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2Jul 2016

Law firm Moneyball – How Much Will You Pay?

Justice or money on a white background

On Monday, June 6, 2016, the law firm Cravath, Swain & Moore announced the first increase in starting salaries for associates in its law firm since 2007. Raising salaries for attorneys just graduating from law school from $160,000 to $180,000, and increasing salaries all along the associate chain by $20,000 to $35,000 per year, the firm set off a firestorm in the legal community.

Recognizing that not all “big law” firms play in the lofty realm of Cravath, but nonetheless feeling the pressure to increase salaries on a scale commensurate with Cravath in order to be able to recruit “the best and the brightest,” a significant number of law firms that had never paid Cravath-level salaries also raised associates salaries, many by between $20,000 and $30,000 per class year. By the end of June, more than 100 firms had matched the “Cravath Scale”. In many cases, these firms applied the salary increase across the board, including in a wide range of cities that had historically paid less than New York.

As market forces continue to dictate salary increases, one can only anticipate that more large law firms will answer the clarion call. And, as if market pressure and associate expectations are not enough, the widely read law blog Above the Law has taken to publishing a “law firm shaming list” intended to encourage remaining firms in the vaunted AmLaw 200 to raise salaries commensurate with the Cravath Scale.

The reality is that the majority of these firms cannot afford these raises without making significant offsetting adjustments to their business plans.  These adjustments could include reducing non-lawyer staff or other expenses, laying off associates with lower utilization rates than their counterparts, raising the billable hour expectations for their associates, and calculating various means to surreptitiously raise rates charged to clients in an effort to increase revenue.  In fact, Above The Law reported on July 1 that a number of these options were specifically discussed (or, perhaps more accurately, threatened) during a town hall meeting held by Morgan Lewis involving the firm’s associates and facilitated by Steven Brown, a member of the firm’s management committee.  Even the in the firms with the highest profits per partner, the firms that can conceivably “afford” increasing associate compensation, steps are being taken to shift the cost of this additional compensation away from partner pockets.  After all, since there is no way to monetize the value of a partnership interest as partners retire or leave to pursue other opportunities, the name of the game in the big law business is for partners to maximize income each and every year they work at their respective firms.  Gratuitously “giving money away” to associates flies in the face of this axiom.

I had dinner this week with the general counsel of one of Alexius’s large clients. During the course of our meal, the size and scope of these associate salary increases entered the conversation. My friend and client scoffed at the foolishness of this increase and echoed the comments of many other consumers of legal services – “I don’t know how these firms justify these increases internally, but I do not plan to let them pay for it on my bill.”

Despite such rhetoric, at the end of the day the clients of these firms will help pay for these raises one way or another. Even if clients are able to resist outright fee increases, law firms have many ways to shift costs onto client bills. For example, should firms decide to further reduce support staff in order to save on costs, attorneys will be expected to do even more of their own word processing. Since every form of “service” attorneys provide to clients in big law firms is “billable,” clients will now be paying for attorneys to perform basic word processing tasks that were previously provided at “no cost” as part of the law firm service package. Similarly, if higher billable hour expectations are imposed on associates, clients will find themselves paying for sloppiness and re-work caused by fatigue and heightened stress and anxiety resulting from the increased workloads. In addition, it is not hard to imagine that law firms will find reasons to further trim the ranks of partner track associates in order to save costs, which will add even more pressure to the poor souls that manage to survive these cuts. Finally, it is likely that many of these firms will increase their use of non-partner track attorneys and other lawyers not being paid the higher “partner track” salaries.

Fortunately, corporate consumers of legal services have options. Rather than allowing big law firms to find a way to subsidize their “generosity” by passing along some or all of their increased costs to their clients, these consumers can regain control of their legal budgets by carefully analyzing the services they truly require from law firms and then electing to have many of the more basic tasks performed by the growing number of alternative legal service providers which have burst onto the scene. Companies like Alexius, Axiom, SRS Acquium, UnitedLex and others can step in to provide top quality legal services at prices and on terms that corporate consumers find both economically efficient and highly predictable. Even more importantly, these legal service providers can bring transparency to the pricing process by billing clients in a way that does not facilitate surreptitious fee shifting. These alternative models require the companies providing legal services to share the risk with clients if they somehow misprice their services or underestimate the time required to complete projects. Most significantly, these companies compensate their professionals fairly but realistically, enabling clients to avoid the “ego premium” now being placed on the work being performed by the “best and the brightest” neophytes in the big law environment.

The delivery of legal services is changing, and those changes are not evolving to the benefit of the big law firm model. Given this reality, one has to wonder why Cravath and others chose the summer of 2016 to implement dramatic salary and cost increases into their operating budgets. Regardless of the reason, these law firms have given clients even more compelling reasons to search for alternative suppliers for basic legal services. As a leading managed legal service provider, Alexius stands ready to answer the call.

