2 key mistakes made when contemplating the future of law

Jul 20, 2017

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There’s no doubt the business of law is changing before our eyes, however below, I explore a few commonly held ideas that are muddying the water when considering the future of the industry.

Overestimating the impact of AFA’s and fixed fee billing

It seems so simple. Use your experience to put a figure on a piece of work that is higher than the costs of delivery, and charge your client that amount up front to give them cost certainty. Get better at this, work on efficiency and profitability and everyone wins.

Sure there are there are niche firms who embrace fixed fee billing and larger firms dabble in it at times, but the reality is that it is incredibly difficult to implement once you understand the mechanics of a typical law firm.

For a start to adopt this approach you need to throw every performance metric anyone in the firm has ever known out the window. To use a baseball analogy, it’s like asking the batting team to switch hit, and send runners clockwise around the diamond. In fixed fee scenarios, chargeable hours become counter-productive. Instead of being rewarded by the amount of time you spend on a file, you need to spend as little time as possible in order to improve partner profits.

At a more human level, hourly rates become meaningless when you’re charging for results, not expertise. It becomes about teamwork. Imagine what that does to the psyche of a fee earner who has been trained their entire career to define themselves by that magic number.

And practically, how do you make the transition, without a practice management system that makes this easy, a suite of reports that prove profitability and value, and a supporting partnership that is happy to reduce budgets and invest heavily in retooling a pilot team (which means building a fixed fee practice inside a traditional practice management system), or the entire organisation (ruinous cluster f*** every single time), knowing that their tenure at the top table may not be long enough to realise any ROI.

Underscoring all of this is the fact every billing mechanism has it’s pros and cons, and most clients couldn’t care less how an invoice is constructed, so long as service providers do a good job of transparently communicating their value, and the final amount is perceived as “fair”. There is absolutely no reason why you can’t achieve those requisites with the billable hour and the right attitude.

Underestimating the adaptability of law firms

I still find it surprising when we’re talking to in-house teams and we hear things like “we work with ABC firm and they don’t give estimates” or “Partner XYZ really doesn’t like technology so we’ll have to check with them.”

The reality is that if most in-house teams asked their service providers to dress like Sesame Street characters at their next meeting, they’d find Big Bird waiting for them at the lift when they arrived. And if you as a client decide that in exchange for the thousands, hundreds of thousands, even millions of dollars worth of their invoices you approve every year, you would like them to use some cloud storage platform, or to provide reports in a different format, guess what – they’ll do it. And they won’t hate you for it. As we’re finding on a daily basis, the fact that partnerships don’t pro-actively innovate, doesn’t mean that those outside the partnership aren’t frustrated by their own firms lack of innovation. Sometimes client led initiatives are just the excuse rank and file lawyers want in order to start building a practice the way it should be.

That said, we understand why these conversations are difficult. Relationships across the table are often forged over decades, sometimes starting in law school and most in-house lawyers spend time in private practice where they get a deep understand the pressures faced, so there is a degree of respect and perhaps sympathy for the role of external counsel.

But this dynamic is under real pressure as executive teams get a better understanding of how they want their organisations legal risks, costs and obligations to be managed, and begin applying top down pressure on teams that have in the past been given generous budgets and left to to their own devices.

The key to transforming the legal industry is transforming client expectations, ensuring those expectations are heard loud and clear by service providers and supporting them when necessary.

If firms don’t want to lead change, don’t worry, they will adapt – they have to.