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Following is a post by Canadian strategist Patrick J. McKenna on his Rants and Raves blog and picked up by LegalOnramp. His comments bolster articles on the LawMarketing Portal such as:

• Study Finds No Groundswell for Alternative Fee Arrangements and
• Study Finds Weak Client Demand for Alternative Fees.

We keep reading editorials about how the “clients are driving change” and one in today’s Financial Post about how the “clock is ticking on hourly billing.” Then from certain consultants come dire warnings about the potential obsolescence of law firms whose leaders are too clueless to see and react to the changes in the market. On September 14, New York will host a one-day event entitled: The Client’s Revolution. What you should be demanding from your legal advisors in the 21st Century.

Client revolution indeed! Among all of this one sees a lot of smoke, but . . . where’s the fire?

Regular readers of my blog may remember my rant (#396) back on June 30 of last year, entitled: CLO’s Are Not Serious About Change.   In that post I reported on an interesting experience working on behalf of an AmLaw listed, “Go-To” regional firm of over 500 attorneys. I spent two weeks initiating contact with the General Counsel of more than 35 Fortune 500 Companies to explore their interest in investing one-hour to meet.  The invitation was to discuss how this particular law firm could provide exceptional client service and deliver a potential savings of between 25 to 40 percent, or more.   And that proposed savings was accompanied by specific details of guaranteed responsiveness, assured predictability, enhanced added-value, and references from some top New York based Fortune 50 existing clients. To my absolute chagrin, I confessed in my post that I completely struck out! No bunts, no hits, not even a sniff of interest. I subsequently heard back from a couple of GC’s via Legal OnRamp that . . . “unfortunately, change comes slowly.”

Well, fast forward a year and here’s an editorial from Alex Novarese at Legal Week, wherein Alex postulates that maybe someone called for a revolution but nobody came.

The harder I look at the profession the more convinced I become that clients - the demand side of the equation - are not only generally failing to enforce change, they are, if anything, more conservative than the law firms, which is saying something. What evidence is there that all but a few brave pioneers have even tried to make good on that vision? A financial crisis and a deep recession has hit Western economies and little has changed beyond a modest uptick in alternative billing. The internet? Disruptive technologies? Such trends have unquestionably forced more transparency onto the legal profession and in theory should give clients scope to take control of buying legal services. But, as yet, there has been little to back up the hype in terms of shaking up the industry or empowering clients.

Alex continues . . . outsourcing, offshoring and attempts to unbundle legal service provision - experiments in these areas are being pushed more by managing partners than pulled by clients. It was the same in earlier years when law firms went international, which was as much a strategic bet taken by the profession as a response to client demand. 

As an explanation for this lack of urgency, one commentator suggested: Unlike the management in law firms, GCs don't change every few years - they stay in leadership posts and maintain old practices. Change will take time, but perhaps it will require a generational change inside the in-house world to really make a difference.

Perhaps the real mystery is why clients are quite so ready to tolerate the status quo.  Why do some GCs make a show of complaining about the cost of legal services when they do almost nothing to materially change things?

As yet another commentator opined: Perhaps, moaning about fees gives a sense they are responding to the predicament they are in, effectively signing blank checks for legal services on behalf of their company. But, the alternative - to do something about it, is not a strong enough driver for many GCs. One has to ask, what is the benefit to the GC in annoying law firms by driving down prices, demanding fixed fees, or insisting on other non-traditional methods? For many there is none. No one in the company is second-guessing the GC’s decisions, they can maintain the status quo unchallenged. The law firms they work with are doing all they can to assure the GC that the legal spend is justified. The GCs themselves are busy, have a team to worry about, and ultimately they are spending other people's (shareholder’s) money, not their own. For most GCs their salary is not directly linked to how efficient or inefficient their legal spending is. Perhaps if that changed then behavior would change too. But that means getting C-level people into the discussion and most have other things to worry about.

