The law firm of the future

The recession hit big law firms particularly hard. This past year has seen extensive layoffs and firms closing their doors. The traditional structure based on exorbitant billing rates and over staffed matters just doesn’t work anymore. To examine the changes law firms are grappling with as they try to serve their clients better, Bisnow, publisher of business-focused e-newsletters, invited Michael Helfer, General Counsel at CitiGroup, to discuss the new legal landscape with the heads of three top US law firms: Eric Friedman, Executive Partner at Skadden; Bruce McLean, Chairman of Akin Gump and Tom Yanucci, Chairman of Kirkland & Ellis. Marc Fleischaker, Chairman of Arent Fox moderated the discussion. What emerged was the image of a law firm that was more nimble, creative and client service-focused.

THE VIEW FROM IN-HOUSE
As General Counsel at Citi, Michael Helfer worries that law firms cultivate an “eat what you kill” culture to the detriment of clients. In this sort of environment, where companies are clients of an attorney and not the firm, they don’t benefit from the full resources of the firm. The model also discourages law firms from turning down work that falls outside their areas of expertise. Here Helfer speaks to a long-standing approach at law firms that focuses on selling not serving.

Part of serving clients better is to be aware of changes at their companies. Though law firms have been hit hard by the recession, Helfer said they need to be sensitive to how the recession has impacted their clients. Citi went from 1,100 in-house lawyers just two years ago to 850 lawyers today. Many who were laid off had been with the company for 20 years. During the layoffs at Citi, there were no outside firms offering to help place those who were let go. In conditions like these, Helfer explained that it’s hard to believe that a $1,000/hour rate is the best a firm can do or that a fixed fee arrangement won’t work.

HOW LAW FIRMS ARE RESPONDING
Alternative fee arrangements
Alternative fees arrangements have been a hot topic recently as law firms respond to client pressure to reduce legal costs. Bruce McLean agreed that it is a trend and not a fad of a down market. All of the firms represented on the panel offer alternative fees arrangements to some extent. The percentage of revenue ranged from less than 5% at Skadden to Arent Fox’s 30%. Everyone agreed that for these arrangements to be successful, they need to be reviewed periodically by both sides. The key is to build trust by making sure the fee arrangement works well for client and law firm.

Staffing model
In addition to reevaluating billing arrangements, law firms have had to reconsider the value of their current staffing model. The recession has shown that the pyramid model with large classes of associates at the bottom and a smaller number of partners at the top is not working. As Helfer mentioned, clients don’t want to pay for training or keeping unoccupied lawyers busy. Outsourcing, contract lawyers and smaller associate classes were all solutions the panelists discussed. In fact, law firms are now seeing competition from temporary legal service providers.

To address its overcapacity of associates, Skadden developed their Sidebar Plus Program, explained Eric Friedman. Skadden, the largest employer of US-based attorneys, knew that there wasn’t enough business to support its associates but at the same time didn’t want to lose the time the firm had already invested in their training. The solution was the Sidebar Plus Program. Skadden invited associates to take furloughs that included 1/3 of their base salary, health care benefits and a stipend to help pay off law school debt. Less than 10% of associates accepted which amounted to an 8% reduction in firm attorneys. Friedman felt it was an “elegant, humane way to deal with overcapacity.”

To stay competitive, law firms have to make client needs a priority. Rather than reacting, law firms need to be proactive and creative, said Helfer. Beyond flexible fee arrangements and staffing solutions, he wants firms that can identify potential problems and come to him with solutions, not wait to be asked “What can I do for you?”