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How to Effectively and Efficiently Integrate Marketing Your Alternative Fee Arrangements with Your Other Marketing Activities


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Alternative Fee Arrangements and Marketing 101

 

 Jerome Kowalski

Kowalski & Associates

 September, 2010

Recently, Patrick J. McKenna a well respected Canadian based law firm consultant, lamented on the fact that despite the fact that so many corporate clients seem to be relentlessly demanding Alternative fee Arrangements,  many of his law firm clients were experiencing less than resounding results when AFA’s when approaching prospective new clients with AFA proposals.  While our experiences have not mirrored those described by Patrick, his comments did provide me with some food for thought.

Our clients have repeatedly advised us that they are seeing revenue erosion from existing clients, who are either diverting matters to other firms with more attractive billing models or some clients were simply electing not to proceed with either litigations or transactions relying on outside counsel, as a cost saving matter.  A significant number of these “diverted matters” wound up being handled by different law firms, often smaller, but nonetheless many of the firms which were actually engaged for these matters were law firms with whom the client already had some relationship, albeit in previously limited roles.

These facts and Patrick’s observations set me to thinking about some marketing basics:  We know that the cost of attracting new clients is five times higher than getting business from existing clients.  Given the new paradigm within which we find ourselves operating, which of course, includes both AFA’s and the universal need by law firms to limit expenses wherever possible, while at the same time, seeking to grow a firm’s revenue base, it seems quite obvious that marketing investments would certainly experience a higher return on investments by increased focus on existing clients.

Accordingly, a return to some basis essentials and maxims of marketing are, in my view appropriate:

Communications. Regular substantive communications are essential. This does not mean the occasional lunch or the annual pilgrimage by management to the client.  Nor does mere reliance on Client Alerts or Bulletins , while critical, suffice.

These communications should serve a number of purposes:

  •  For our purpose here, your existing clients should be made aware of various AFA’s which your firm is offering. You may think you are rocking the boat when you propose an AFA to a client which seems satisfied with the traditional hourly billing model, but you surely will be extremely disappointed when you see a client leave your mooring and engage another firm which offered an attractive AFA.  And, you certainly don’t want to be at a competitive and economic disadvantage by chasing the client, already boarding another boat, by shouting from dockside, “Wait! We can beat that price!”
  • Gain market intelligence.  Find out what deals and services the competition is offering.  Determine your client’s receptivity to these other options (although do not feel your client’s receptivity is dispositive) and when you return home, carefully assess and evaluate the information acquired.
  • Recall that the ACC Value Index consistently reports that law firms score lowest in the areas of communications, responsiveness and budgeting skills.  Raise your score and your clients’ appreciation by using these regular communications to discuss the progress of particular matters and provide timely reports of the progress and budgets for existing matters.
  • Make sure you understand your clients goals.
  • Discuss new practice areas and new capabilities of your firm.  Don’t rely on formal engraved, glossy announcements or emailed press releases. The first two get tossed in to the trash bin unopened and the latter instinctively sends the reader to the “delete” button.
  • Also discuss with clients opportunities your firm is considering, whether they be new practice areas or new offices. Seek their counsel.  Invite your clients to make some level of at least emotional investment in your firm’s growth.  And, heed and take into account their advice and recommendations when making the final decisions. Share the information with your partners.
  • Most well managed law firms annually conduct annual client satisfaction surveys.  Yes, these are important, but more regular discussions on the issues are far more productive.
  • Don’t leave these areas of communication to the annual pilgrimage of a managing partner to a client.  Rather, these dialogues need to be part of regular open and objective discourse; the whoop and wharf of your relationship.
  • Inquire about their own growth within their own respective companies. Feed this information in to your data base and work to make a contribution to their own personal advancement within the company by giving them the opportunities to shine in the eyes of their superiors or boards of directors. Let the individual take credit for your contribution.
  • Listen.   Don’t ignore a contribution from your client to a dialogue just so that you can “reload” and recite an anecdote relevant to a prior comment. Just like in court, listen to the comment or question posed and respond directly and candidly. A response of “I don’t know but I will get back to you on that” is far better than a fabrication, a guess or a misstatement.
  • Do not make billing and payment for pending matters a staple of these meetings.  A more productive staple would be an Ed Koch inquiry:  “How am I doing.”
  • Be Prepared.  Before embarking on your visit to the client, review the matters you are handling for the client. Familiarize yourself with the status of the matters and, if necessary, speak to the lawyers on the front lines of these cases. Be a critical analyst: Ask your colleagues the hard questions.  Identify any potential issue in the progress of the matter, wearing the spectacles of a client who will identify either problems or any potential issue with the progress of the matter.  If you are handling the matter give serious thought as to a plan you will embark upon to resolve the issue.  If a colleague is responsible for the matter, ask what is or should be done to resolve the issue which might raise the client’s concerns.  When you sit across the table from the client, be prepared to answer, in an informed way that the issue has already been identified and a course of action is being pursued.  If there are various options which ethically or tactically require the client to select from, take the initiative: Advise the client of the issue (demonstrating that you are “on top” of the matters being handled by the firm for the client) describe the options, be prepared to respond on an informed basis to the client’s query as to your recommendation. ­ do not, if at all possible, put the client in a situation in which he is compelled to make a quick decision. Afford the client to weigh the options and discuss the matter further with you or your colleagues.