Author: Kevin Hein, Alexius Chief Development and Strategy Officer

5Jun 2016

Legal Services Exceed $100 billion

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According to a recent survey by BTI Consulting, the total legal spend by all corporate consumers of legal services in the United States has now exceeded $100 billion. That is an awful lot of money by any measure. That sum includes the amounts paid to in-house legal departments, outside law firms, and third-party service providers. Forty percent of that amount is paid to in-house legal departments, while the remaining 60% is paid to outside service providers.

Most outside legal fees are paid to law firms, many of which are large and well established, and some of which are relatively small and very specialized. But a growing percentage of those fees is now being paid to third-party, non-law firm, legal service providers. These include companies that specialize in electronic discovery, document review, and other litigation support services. A more recent phenomenon is the evolution of companies that take the most basic legal services, those that do not have to be performed in a law firm (and those which are often referred to as “commodity” services), and utilize technology and other delivery strategies to deliver the services more efficiently, cost effectively, and in a way that adds true value to their clients.

These “transaction-based” services range from regulatory and compliance work, to basic document drafting, contract management, and even a broad range of services that support mergers and acquisitions work. In many cases, the challenges faced by clients in these arenas are only partially legal, and the best solution often incorporates the services of accountants, financial professionals, and technology experts, along with experienced lawyers.

Alexius is built to be a part of that equation. At this point in time, we are a small company, and we serve a small segment of an extremely large market. However, we are already on an aggressive growth trajectory. The Alexius team is poised to set our little segment of the legal world on fire. We look forward to the opportunity to serve you.

Kevin P. Hein

Chief Development and Strategy Officer

1Jun 2016

Welcome to Alexius

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Welcome to the Alexius blog. Our goal with this blog is to document our efforts to play some small role in the evolution of the delivery of quality legal services. We intend to share our history, stories of our victories and our struggles, and to document the lessons we have learned about how to better serve our clients along the way. We will also share our view of the evolving world of legal services, and from time to time suggest structural changes in the system that will help make the legal profession work better for everyone.

The opinions expressed on this blog represent those of each author and do not necessarily reflect the view of the company as a whole, the view of our clients, or the view of the American legal profession. We welcome your comments and feedback. We hope that through an open dialogue we will all grow.

Welcome to the journey.

Alexius – A Brief History

Alexius was formed in late 2013 by Bill Hoppe, Jeff Brimer and Andy Elson. However, its origins date back to the summer of that year. After watching an online interview of Mark Harris, the founder of Axiom Law, Kevin Hein discussed the concept of developing a different legal services model with Andy Elson while playing golf one summer morning. Andy had already been providing a variety of legal and quasi-legal services to his clients in the telecom industry for several years, and he wholeheartedly agreed that the time had come for a different delivery model to evolve. Andy was particularly sensitive to the huge fees charged by large law firms based on his experience as a director of regulatory regulatory compliance and then as general counsel for several large cable companies.

Later that fall, Kevin introduced Andy to Bill and Jeff. Bill was a CPA with extensive senior management experience as both the CFO and CEO of a number of large restaurant chains. Jeff had worked in a large law firm with Kevin for more than a decade, but before that had spent more than 20 years serving as the general counsel for two large corporate entities based in the Midwest.

Andy, Bill and Jeff found common ground as former consumers of legal services, and they each expressed great frustration with the billing practices employed by large law firms and the propensity of these firms to raise billing rates by an average of 5% per year regardless of the economic conditions present at the time or the value the firms delivered to their clients. Recognizing the opportunity in the marketplace presented by the trail blazing efforts of Axiom Law and others, and being convinced that now was the time to begin offering services which utilize a model that focuses on providing clients with large law firm expertise and service levels while charging reasonable prices based on fixed project fees or monthly services fees, the three agreed to pool their time, talent and treasure. Thus, Alexius was born.

Kevin P. Hein

Chief Development and Strategy Officer

23Nov 2015

The Delivery of Managed Legal Services: Part 2

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In part one of his series, former general counsel and current Counsel On Call Director, Eric Griffin, described the waves of change he’s witnessed in the legal industry throughout his career due to the disaggregation and commoditization of legal work and associated rise of managed legal services.
In my last post, I concluded by describing a “three legged stool” model of providing legal services in the modern era; in-house counsel focuses on the business issues, outside counsel focuses on strategy and high level analysis, and the legal business process manager acts as the gatekeeper on costs, process, technology, staffing, metrics and improvement.

But are all types of legal matters amenable to legal process management? If not, what kinds of legal work should be considered for process management?

The fact is, practically all legal tasks (other than those performed in connection with “one-off” and highly unique and infrequently repeated matters) are amenable to process management initiatives. Specifically, managed legal services can bring tremendous efficiency and cost savings to projects involving high volume or repetitive tasks such as (but not limited to) the following:

  • Litigation (discovery, review, research)
  • Due diligence / M&A
  • Corporate work
  • Contracts management
  • Employment matters
  • Investigations
  • Compliance

To pick just one example, let’s consider how a managed process can bring increased efficiency to a company that (as part of its ordinary business) enters into a high volume of I.T. equipment purchases and I.T. services agreements.


