InsideLegal has long been showcasing legal thought leaders with our “ITOW” series. This edition is focused on Kris Satkunas and her LexisNexis CounselLink team’s newest mission…helping corporate legal departments improve the predictability of their legal costs (via AFAs), manage their budgets with more certainty and derive greater value from their work with outside counsel. Our Q&A is focused on a recent LexisNexis-sponsored AFA survey and key findings as well as their recently launched CounselLink Analytics’ role in helping legal departments navigate their ‘value’ challenge.
IL: A recent ALM Intelligence Survey “Alternative Fee Arrangements for Law Firms and Legal Departments”, sponsored by LexisNexis, shows the billable hour remains dominant with much slower than predicted adoption of alternative fee arrangements. While nearly all the law firms surveyed have adopted AFAs and most respondents expect increased adoption, growth is slow, with AFAs accounting for less than a quarter of most law firms’ work. The same trend is evident on the corporate legal end. Kris, can you please provide InsideLegal with a top level recap of the findings?
KS: The biggest take-away to me is that AFAs are broadly used (by 99.5% of law firms and 82.6% of legal departments surveyed) but not deeply utilized. Both inside and outside counsel clearly see the importance of AFAs. Yet for many reasons, most are using AFAs sparingly. And both sides point to internal and external reasons for the lack of adoption. In other words, in house counsel fault law firms with resisting AFAs while few GCs have the expertise needed to leverage their own data to identify and propose alternative fee structures that might be amenable to outside counsel. The bottom line is that expanding the use of AFAs is proving to be a struggle for both inside and outside counsel.
IL: Do these findings surprise you?
KS: The findings don’t surprise me. I’ve had conversations with many corporate counsel who have expressed that they want to use AFAs more, but don’t really know where to start. A lot of them also suffer from the “my matters are all unique” syndrome, which is just another internal form of resistance to trying something new. What is a bit surprising to me is the high percentage of both inside and outside counsel who say they don’t have the data to determine appropriate AFAs. Most large corporate legal departments have e-billing and/or matter management systems and law firms have time and billing systems. All these systems contain a wealth of data. The problem is that gathering useful data is only the first step. That’s where CounselLink Analytics comes in. This service bridges the gap between raw data and decision making through delivery of specific recommendations on AFAs and on broader cost management strategies.
IL: Based on your understanding and knowledge, and as cited in the survey, why are AFAs not as widespread as expected or at least as publicized? Do you think corporate counsel’s cost predictability argument pro AFAs will spill over to the firm side?
KS: This is an industry that is slow to adopt change. We’re talking about a fundamental shift in a law firm’s operating model, and I believe that is going to take time to happen. We’ve seen AFAs increase a bit every year. Companies using CounselLink used AFAs for 17% of their matters in 2011, and that percentage has slowly increased each year. As to the cost predictability component, that may be a side-benefit to law firms, but what is really going to drive them to use materially more AFAs is their interest in retaining clients and winning new business.
IL: As you have mentioned, most legal departments have reams of data but aren’t sure how to analyze and interpret that data to identify inefficiencies and to quantify for corporate leadership, the value being generated by the company’s legal department. Please explain how CounselLink Analytics will help address this challenge and what other resources exist to help quantify value.
KS: Legal departments create value by among other things, managing risk, communicating clearly with internal clients, and by helping their organizations to avoid, minimize and manage legal challenges in the most cost effective manner possible. The goals of legal departments vary, but the adage about needing to measure in order to manage applies regardless of those goals. One of the ways CounselLink Analytics helps legal departments is by helping them identify and leverage specific metrics they can use to quantify the value they are creating. We also set up electronic dashboards or scorecards to effectively track, display and share that information with senior management. In addition, our services provide a framework, or methodology, to efficiently answer questions that arise as the metrics are distributed.
IL: Before joining CounselLink, you led the Redwood Analytics Think Tank to help improve law firm performance via the use of analytics and best practices. Please elaborate on this initiative and share with us any specific best practices and metrics that the think tank developed and/or published.
KS: The Redwood Think Tank was an independent research group founded by Redwood Analytics in 2006. The Think Tank conducted quantitative studies, developed and tested hypotheses, and suggested solutions to tough management issues. Members of the Think Tank were law firm leaders with a progressive outlook on firm management issues. One big topic we studied was client attrition. This study had a definite impact on how many firms thought about relationship management. We identified the factors most correlated with whether a client would continue to provide work to a law firm. There were 4 factors that we found to be the most critical, and believe or not, rate discounts were not among the top four!