Google the client. Be informed of the latest developments of the client.  Take special notice of matters     other  firms are handling for the client and ask the client how these matters are proceeding.  Do not criticize or disparage he other firm.  But at an opportune time, even if it is subsequent to the meeting, let the client know of your firm’s expertise in the substantive area of the law. Identify the lawyers who have this expertise and notable matters they have handled in this matter. Discuss your firm’s willingness to handle any subsequent matter in the same area on an AFA basis.

If the client is publicly traded, review recent filings.

  •  Accept responsibility.  If a client expresses dissatisfaction for any of the work you or your colleagues have done, do not seek to excuse it.  Express personal remorse, take ownership of the problem and express your intention to remedy the issue and then follow up, both within your firm and with your client.

Ditch the email. When you are having these communications with your client, do not believe for an instant that you are doing your job by merely sending them an email. You have a telephone; use it, but only as a second resort.  Nothing beats or even matches a face to face meeting (in the Middle East, these are called “Four Eyes Meetings”). Lunches and dinners are swell, but frankly, clients more sincerely your visiting them at their offices and your thereby communicating an interest in what they and their colleagues are doing.  These visits are most appreciated when the client’s office or plant is distantly removed from your office. While at the client’s offices or plants, you should make it a point of pressing the flesh of other company executives with whom you have only had a telephone or email relationship. The office and plant visit also gives you the opportunity to meet other executives who might provide additional points of productive intersection with the client.  Too often clients feel that a mere lunch or dinner is distracting.  The office or plant visit might well be punctuated by a meal shared.  Woody Allen was right:  The key to success is showing up.

Network your clients. As you listen to what your clients are doing, keep your own contacts lists rumbling through your mind. Be ready to suggest the name of a different client, an acquaintance or a partner involved in a similar or complementary project and bring them together. And, do the reverse at the same time: Use the information acquired, with your client’s permission, of course, to reach out to that other special somebody in your contact list.  Amass business cards at conferences and acquire an understanding of the work these folks do and put that information in your contacts list. Work towards developing a relationship as both a master networker and somebody who knows everybody.

The utility of having small, regular and very informal get together in your office cannot be overstated.  Keep the fare and attendance relatively light. Make them regular; once a week, once a month or twice a month.  Invite some partners. Subjects you and your partners should recite mantra-like, is “yes we do that; we just finished a succesful project on that; we have some very attractive billing arrangements for these kinds of projects;  we have some partners with a great deal of experience in that field; and we we have some clients we’d like you to meet who may be helpful to you.”  Use these events to stitch together clients and potential clients with each other as well as with other partners with potential synergies. Strive for a mystique in which people say to each other “You know, Bill has a small networking cocktail party the first Thursday of each month at his office; there are folks you might want to meet who could help you with your project. Let me see if I can get you an invitation.”

