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Lawyers have trouble talking about money. That's a gross generalization, but it's one I've come to after spending the last month listening to partners, in-house counsel, and the latest breed of expert who is helping firms, the pricing specialist. Some of this is personal: Embarrassment, anxiety, introversion, and habit all play their parts. Together they help explain why the hourly rate thrives and why so many arguments about legal costs are beside the point. It's easier to quibble about marginalia—why is there a third second-year on this file—than to address the heart of a matter: What's this worth to me, and can we afford to buy it or produce it for that price?
I know this is pretty rich coming from one of the purveyors of annual surveys that announce average profits per partner. But here I'm not addressing the willingness of lawyers to discuss their own finances; there's no shortage of interest in addressing that subject. Rather, my concern is with the failure of lawyers to talk about money in an unembarrassed, active manner with their clients. And I draw a distinction between a true discussion of price and the downward-facing-dog position of agreeing to every request for a discount or a write-down. That's not law firm management, it's managing a paper-cluttered souk.
Pricing discussions are taking place—breathes there a big-firm lawyer unaware of the cost pressures her clients and firm are facing? It's just that both sides too often poorly handle these talks. Pricing, to vary the adage, may be too important to be left to lawyers. In-house counsel can turn to procurement departments for guidance, or threaten to unleash them on recalcitrant firms. And law firms, eager to bring some consistency and sophistication to the table, are hiring pricing officers. They carry a variety of titles, but increasingly they have one principal job: to conduct what's becoming known as "the conversation" with clients about fees.
Toby Brown, now at Akin Gump Strauss Hauer & Feld, is one of the leading exemplars. By his back-of-the-envelope count, there are about 130 administrators at large firms now advising on pricing. Some have other jobs—chief financial officer or business development head. Some were brought on for other reasons: leading a project management or client service initiative. For Brown, this work revolves around trying to understand a client's goals, pressures, history, and ability to fully frame the task at hand. It's one thing if together they can "scope out" a project in detail and another if the variables are as long as a discovery demand. In the end, he says, he's trying to "design for this client," the one to whom he's talking.
He and many others are not currently relying on internal data to the extent they will in the future. Too much of what they have now, Brown says, wasn't captured "with the idea of getting at real costs." That will change at least in part because more information about actual billings, if not costs, is becoming more widely available from companies such as TyMetrix, Sky Analytics, and ALM's Legal Intelligence group.
This is all part of a developing process, one that may lead eventually to a healthy equilibrium, in the view of Colin Jasper, the Australian pricing specialist. For the last few years, Jasper has been working with firms and general counsel in the United States, including several household names. He's agnostic about billing structures—he sees a role for the hourly rate, the fixed fee, even the unit price. His vision is of a time in the not-too-distant future when firms and clients have the "skill to know when to use which structure." For him that means deciding who should carry the risk, whether both sides' objectives are aligned, and, perhaps most important, whether both sides believe they've been dealt with fairly.
The risk point is critical. In Jasper's analysis, the only professional services billing structure in which the client rather than the firm carries the bulk of the risk is the current default mode, the billable hour.
Pricing then isn't for the cowardly or the obsequious. "Lawyers," says Jasper, "have the responsibility to fight for what's fair for their firm or, if they're in-house, for their organization. They shouldn't begrudge the other side for playing that role. It's their responsibility." There's more: Lawyers "also have the responsibility to help the other side understand why the price is fair. They can play an active role in that." Or they can try to hide from pricing issues. Can they? Not forever.
This article originally appeared in The American Lawyer.
See also: "Reconnecting Law Firm Pricing to Cost, Profit, and Value," CorpCounsel, September 2012.
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