In summary, there is little incentive to change business practices unless it benefits you. For many GCs the positive / negative impacts are still too slight. They are in an accountability blind spot and few have someone going over their spending decisions with a critical eye. Most CEOs worry about their company winning the litigation, not whether the legal spend has risen by another “x” percent this year. It all makes one wonder: 'Who will put pressure on the GC to change?'

I remember an engagement that I was involved with in the early 90’s with McKinsey & Company. It involved helping “re-engineer” the legal department of a Canadian-based, international conglomerate to determine which law firm or combination of firms offered the best value proposition. Their strategic decision was whether to continue with the internal legal department as is, or whether they should shut down their internal legal capability and outsourcing all of the work. Only after the decision was made and the outside law firms were chosen did it occur to me that a couple of the choices of firms made, were not based on value at all, but were safety chutes for certain senior lawyers who would be remaining as employees within the legal department, should they ever decide or be forced to go back into private practice.

In the end things will change. Corporate behavior will slowly evolve; more CEOs and shareholders will take notice of legal spend as it grows and grows; GCs will adopt new practices simply because they don't want to stand out as someone who is not following what has become 'best’ practice. Things will change, but on the client side, it may yet be a long, protracted process.

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From and article by Correy E. Stephenson, Esq., Associate Editor of Lawyers Weekly: "Solos and small firms looking for ways to attract new customers and stabilize their income should consider an increasingly popular option: portfolio billing.

"Portfolio billing is an arrangement where a law firm takes on all the legal work – or a specific subset of legal work, like all employment litigation, for example – for a client at a flat fee, explained Larry Bodine, a business development advisor at Chicago-based Larry Bodine Marketing and owner of the site www.LawMarketing.com.

"The arrangement offers benefits for clients – pre-determined legal costs – as well as law firms – predictable income.

"The trend began with larger firms, like Shook, Hardy & Bacon, which agreed to handle all of Tyco, Inc.’s product liability litigation, and Orrick Herrington & Sutcliffe, which represents Levi Strauss & Co. in all non-intellectual property issues.

"But this form of alternative billing is also a viable option for smaller firms and even sole practitioners.The following are some of the issues to consider when crafting a portfolio billing agreement:

• Define the scope.
• Consider resources.
• Historical costs.
• Time period.
• Trust and communication.

Patrick Lamb, a partner at the nine-member Valorem Law Firm in Chicago, agreed.

Lamb and his partners started Valorem in January 2008 with an alternative billing philosophy, and he estimated that roughly 30 percent of the firm’s work is done as part of a portfolio billing agreement.

“Portfolio billing is a great thing for small firms and solos,” he said. “It smooths out bumps and provides predictable revenue flow, so you can meet payroll, pay rent, etc. And it allows you to offer value to clients.”

For the full article, please go here.

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Lateral hiring in the legal profession increased 28 percent from April to May — the highest percentage growth since the turn of the calendar year, according to Law360.

In May, a total of 202 partners, shareholders, of counsel, special counsel and managing partners moved to new firms, as compared to the 158 lateral moves in April. This is important an important tactic in business development, because the primary reason a firm hires a lawyer laterally is for the book of business they bring with them.

Lateral movement grew 1.5 percent in March over February, to a total of 202 lateral moves. The slight increase came after a 15 percent rise in February, which followed a 153 percent spike in lateral moves between January and December, according to Law360.

Among the big law firms:

• Baker Donelson Bearman Caldwell & Berkowitz PC was the big winner in May, scoring 11 laterals.
• DLA Piper and Reed Smith closely followed, snagging 10 and nine laterals, respectively.
• Greenberg Traurig and Jackson Lewis both brought on seven laterals in May
• Foley & Lardner and White and Williams lured six laterals and Hunton & Williams brought in five.
• Jones Day, Mayer Brown and Shipman & Goodwin each snagged four laterals.
• The firms adding three laterals were: Baker & McKenzie, Eckert Seamans Cherin and Mellott, Hogan Lovells, K&L Gates, O’Melveny & Myers, Reinhart Boerner Van Deuren, Taft Stettinius & Hollister, White & Case and WilmerHale.