For those who are a bit more technology savvy, or have access, within their firms or through other resources, an interesting additional new model is the creation of a web portal through which you and your law firm  create a web site in which there is an open dialogue by and among clients and lawyers through which a virtual on line network which your clients can access and use for business networking and client based collaboration with some input from you and your clients.  Thus, for a simple example, a client or potential client would register for access to the site (at no fee) and might pose a simple question such as “We are thinking of doing a project in Singapore, has anybody done any work there and what have your experiences been? ” Clients could respond and where appropriate, you and your colleagues could chime in with your own experiences in that arena.  Paul Lippe, CEO of www.legalonramp.com, probably the best independent collaborative lawyer/client collaborative network in existence, recently delivered a brief presentation of this model at this year’s ABA convention.  It’s seven minutes long and worth a viewing, as is a stroll through legalonramp.com.  Paul’s presentation is at http://www.legalrebels.com/posts/maven_your_way_to_successcollaboration_is_the_new_normal/

          Show them that you care (http://www.youtube.com/watch?v=ycbgHM1mI0k).  Keep their birthdays on your calendar and extend wishes. Keep information about spouses, children and other such information in the notes section of your contact list. Follow industry or other media news about the client or his or her company.  Extend a greeting or commendation where appropriate. Ask about children by name.

 Get help from your marketing professionals.  Your firm’s marketing directors and outside marketing consultants must be your partners in these exercises. Discuss plans for each of these activities with your marketing professionals. Have them conduct some market research for the client with whom you are meeting so that you have an understanding of any new trends in your client’s industry as well as information about any relevant press releases the client may have issued. Show up being prepared.  Have your market professionals put together packets of take-aways that are relevant and germane. Ask your marketing professional to suggest other services your firm can offer the client. Be very selective about delivering these take-aways. Deliver too many and the contents will likely find their way quickly in to the trash bin unopened and unread; maybe the folders will be retained for client’s kids as neat receptacles to keep their homework assignments. Upon your return, debrief your marketing professional.  You can never be too prepared for these meetings.

        Follow up, Follow up. Success in marketing ultimately requires only adherence to three rules:  (1) Follow up; (2) Follow up and (3) follow up.

Never leave home without it. Bring along a copy of this, review it before the meeting and then after the meeting, use it as a checklist to make you have covered everything. (And if you find there is something I left out, call me).

© Jerome Kowalski September, 2010; All Rights Reserved.

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Alternative Fee Arrangements: Lesson II of the Primer


Alternative Fee Arrangements: The First Steps

                                                                             Jerome Kowalski

                                                                             Kowalski & Associates

                                                                             August, 2010

                                                                         

               So after all of the hype concerning Alternative Fee Arrangements, you are reluctantly getting ready to drink the Kool-Aid and are preparing to propose an AFA to a client.  You have read the basis premises of AFA’s, and you have been following the public discussions.  Based on all of the propaganda you have been reading, you know that clients seem to love them and law firms can generate significant profits from an AFA.  Apparently, all you need to do is make an educated guess as to what the fees on a project will be, provide a discount and then slap on a sizeable success contingent fee and everybody walks away happy, assuming, of course, a successful result.  Not quite.

           We first must draw from decades of experience acquired in other professions which routinely do not perform services on an hourly fee basis, but rather routinely perform services on a project basis.  These include, among many others, building contractors, IT engineers and consulting firms.

             Before a firm can “slap on a contingency fee,” law firms must first undertake a far more detailed risk assessment. The need for this risk assessment cannot be overemphasized.  In scoping out an analogous consulting fixed fee construction project, IT project or indeed, any engineering project, the basic assumption is that the desired result is always capable of being accomplished, the principal question being the amount of engineering and design effort that will be required to achieve the result.