Problem:

The I.T. procurement process has become highly fragmented, with several different in-house and outside lawyers preparing and revising the contracts. This is due to the limited resources of the company’s legal department, the varying volume and complexity of the transactions in question, and the time required on other projects. As a consequence, there is a wide variance between the final contract product, which increases default and post-closing contract compliance risks. Moreover, the small staff of in-house lawyers is increasingly frustrated with its workloads and lack of professional development, as almost all their time is spent reviewing routine (but important) procurement contracts. More strategic legal initiatives languish as a disproportionate amount of time is spent on the contracting process.


Possible Solutions:

There are several options for the General Counsel in this scenario:

  1. The company hires more in-house attorneys and paralegals to handle the workload. This may not be a realistic option due to budgetary and hiring constraints. Also, hiring more personnel does not solve the one-dimensional workloads and attendant job satisfaction issues of the contract review attorneys.
  2. The company consolidates all of the review with a law firm, and negotiates reduced rates or alternative fee arrangements to keep the costs in line. The likely problem with this approach is that very few traditional law firms have a cost structure that will permit it to lower its rates sufficiently to make this an attractive alternative. Also, the procurement process requires an intimate familiarity with the company and all potential stakeholders in it, as well as company policies and procedures that relate to the process. It is very challenging for an outside law firm (no matter how committed and diligent) to satisfactorily handle a traditionally internal function.

  3. The company hires a managed legal services provider to supplement its internal legal team and take on the procurement contract work in whole or in part. This approach provides greater flexibility and can be scaled up or down as circumstances warrant. The company gets the benefit of highly-qualified transaction attorneys who are integrated into the company’s existing team without the expense of adding full time employees. In-house lawyers are then enabled to dedicate their time to more strategic and higher value work, and achieve greater job satisfaction.

As a former General Counsel, I believe the only realistic option is number 3, the managed legal services option. This is not just to solve the immediate problem of providing additional resources, reducing costs, creating tailored workflows, improving the work environment… such a provider improves client communications with strategic planning and budgeting and tracks progress by providing standardized reporting and metrics. With constant “eyes on” protocols and attendant tracking and reporting, a virtuous cycle of continuous improvement becomes a reality. More work gets done more efficiently, for less money.

A legal department’s use of a good legal process management provider makes the General Counsel and the legal department look good. And that’s what it’s all about, right?

http://www.lawdable.com/2013/10/articles/modern-legal-model-1/the-delivery-of-managed-legal-services-part-2/

27Oct 2015

The Advent of Disaggregation and the Delivery of Managed Legal Services: Part 1

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This is Part 1 of a two-part series from Eric Griffin, a director at Counsel On Call. Eric works closely with clients to design innovative and cost-effective legal solutions in a variety of verticals and practice areas.

As little as 30 years ago, most business corporations were staffed with employees who performed all, or virtually all, of the tasks required to deliver products and services to their customers. Even job functions that were only tangentially related to the end product or service were often performed internally by dedicated corporate employees. The outsourcing of tasks to a third party outside of the corporation was an alien concept.

That world no longer exists. Today, businesses are closely examining their internal processes and work flows to determine how to deliver products and services more efficiently. The ubiquity of electronic information systems, as well as the attendant untethering of skilled labor from local job markets, has led directly to the disaggregation and outsourcing of once purely “internal” and even mission-critical tasks. Whole new industries have arisen to provide managed services to corporate clients. The client can selectively outsource various business functions and focus its internal resources on its core business.

But what about the legal industry? Perhaps because of its inherent conservatism, its reputation as a learned profession, or just due to the widely held belief among attorneys that lawyers are different, the profession has generally been slow to embrace a true managed services model of service delivery. Today, even that is changing.

Actually, traditional law firms might argue that “managed legal services” are exactly the business they are in. A client has a legal problem or project that requires legal resources, and the law firm provides all, or practically all, of the services needed by the client. While this is (in a very broad sense) outsourcing a legal matter, it is not unlocking the potential value that the disaggregation of legal services makes possible. Why not? Because there seldom is any further analysis by the law firm or its client of what discrete legal activities might be further outsourced to providers who can perform high-quality work at a significantly lower cost (or more efficiently) than traditional approaches.

Notwithstanding economic incentives to outsource, forward-thinking and client-focused law firms realize that to truly meet the needs of their clients – who are under enormous and increasing pressure to reduce costs – they should analyze projects to determine what components can be better handled by process (and efficiency) oriented providers. The firm still maintains oversight of outsourced tasks, but the notion that only firm personnel – billing at inexorably higher hourly rates – must be down in the weeds and working in areas in which its associates aren’t expertly trained (workflows, business process management, metrics, technology protocols, etc.), makes little sense in today’s marketplace.

In the legal world we live in today, every partner’s role is different than 30 years ago. In-house counsel must focus on business issues, outside counsel on strategy, and the LBPM – the legal business process manager – is the gatekeeper on costs, process, technology, appropriate staffing, and continual improvement. Legal is catching up to the rest of the world with this structure, and there are several verticals that are leading the charge.

http://www.lawdable.com/2013/09/articles/modern-legal-model-1/the-advent-of-disaggregation-and-the-delivery-of-managed-legal-services-part-1/

 

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