The Altman Weil ‘Law Firms in Transition’  is one of the definitive year on year examinations of how firms are facing market challenges. Topics under discussion range from changes to billing structures and attitudes towards change, all the way through to the trends currently affecting a lawyer’s day to day job. Interestingly, the 2016 edition has once again chosen to interview Chief Legal Officers as well as firms to examine a potential disconnect between the two.  General Counsel have, with increasing frequency, been calling for improved services and fee structures from their lawyers.  A recent survey by the Association of Corporate Counsel found that:

“Forty-six percent of CLOs may terminate a law firm or outside counsel relationship next year…for underperforming in 2016”

And this dissatisfaction could stem from the disparity between the firm and client perspective, as seen in Altman’s 2016 report.  85% of General counsel reported firms were not serious about changing their legal service delivery model, whilst only 66% of firms agreed with this sentiment. So what is causing this disconnect?  And how can lawyers stand to benefit from its removal?

Why the discrepancy between lawyers and clients?

Let us look at a more in depth example of two perspectives on the lawyer client relationship. If we return to Altman’s report, we are told an impressive 95.5% of large firms stated they were holding conversations about pricing or budgets with their clients.  So far, so good. Firms are clearly meeting the client desire for a risk sharing attitude on behalf of their external legal counsel. And yet, when we delve a little further into this from a client perspective we see:

“Of the 197 corporate law departments of Fortune 1000 companies polled this spring by ALM Legal Intelligence, 70% said they had to initiate AFAs in most cases when working with external counsel. Just 7% identified law firms as the originators. Moreover, 25% of clients said that firms actively resist AFAs.” Law Journal Newsletters

Indeed, when polled by Altman 72% of lawyers admitted that Alternative Fee Arrangements (AFAs) were primarily reactive, and based on clients requesting them.  But here’s one of the most interesting findings about the difference between reactive and proactive fee arrangements. 83% of proactive AFAs are as profitable, or more profitable for the firm as hourly billing. Compare this to the 10% of AFAs that are more profitable than hourly billing when offered reactively and based on client demand. Where lawyers can preempt what their clients want, where they can plan for it and prepare in advance to offer the services their clients need, they stand to be more successful than when they follow traditional methods.  Not to mention they would have a much happier client base.

If you don’t ask, your clients won’t tell

As we discussed in a previous blog firms have failed thus far to identify what keeps their clients happy, nor to measure their success within those categories. For the large part, this is for one simple reason. Firms are not asking their clients what they value most in terms of service. Peter Nguyen, general counsel and corporate secretary with software company Resolver Inc. stated that

“We are constantly out engaging our customers on a monthly basis, talking to them and asking ‘What is it you need and what can we do better for you?” he said. “In my last six years as general counsel, in a couple of companies I have yet to have any lawyer sit down and call me in advance and say ‘What can we do for you?’” Canadian Lawyer

The solution to this problem need not be onerous. Kneppelhout Korthals, a Dutch firm, are already addressing this issue by appointing a ‘Voice of the Customer’, Arnold Birkhoff.  Arnold is tasked with ensuring that developments and changes within the firm are client facing and improve existing relationships. A combination of yearly surveys to all clients and focused surveys after completion of a task give Kneppelhout a unique insight into what their clients need. They have identified key areas of improvement in returning client calls more promptly and in making bills clearer and with greater insight at their client’s behest. Furthermore, in knowing what is most important for their clients, they can avoid spending on innovations that would have a smaller client impact, and instead focus on those which will reap the greatest rewards.

AFAs and client surveys

So let’s return to our earlier example of AFAs and client satisfaction.  Had firms determined through surveys that AFAs are one of the single most important factors in client satisfaction sooner (and thus offered them proactively), the evidence demonstrates that those firms would have been more profitable moving forwards.  And a word to the wise, innovation will come whether we are ready for it or not.  It will do no benefit to wait to see how other firms are tackling a problem before diving in for fear that you may eat into your own margins. Proper data collection, combined with automation (tools like Clocktimizer which can build AFAs that work for your firm and your clients) should guide innovation within a firm.  In finding a solution and offering it before your client asks, firms can stay ahead of their competition in a way that makes financial sense.  After all, scrabbling to catch up has already shown to leave you and your clients worse off.