               In an adversary system with opposing sides pulling in opposite directions seeking opposing results, the most significant part of the process is on the intake side and the capability to undertake a careful risk analysis, with these added factors in mind. In the legal world, the question is not simply an informed assessment of how much professional effort must be expended to achieve the desired result, but given existing judicial precedents, often not completely settled, statutes and regulations, as well as an independent assessment of the adversary, it’s carefully analyzed business objectives and its prior conduct in similar situations. While some of this may require some degree of soothsaying in addition to ordinary prudent assessments of risk, as in any other definable project, the analysis is nonetheless crucial. Mitigating against the risk can only be achieved by acute risk assessment and more detailed project management than that which is required of other service providers.  An engineering firm is constrained only by the laws of physics; a building contractor may only be constrained by climate, labor or materials issues.  The lawyer and the legal project manager need to add to his or her own calculus not only natural elements, but also an adversary pulling in an opposite direction.

                  The legal professional also must be focused on undoing a century or more of “time and materials” billing culture, in which the carrot was given to those professionals who spent a great deal of time on a project and a stick whacked against the head (or some other appendage) of the professional who did not dedicate sufficient hours to a project, despite the quality of the result achieved.  In other callings, the natural orders of things were very much the opposite.  Given the dearth of native bred legal project managers, LPM’s must first learn to appreciate and cope with the Pavlovian behavior in which lawyers have long been trained. Professionals who will actually be involved in the project must provide written estimates as to their estimates of how much time they expect to devotee to designated tasks with a clear understanding that they will be accountable for material variances in these projections.  Some variances may indeed be caused by exogenous factors, not within a lawyer’s control.  However, for the efficiency and profitability of the engagement, it is incumbent on the lawyer to keep the LPM timely informed of these occurrences, while the LPM must be constantly vigilant in monitoring work flow, process and adherence to timelines.

                 Thus, in estimating the time necessary to complete a legal engagement, prior similar legal engagements by the law firm must be analyzed, but filtered through a new sieve. That sieve must filter out the lawyers who happily logged many hours and allow only those who have the greatest capacity to deliver a quality product with the highest degree of efficiency to pass through the sieve’s filter and base cost estimates on the history of such lawyers’ performance.

                       Regularly scheduled meetings among the client the client relations manager and the LPM regarding the progress of the matter, its compliance with the initial budget and foreseeable out of scope work, discussed below, must be held and the results of the meetings must be memorialized and circulated to all of the involved personnel.  As we pointed out in our initial primer on AFA’s the one area in which corporate counsel consistently found law firms lacking was in budgeting skills and keeping clients informed accurately on budgeting matters.

                         Rare, if not completely non-existent, is the law firm who upon the conclusion of a legal matter, conducted a post hoc review to determine how the project could have been completed more efficiently. As AFA’s gain greater dominance, such post hoc reviews will necessarily become quite essential and routine. Every de rigueur closing party must be followed by a thorough Monday morning quarterbacking session in which, among other things, initial estimates must be compared against actual performance and the efficiency of the professionals involved must be carefully analyzed. The results of these post-hoc reviews must be archived for future reference by those involved proposing future AFA’s, in risk assessment, LPM’s and firm management.  Failure to institutionalize such post-mortems and archive the results would simply be folly.

                        More to the point, in developing an AFA, containing components of hourly billing and success contingency rewards, as I mentioned earlier, the risk assessment and early intake process are critical. As with an analogous engineering project, following the intake analysis and risk analysis, the engagement arrangements must define, to the fullest extent possible, the “scope of the engagement.” Indeed, the organized resistance by litigators to undertaking any AFA will likely lessen once they understand that the inherent risks and uncertainties in litigation can be dealt with through a carefully negotiated and carefully crafted “scope of engagement” retention agreement.