Corporate finance and securities, which saw 37 laterals switch firms, were the practice areas that experienced the most movement. The area of intellectual property saw 25 laterals change firms, and 22 insurance laterals moved.

The employment and energy practice areas both had 17 laterals pack their bags. Other practice areas with a lot of shake-ups included real estate, which experienced 13 moves; health, which had 12; and financial services, which had 11 lateral moves.

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From the Austin Business Journal:

While many in economically dinged industries have attempted to improve performance and lower prices during a recession, the legal industry is doing so this time.

Seeking to hold and grow business amid one of the nation’s darkest economic recessions, law firms are making client-focused changes to their services, billing practices and communications, according to a white paper issued late last year by legal placement agency Robert Half Legal.

The white paper, “Future Law Office: Delivering Value-Added Legal Services in Challenging Times,” says law firms “are fortifying active practice areas, focusing on strengthening their relationships with existing clients and increasing marketing outreach to new prospects.”

In the report, Larry Bodine, a business development adviser based in Glen Ellyn, Ill., and editor of Larry Bodine LawMarketing Blog, said the top priority in the current economy “is to keep the clients you’ve got. Customer service is the way to do it.”

Chief among such efforts, the report says, have been alternative billing that help clients predetermine legal budgets.

For in-house legal departments that hire outside firms when necessary, there has been an increased emphasis on cost containment and predictability that firms have responded to, said Bridgette Roman, general counsel at Dublin, Ohio-based Checksmart Financial Co.

“In the last 12 to 18 months we’ve instituted project-based billing and put out requests for proposals,” Roman said. Those strategies have helped contain costs and have been accepted by firms, she said.

Meanwhile, Roman said she has been scrutinizing periodic budget reviews more closely, and the firms she works with have come to expect that scrutiny.

Employing creative solutions to reduce costs has been one of the strategies used by Columbus, Ohio-based firm Porter Wright Morris & Arthur LLP, said Robert “Buzz” Trafford, the firm’s managing partner.

For example, Trafford said when Porter Wright is working on litigation that can require reviewing of thousands of documents, it will employ outside companies to do so. By outsourcing this relatively mundane task, a client pays less than if a Porter Wright lawyer conducted the review.

Other money-saving solutions are possible by using technology, Roman said.  In one case, Checksmart worked with a law firm to establish an Extranet system that created a central point of access for all case documents, accessible only by Checksmart and the law firm. It enabled Roman to closely monitor the case’s progress and provide outside counsel with documents they might otherwise need to reproduce.

While firms have improved client relations during the recession, corporate counsel surveyed by Robert Half said more effective communication, rather than just more communication, is an area where there could be greater refinement.

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from the Chicago Tribune:

Fixed-fee arrangements between lawyers and their corporate clients are gaining popularity, but are they economical for both sides?

For Lake Forest-based Brunswick Corp., its flat-fee contract for national litigation has exceeded expectations, said Kristin Coleman, general counsel. The maker of boats, billiard tables, and fitness and bowling equipment cut the amount it spent on outside lawyers working on litigation by 30 percent in 2009.

On the flip side, David Rammelt, a partner at K&L Gates, said the volume of work he did for Brunswick last year quadrupled, a positive outcome in a year that was slow for many lawyers. But Rammelt had to switch law firms to make the arrangement more profitable.

Coleman and Rammelt's flat-fee contract is in its second year and includes product-liability and breach-of-warranty cases. Their experience provides some lessons to other lawyers and companies considering alternatives to the industry standard of billing clients at an hourly rate.

They debunked several myths regarding fixed-fee arrangements, including the notion that lawyers working under fixed fees will not work as hard."The lawyers who provided the service did a great job," Coleman said. "There were some skeptics among my team."

The contract also forced Rammelt and his team of five lawyers to be efficient, an anomaly to the law-firm business model that incentivizes attorneys to rack up hours.

