With his permission, I want to share with you a note I received from Ken Grady, the former General Counsel of Wolverine World Wide, Inc. and architect of the astonishingly successful Wolverine law department and its accomplishments in recent years. The topic I was discussing with Ken and others was whether Value Based Fees alone were enough to help law departments become high achievement groups. The discussion was part of our preparation for the most recent session of the Association of Corporate Counsel’s superbly designed Legal Services Management program. Ken’s perspective as a General Counsel who went through the change process is so valuable. I hope you find his insights as valuable as I do.
I think we are seeing in many ways that VBB alone is not going to carry the day. If the law firm provides services the exact same way under a VBB arrangement as it does under a billable hour arrangement, nothing has changed – as Pat says, there is no risk sharing. GC’s complain that law firms aren’t presenting them with really viable VBB options, so they default to billable hour – discounted fees. Law firms complain that when they present VBBs, clients won’t do them and default to billable hour – discounted fees. This is true even at the firms that are leading the way in doing VBB and implementing PM and other changes.
Distributed change – redoing the corporate legal world where no one firm or company has the power to force through change – is more difficult than changing a single company (obviously). In the absence of a killer app or service that drives the change, it will be slow, uneven and lack clear direction. This isn’t new, it is the same thing that has happened in other industries at other times. It is new in the legal industry, and it is remarkable in the legal industry because it is so visible for an industry that considers one or two major changes every 100 years to be fast enough.
All of the tools and techniques we teach will help in the short term, but the tipping point – the real moment for change – will happen when someone shows that using model “X” results in meaningful change at such a level that there is no going back. [Excuse the self-promotion] In the last five years, while our company has grown revenue by 60%, the Legal Department has reduced legal spending from that 5-year old starting point by 12%. We are spending 12% less than we did five years ago to support a company with several new product lines, expanded geography, etc., etc. that is 60% larger and significantly more complex. We did it by combining the tools and techniques we teach. But, the real tipping point would have been if we had cut our legal spending by 50%.
With a few notable exceptions, major law firms are not going to try to reinvent their profit model (assuming they have the wisdom to know how) to help clients cut costs by 50% while allowing the law firm to continue generating revenues and profits as it has done in the past. Since clients aren’t pushing, most competitors aren’t doing it, and there is tremendous risk in trying to do it – why bother? The disrupters will be (as they mostly are) start ups who have nothing vested to lose and who can try new models while adaptively changing fairly quickly.
On the client side, those disrupters so far simply don’t have the geographic, subject area and expertise scope to do what we need in a broad enough way to meet the 50% reduction challenge. They tend to be grouped around litigation (U.S.), small localized transactions, and volume/repetitive work. While there is some market for that work, larger companies need the broader universe and scale to really drive down spending (versus moderating its growth and achieving efficiencies in spending).