March 22, 2010 11:53 AM

The Change Agenda: Are We There Yet?

Posted by Aric Press

The annual Georgetown Law School conference on large law firms opened Sunday night with the general counsel of Ernst & Young Global saying that the times--and the flow of international capital--demanded a new model for law firm–client relations, a prediction by the senior vice president of the Association of Corporate Counsel that clients would be patient for only another 18 months with their outside firms, and a vigorous defense by the outgoing head of Kirkland & Ellis who said essentially that anyone who thought law firms didn't understand that a new reality was upon them was not paying attention to the market.

It was a lively start to the two-day, ten-panel meeting sponsored by the Georgetown Center for the Study of the Legal Profession. This year's event, titled Law Firm Evolution: Brave New World or Business As Usual?, is the third such conference organized by the Center. This conference is different from the usual fare in that it attempts to bring sixty academics, working lawyers, and a handful of outside observers into the same meeting to discuss and debate a variety of academic papers that range across the landscape from studies of client hiring patterns to a case study of the rise of law firms in Shanghai. (Click here to access the papers.)

Trevor Faure, E&Y's global general counsel, spoke first. Faure became prominent in legal circles three years ago when he was credited with leading Tyco's massive reorganization of its outside legal counsel in Europe, the Middle East, and Africa. It was reported at the time that he had shifted Tyco's work from 240 firms to one, Eversheds, a massive, U.K.-based firm. Now a partner at E&Y, Faure is the author of a new book, "The Smarter Legal Market: More From Less," which served as the basis for his talk.

He argued that the "Darwinian path of international capital seeking maximum returns," was undermining law firm models and client relationships. He argued that the familiar Six Sigma standards of "measuring, managing, and improving anything" would be felt in the legal marketplace along a continuum that began at the bottom of the work triangle with more common and regular work--data protection, standard contracts and the like--and would ease back a bit as it moved toward major litigation, competition, and sensitive compliance work. He had a chart, but suggested there was a "visceral" test: if the client wants his lawyer to hold his hand through the process, that work was higher up the food chain.

Complicating and irritating the relationship, he said, is the nature of the law firm–client model, largely a zero-sum game, in which one side wins and the other gets to feel resentful. In an age where businesses are demanding more for less and the companies themselves are coming under the control of new investors who neither know nor care about the past relations, this model, he suggested, was "unsustainable."

Instead, he called for new models that increase levels of "cooperation, communication, and trust" between the clients and their law firms. He suggested that both sides needed to find ways to align what he called their real interests. For firms, those might include: profits; producing high-quality work; driving down risk; and increasing volume with a client. Clients' interests, he suggested, include: predictability of expense; a quality product; responsiveness; and help in avoiding problems.

As his time ran out, Faure offered an example of a "litigation avoidance" program in which a firm with a long-standing relationship with a client might be paid based on annual reductions in the number of filed suits. A firm with knowledge of the client could have an incentive to find destructive or provocative patterns in a client’s behavior, recommend changes, and then receive a bonus for the percentage drop in new litigation. In Faure's view, a client could share most of the savings with a law firm, still come out ahead, and have a better relationship with its lawyers.

During the questioning that followed, Faure also discussed the hoary problem of law firm profitability and whether clients should be put off by the success of their firms. "Clients," he said, "sometimes think [firms are] too profitable. But why should I care if someone is profitable if I were winning [too]?" For a recent discussion of Faure's views, click here.

The panel discussion that followed was lively. Susan Hackett, from ACC, said that she thought there was now a window of "a year to 18 months" for firms and clients "to start figuring out how to get it right before clients start walking and talking to other firms...and to nonlawyers" to take on their work. She said many firms don't recognize the underlying dissatisfaction felt by their clients. And their pent-up demand for a new definition of quality, namely one "defined as value, defined by results not hours."

Hackett has led the ACC Value Challenge initiative for the last few years. This is an effort to set standards for law firm behavior and includes a client-ranking board, a sort-of Zagat's for ACC members. She was also critical of some in-house counsel who now find themselves "in the drivers seat and are driving in the wrong direction" toward discounts rather than "value." And she repeated her prediction that both sides have 18 months to work through their issues because after that clients will "have more data, more tools," and more experience, and will begin to abandon some of their longtime relationships with firms.

It fell mostly to Thomas Yannucci, the former Kirkland chairperson (now chair emeritus), to defend the actions and awareness of law firms and their partners. "The notion that we're not compelled by economic realities to change is just not accurate," he said. "Partners, especially younger partners, are highly incentivized to figure out what clients want...The notion that we don't have a sense that clients are changing, that we have to work seamlessly with their departments and sometimes other law firms on matters, that we have to manage contract lawyers who work outside and inside the firm, the notion that we're all sitting around in tweed jackets smoking pipes, driving bespoke cars, and ignoring the reality of the situation, that's not accurate. It’s all changed."

Among the changes he saw coming was an increasing segmentation in the law firm community and the possibility that some firms would have to shrink as the market changed. He thought more litigation boutiques might arise and worried about the futures of some firms with a few dozen offices spread around the world. He emphasized that his business and that of his clients depended upon trust. "If the client doesn't trust you, and you don't trust the client, you won’t be in a long-term relationship," he said. "The whole goal is to build relationships and become very close to them. In times like these we all understand that we have to do something more…All clients are saying is, 'we need some help,' and we're trying to provide it."

The last speaker was British consultant Reena SenGupta of RSG Consulting. She helps run the Financial Times's Innovative Lawyers report. SenGupta noted in passing that some firms have a hard time recognizing their innovative work. She cited the example of a firm that had submitted to the FT some important but dull financial work it had done. But when she interviewed the client involved, he made little of that task and instead talked about the same firm's stellar work settling a long-standing conflict that meant far more to the client's future. She also expressed some optimism about a more collaborative future, suggesting that both clients and firms were advancing more examples of these efforts.

The conference continues Monday. Stay tuned for more on the discussions about Law Firm Evolution.

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