"Brunswick said, 'This is your all-in pot of money. You be efficient now,'" Rammelt said.

Cost savings also came via technology. Kelley Drye built Web-based case management software for Brunswick. The database contained every document for every case Rammelt's team worked on, eliminating the need to ship documents overnight. Brunswick lawyers could access the system at any time, eliminating the need for quarterly status reports from Rammelt. When Rammelt left for K&L Gates, the firm bought the software from Kelley Drye.

On the downside, using metrics based on the traditional hourly-fee model, Rammelt's realization rate — the rate of collection versus hours billed — is not as high as he would like. He and his team still keep track of the time they spend on Brunswick matters to have a benchmark to compare to the fixed-fee contract.

The two sides tweaked the contract in its second year to provide some protections for the law firm. For example, if a case hits a ceiling on fees then it gets removed from the fixed-fee program and gets billed by the hour.

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Art Block, the general counsel top in-house lawyer at Comcast Corp., froze its legal spending in 2009 after years of annual law-firm increases of 5 percent or more. Block says the freeze was partly in response to the recession, but also was triggered by the belief that hourly rates, particularly for first-year associates, had gotten out of hand, according to Philly.com.

Now the company increasingly wants its outside lawyers to jettison the traditional hourly billing rate. It is pressing for flat fees or other alternative-billing arrangements that emphasize efficiency and expose firms to financial risk if matters drag on too long or conclude unsuccessfully.

Comcast, based in Philadelphia, has approved a 2.5 percent increase in hourly rates for 2010. But the law firm marketing message to law firms is unmistakable: The balance of power has shifted, and outside lawyers will have to scramble to keep the company's business.

"The objective is to get a sense that the law firm is managing its own business more efficiently for our mutual benefit so they have some skin in the game," Block said. "We are not looking to be punitive; we are looking to be more businesslike."

A decision by Comcast managers to push back against rate increases or to accelerate changes in the way law firms are compensated has ripple effects far beyond Comcast, the nation's largest cable company, with 24 million customers.

One reason is the size of Comcast's legal budget, typically between $75 million and $100 million a year but likely more than that in 2010 as the company moves to complete its acquisition of a controlling interest in NBC Universal Inc., a $30 billion transaction announced Dec. 3.

The law firms themselves say the push for greater efficiency and alternative-billing arrangements can work for both sides, provided there is a good working relationship.

"You have to have a good strong relationship for these things to be effective, and I think they can be very effective," said Robert Heim, chairman of the litigation department at Dechert L.L.P. who represents Comcast on some matters.

Comcast has 75 lawyers on staff. It will have many more once it completes its transaction with NBCU, which has 250 in-house lawyers.

The bulk of Comcast's legal work is done by about 25 firms; it is represented by seven in Philadelphia, including Morgan, Lewis & Bockius L.L.P., Dechert, Cozen O'Connor and Davis, Polk & Wardwell, and Freshfields of London.

Though the size and complexity of the NBCU deal likely means that Comcast's legal budget this year will grow significantly, the overall trend is toward clamping down on costs, Block said.

"We want to feel that the firms have a commitment to be businesslike and won't rely on asking us for annual increases without regard to facts and circumstances," he said. "We can be creative. We want them to be creative."

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Far and away the biggest development of the last 12 months is the prevalence of alternative fees.  Dan Currell, Senior Member of the General Counsel Roundtable, told me that law firms that offer alternate fees are "eating the other law firms' lunch."  Roughly half of all clients are using alternative fees, according to the new Fulbright & Jaworski survey of in-house lawyers (see the chart) -- and see the article  http://bit.ly/44wrJD

I went to the Association of Corporate Counsel meeting in October, and GCs are talking about buying "litigation by the bucket" and seeking "concierge services" from law firms. For an article on the topic, see http://bit.ly/238jPV

The National Law Journal recently published a list of the "Hot Mid-Sized Law Firms" and Alternative Fees Put Tucker Ellis & West on Hot List 

The most popular alternative fee arrangements are, in order:
 

1. Contingency fees
2. Fixed or flat fees
3. Discounted hourly billing
4. Blended hourly rates
5. Hybrid Fees
6. Retainer Agreement
7. Capped fees
8. Capped hourly rates
9. Task-based fees
10. Annual fixed fee

(This is according to the Incisive legal Intelligence 2009 Bill Rates and Practices Survey.)