                Items included in the scope of the engagement portion of the agreement, which should be a joint exercise of client and counsel, include those that are reasonably foreseeable. As the project continues, from time to time, additional work “out of scope” might emerge. Simple examples make the point: In a litigated context, it may develop that a parallel litigation might also be required to be commenced or defended. Early thought should be given as to whether a complex motion for summary judgment should fall within or outside the initial scope of the engagement.  An obvious alternative is to include such a possible motion as an option which the client may elect to pursue, with the costs generally predetermined.  The same might apply to a trial itself, since as we all know, fewer than 3% of all litigated matters result in trial.  And, naturally, whether appellate work would fall within the scope of engagement, available as an option or subject to “a change in scope” fee adjustment would similarly be addressed when the initial AFA engagement letter is prepared.  

                        In an acquisition engagement, an intervening litigation might be necessarily brought or defended; a secondary acquisition might also be considered. All of this work may very well be “out of scope,” but must be addressed. The engagement letter should, in addition to carefully defining the scope of the engagement, also define how the law firm and the client will collaboratively arrive at a decision as to how such out of scope should be addressed as they arrive and a mechanism by which fee arrangements for such out of scope are to be handled.

                     Careful attention to detail in jointly preparing the finer points of the scope of the engagement and then the deployment of a team that includes the LPM, the client relations partner and the client must communicate regularly to follow the course of the engagement and identify early on the emergence of potential “out of scope” matters so that the manner in which such out of scope work is to be handled, if at all or if necessary and the changes, if appropriate or necessary, in the fee schedule requires adjustment. 

         A provision frequently found in fixed fee service contracts and in AFA agrreements is a clause allowing for the service provider to make a request for an equitable adjustment (like so much in our worlds, this provision has risen to the level of having its own acronym — “RFA”), under which the law firm reserves the entitlement to ask the client during the engagement for an upward adjustment in the billing arrangement because of completely unforeseen intervening event, such as, for example, a request for a stay in a litigated matter arising from events not foreseeable, or in a transactional matter, a third party counter-offer.  While such clauses are far from rare in fixed fee service contracts or even in AFA’s, careful thought must be given by the law firm in requesting an RFA.   Some clients are sufficiently astute to suggest that they have a reciprocal entitlement to an RFA, in the event that the matter is brought to a successful conclusion well in advance of original anticipations, and a concomitant fee reduction.  Further, invoking an RFA request may invite an unnecessarily distasteful discussion as to why  counsel failed to apprehend the foreseeability of the event.  Rather, if the initial AFA agreement is sufficiently well crafted and the details of the “scope of the engagement” are detailed and well articulated, an RFA clause my well be redundant.

         I must emphasize again that lawyers must bear in mind the principal objectives of the client:  (a) the efficient delivery of a quality work product, delivered at a fair price; (b) predictability of costs; and (c) a willingness by outside counsel to assume some level of risk. 

                     Most service providers who routinely work on fixed fee billing, such as that nice contractor who added the beautiful den to your home, will tell you that they relish “out of scope” work (“you know, what would really make this den really smashing would be a nice deck outside with sliding doors leading to the den”) since that is almost always the most profitable work that they can do.  It is unlikely you will bring in another contractor to do the work, while he is on site and clients tend not to be as cost focused with add-ons.

                  But, by the same token, as you discuss “out of scope” work with a client, you will likely be sitting across the table from a corporate executive, sitting between the vise created by the adjacent purchasing agent and a corporate lawyer who are both under separate pressure to contain legal fees, the same dynamics will not apply.

                      In all events, at the end of the day, if the appropriate steps are taken and qualified professionals discharge their assignments, everybody will indeed walk away happy: The client will appreciate the fact that its lawyers are prepared to share some of the risk; partners at the law firm will be comforted by the fact that the risk is being carefully monitored and the law firm will be financially well rewarded.

© Jerome Kowalski, August, 2010; All Rights Reserved.

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