2nd Annual CCLF – Opening Salvos: A General Counsel’s Guide to Pricing Negotiations
How can I get more out of less? We all feel the pressure, not just in our professional, but also in our personal lives.
Our push as individuals and professionals to maximize the output of finite resources is quite simply the way of the world. And it should not surprise us that our legal professional clients, dealing with that same pressure, are wrestling with this in a very real way.
At at the second annual Corporate Counsel Leadership Forum in New York this week sponsored by the Legal Executive Institute, I had the opportunity to facilitate a very insightful breakout discussion on how law departments and their outside counsel are using alternative fee agreements (AFA) to deal with these very same issues.
While we addressed a range of topics, I want to call out two threshold questions.
First, on a more macro level, what is driving this increased focus on cost and thus alternative fee pricing strategies for outside counsel?
- Regulatory burdens are massive, with no end in sight
The sheer volume of regulation – putting aside its actual scope and resultant cost – is unbelievably large. Roughly 30 years ago, there were just shy of 10,000 pages of regulations in the Federal Register. The Dodd-Frank Act by itself, which is only two-thirds complete, has 22,000 pages. That represents double the volume that existed across all federal agencies just three decades ago.
- With risk management, it is not the must, it is the should
It is not the legal risk and cost that legal departments are managing, but the reputational risk and business risk of not doing well what they should be doing, not necessarily what they must do.
Much of business today is global, not solely in terms of the markets we sell into and serve, but also where we source.
Second, where are we in terms of adopting these new AFA strategies?
- We have a lot of runway
I polled the audience at the session and asked how many of the law department attendees are billing more than 25 percent of their outside counsel spend on an AFA basis. Out of the 40 or so attendees, no one raised their hand.
- Defining value – and not focusing just on price – is critical
From the dialogue, it seems like outside and inside counsel are skipping to the end (i.e., what price to charge) during their discussions before defining what are their goals, where they overlap and ultimately how they can jointly define success. A number of the panel members noted that this is a foundational step in not just creating a partnership, but in collectively determining what value looks like.
- Know your business
In order to know what you value – and this is true for both inside and outside counsel – you need to determine what you are good at, what you do best. Then either not do certain things or outsource that which is not core to your business or capabilities. Additionally, using metrics and data to arrive at this business vision is another necessary component.
How this field evolves in the years to come will be very interesting to see, not solely because the underlying inside-outside counsel dynamic continues to shift, but also because successful, value-based strategies will be more urgent for all involved.
This post was written by Mark Haddad, vice president of the Corporate segment for Thomson Reuters.