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The recession in the legal profession appears to have bottomed out, according to a new Hildebrandt Peer Monitor Report for the second quarter of 2009.

The bright spot is that demand growth, defined as growth in billable hours, for bankruptcy is up 22% compared to a year ago. Business bankruptcy filings increased from 14,319 nationwide in Q1 2009 to 16,014 in Q2, according to the American Bankruptcy Institute.

However, hours billed to litigation, patents, IP litigation, labor & employment, M&A, tax, corporate and real estate are all down.

"However, litigation appeared to be strengthening, especially for more premium matters. If this trend continues into the second half of the year, it will help mitigate – though not completely make up for – the shortfall in other practice areas,” the report states.  “Demand growth, should show signs of recovery in the second half of the year if the general economy continues to improve. However, any such improvement, if it occurs, will be modest at best.”

For more on this story, visit the LawMarketing Portal at www.lawmarketing.com

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According to Susan Van Dyke, American lawyers and firms are now undeniably called upon to introduce more creative approaches to billing by in-house legal departments. A few firms have jumped aboard and, further yet, some will be paid bonuses on positive outcomes, rewarding the creative and efficient.

"After many years of mumbling by lawyers and clients alike, one must wonder: will we look beyond the billable hour in light of the current economic bellyaching and slashed budgets of virtually every U.S. corporate legal department and many Canadian clients?" Van Dyke asks.

Ironically, the biggest push for alternatives must come from clients who  want increased value for fees,  although clients want their lawyers to initiate this conversation. But law firms require incentive to offer creative solutions that place them at greater risk.

Visit the LawMarketing Portal to read her description of billing models such as blended rates, capped fees, contingency fees, fixed fees, retainers and success fees.

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More economic indicators for the legal profession show that the recession is ending and that a recovery is beginning.

Law firm marketing professionals point to several positive indicators:

· Fed Views Recession as Near an End. On August 12, 2009, the Federal Reserve said that the recession is ending and that it would take a step back toward normal policy.

· Unemployment rate does NOT increase.  Despite widespread predictions that the unemployment rate would crest over 10%, it held steady at 9.4% as of August 7, according to the federal government.

· U.S. jobless claims fall sharply. The number of U.S. workers submitting new claims for jobless benefits fell sharply in early August, fanning hopes the fragile labor market was on the mend and that the broader economy was stabilizing. Initial claims for state unemployment insurance fell 38,000 to a seasonally adjusted 550,000 in the week ended August 1, the Labor Department said on Thursday, beating market expectations for a drop to 580,000.

· Housing prices increase. Houses have finally become cheap enough to lure buyers, according to a new report released on July 28. That, in turn, is stabilizing prices, generating hope that the real estate market is beginning to recover. For the first time since early 2007, a composite index of 20 major cities was virtually flat, instead of down. “We’ve found the bottom,” Mark Fleming, chief economist for First American CoreLogic, told the New York Times.

· Stock Markets are Up. The Dow Jones Industrial has closed above 9,000 by the end of July, its highest point for 2009. The broader Standard & Poor's index is up 11% for the year.

· Pent up consumer demand. The cash-for-clunkers program brought 120,000 new-car buyers into car dealerships from July 1 to early August. According to the New York Times, this reveals pent-up consumer demand, which is a sign of economic recovery.

· 3% growth in 2010. An industry forecast by First Research Inc. (a service of Hoover's Inc. online database) shows that growth in the legal sector stabilizes in 2009 and turns into 3% growth in 2010.  For the full story see the LawMarketing Portal at www.lawmarketing.com.

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