I consider Nat Slavin, the publisher of Corporate Legal Times, to be a friend. But even if he were not, I would be a regular reader of Corporate Legal Times simply because every issue contains at least one nugget of insight that really makes me think and reevaluate what I believe, and most issues contain more than one. The July 2005 issue is a great example of multiple nuggets.
Nat’s column is entitled “A New Economic Model For Law Firm Billing,” and his new model, while not that new, is presented in a way that is really intriguing. The proposal is that law firms bill on a fixed fee basis on a quarterly basis. The rationale for the model is the need for business people to bridge the gap between budgets and actual expenses. The rationale is presented in the context of a public company that needs to forecast and make projections to manage Wall Street expectations.
As most who have read any this blog know, I am a staunch proponent of a modified fixed fee approach—fixed fee with a success incentive (either recovery of hold back or bonus) so law firms remain “interested” in the outcome. Whereas Nat is looking at fixed fees for a given quarter, which allows a firm to make up any losses from the prior quarter, I have been advocated for a fixed fee on a given matter. In the context of the business need for prediction, neither approach is on the money. Nat’s approach fails because budges are set months in advance of a given quarter if not even more so. During breakfast with a GC a week ago, he mentioned how he is now fixing his budget for 2006, and there is no line entry for new litigation. The system evens out because litigation ends while other suits begin. In this GC’s experience, things tend to even out. My approach works on a micro, or matter, level, providing the grist for fixing a specific line item on a departmental budget. But my approach does nothing on a macro level, which is where much of the budgetary pressure resides. But Nat’s analysis that the gap between budgets and actual expenses has to be bridged is on the money, so my view must evolve from micro to macro, from matter budgeting to budgeting for groups of litigation. We must move beyond matter focus to something broader.
I did say that there was more than one nugget in the July CLT. Laura Stein, the General Counsel of The Clorox Co., authors the Inside Perspective column, which is entitled “Management Needs Lawyers It Can Trust.” The article is about the trust relationship between inside counsel and management, but the lessons must be the same for outside counsel. While Ms. Stein’s article does not mention fees per se, but she underscores the need to help management obtain business objectives in a cost-efficient manner. Certainly this must include the budgetary process. But as important, Ms. Stein underscores the importance of a relationship built on trust. And while a trust relationship between inside and outside counsel extends beyond fee issues, it certainly must include them. The persistent failure to learn and understand the internal budget pressures faced by inside counsel and to respond in a manner that helps solve the problem rather than exacerbate it is certainly a cornerstone of a trusting relationship.