," she says. "If what you use to anchor the relationship is money, you’re going to lose, because it's not motivational at some point."

More than atmospherics are involved. Over the last year, Pfizer's legal team has developed a ranking system for matters handled by outside firms. They are graded on performance issues ranging from substantive knowledge to responsiveness to willingness to collaborate. Twice a year, Pfizer gives each firm a report card--and then grades them on how well they take the feedback. "We learned a lot about firms," she says, "by whether they welcomed the feedback or responded by saying, 'You got it wrong.'" Pfizer has sought other ways to make the links tighter. Each firm has an in-house relationship partner. Pfizer encourages secondments and has recruited with two firms at law schools, looking for associates who will split their time between the firm and the company.

So far, the original 19 firms remain in place, and Pfizer added one more, Torys in Toronto, to cover Canada. There have been some irritating rough ­patches, and I asked whether she was tempted to oust one firm--to put a head on a spike. Such a male question.

"If I need to resort to sending messages like that, then I have fundamentally failed," Schulman says. "My premise is that by building mutually beneficial relationships, because they will know us better, a dollar spent on an alliance firm will get me more...I don't think we need to use a club to demonstrate the alliance's value."

Throughout the interview, Schulman spoke repeatedly about relationships. They were something to work at and improve.  Pfizer could do better, and so could the firms; both sides had learned from their experiences; serious relationships were not lightly entered or ended. "Relationship-building requires a certain kind of emotional courage and confidence that knows how to motivate and retain professionals with something more nuanced than a check," she says. "I got so tired of so many people saying they missed how they used to practice law and [regretted] retreating into tenths of an hour and billing codes, as though that would ever solve the crisis of what it means to be a professional. This is my answer."
Hers, of course, is not the only model. Before meeting with Schulman, I'd spent the morning with a managing partner caught in the middle of a procurement process orchestrated by a longtime client.

There was no talk of relationships, only the spectrum of acceptable rates. Despite two decades of service, he and his partners were preparing to walk away. Schulman's point: It doesn't have to be that way.

Aric Press can be reached at [email protected].

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Congrats to Pfizer and their alliance firms. It's about time somebody did something to displace absurd hourly billing, rather than merely blather about studying it. Ms. Schulman seems to have embraced a Silicon Valley lean-startup principle: "iterate," i.e., don't worry about getting it perfect. Try something, learn from it and continue to refine it.

Let's assume for the moment that the Pfizer becomes wildly successful and widely copied, and that their emulators are successful, too. Such a level of client/firm commitment would seem to mean that opportunities for lawyers to win new business by displacing incumbents -- already very difficult -- would become virtually impossible.

I see this as a good thing. Any business you might pry loose from an incumbent -- particularly if the client's motivation is cost-saving -- is likely to be very mature work for which rates will continue to decline inexorably. Add to that the staggering cost-of-sales associated with a multi-year target-and-stalk strategy and you're talking Pyrrhic victory.

The only way to build a book of business with healthy margins is to earn the future, i.e., to help companies figure out the emerging problems that will define their future. This isn't to say that you're all going to be leading the way on strategic issues. Change, and responsive innovation, occurs at every level of an organization: corporate, business unit, department, project team, etc. Just as her alliance firms are helping Ms. Schulman create the future of Pfizer's legal spend, others will help define the future of engineering quality control, licensing strategy, tax minimization, etc. The point is to become sufficiently well-versed in your client's business that you can contribute meaningfully to the conversation about some aspect of its future.

I operated a similar model inhouse and it worked exceptionally well. I had bi-directional scorecards for my advisors, which measured several different aspects of the service and the relationship. My internal clients contributed to this exercise and it led to some very productive conversations.

Without exception, the advisors talked about the relationship in similar terms, despite the fact that hourly rate was definitely not a feature.

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