My family recently hosted a delightful young woman from France as part of a high school foreign exchange program. One of our dinners included a plate of sliced fresh avocados, one of our family’s favorite “superfoods.” As we discussed the French word for various items on the table, I discovered that ” avocat ” means “ lawyer” — which I knew from dealings with French counsel over the years — and, of all things, “avocado.”
The dinner conversation reminded me of one of the earliest lessons I learned as a junior associate working on corporate deals — that the definitions of terms in a purchase, loan, securitization, merger or other complex business agreement are critical and often heavily negotiated. Counsel must take great care to ensure that the definitions do not introduce ambiguities or otherwise undo negotiated deal points covered elsewhere in the document. And in ways that only lawyers can love, the definitions can be presented in many styles — at the beginning of the document or the end, in bold or italics, numbered or alphabetical — almost as many choices as there are recipes for guacamole.
So why do those focused on innovation in the corporate legal services industry — including in-house leaders, BigLaw partners, consultants and the legal trade press — customarily define “alternative fee arrangements” as “alternatives to the billable hour”? Billing based on the time spent by lawyers is a relatively recent phenomenon in the long history of the legal profession.
In a time when general counsel are becoming more sophisticated about value and predictability in their outside counsel expenses, shouldn’t hourly billing be the “alternative” and nonhourly billing — linked to value and risk — be the norm? Do we have our defined terms backward?
If my premise has merit, what should providers and consumers of legal services for the corporate market do about it? Here are a few suggestions:
To my BigLaw friends: Have you asked your most important clients — or new clients — how they define the value of legal services on the projects you undertake for them? Which risks are they most concerned about mitigating — and which risks are they willing to live with? That is, what do clients want in their guacamole — spicy, mild or somewhere in between? Even if those discussions don’t lead to new billing arrangements, counsel will learn a lot about how to better serve her clients.
If a lawyer is willing to step even further “outside the bowl,” consider bringing to a client — preferably a chief legal office or general counsel with whom there is an especially collaborative relationship — a sealed envelope with the bill for a few recent projects. This works best if you deliver your bills in person like one of the senior lawyers with whom I used to deal; it’s also a great business development opportunity. Ask the CLO or GC to prepare her own sealed envelope with a proposed fee for each matter, based on the value created and risks mitigated by the project. Be sure to ask her to include a sentence describing how she calculated that number. Then open both envelopes together and see how they compare. Be prepared for a vigorous discussion on your respective philosophies about legal bills.
Rather than charging by the minute for every iota of activity on a project, consider charging a “mobilization fee” for conflicts checks, assembling the team (inside and outside the firm), preliminary research regarding other parties and their counsel, and briefing the team. Then break the project down into discrete tasks — some may best be left to hourly billing, but many will be suited to other approaches — fixed fee, not to exceed, benefit sharing and the like. Be ready to experiment with these structures; take the seeds from the avocadoes and plant them to grow next quarter’s, or next year’s, crop. Be careful not to cut yourself when removing the avocado seed — counsel must understand the client’s value and risk priorities before proceeding.
In all likelihood counsel has sold his services, in part, based on the fact that he does a lot of this kind of work, whatever it may be. In that case, mine historical billing data — commercially available software tools can help — and see how much things really cost when you take them on. Then use that information to fertilize your next crop.
Also consider charging a lump sum for overtime, after-hours meals, and transportation and routine travel. Taking those items out of the itemized section of the bill can make a client’s life easier and build trust (or avoid opportunities for mistrust). In-housers don’t want to audit outside counsel’s bills for inappropriate in-room movies, dry cleaning and the like — they really dislike having to deal with messy avocado peels.
To my in-house friends: Are you ready for discussions such as those outlined above? If, like me, you trained in BigLaw, talk with your colleagues in other departments about how they approach paying for complex professional services such as accounting, software development, etc. Learn from their wins, and the things they would do differently.
In-housers should brief C-suite colleagues and, if appropriate, the board of directors, on what they are doing and on why and how innovations in financial relationships with outside law firms are consistent with the company’s overall culture and philosophies on value and risk.
Finally, reward firms willing to be creative and collaborative with their approaches to legal fees by giving them the most important projects. An in-house lawyer can grow his list of structures that meet his needs and propagate them across current and future law firm relationships.
To get started, keep the humble avocado in mind. While many Texans may think of it primarily as the key ingredient for guacamole, in other parts of the world it’s used in milkshakes, blended into sweetened juice drinks, mashed with sugar and lime, or eaten as a dessert or snack. Once the peel is set aside (hourly billing as the “standard” financial metric), the seed can be planted in ground fertilized with what has been learned from true collaboration on these issues.
As someone who has sampled Tex-Mex and its variations across the country and the world, I know there are a lot of great guacamole recipes out there.