SCALL Institute, Riverside, California
February 27, 2015
Michael Roster, USC Gould School of Law mroster@stanfordalumni.org
| (626) 449-9797
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Law firm partner
Managing partner of Morrison & Foerster’s Los Angeles office; co-chair of Financial Services
Practice Group worldwide; member of Policy Committee; chair of Alternative Fee Committee
General counsel
Stanford University and Stanford Medical Center; Golden West Financial Corporation
Client
Chair of Association of Corporate Counsel, Stanford Alumni Association and two start-ups; vice chair of Silicon Valley Bank; director of MDRC, Federal Home Loan Bank of SF, California
Bankers Association; EVP over HR, accounting and tax
Also teaching upper division contracts course at USC law school, with goal that students be at a
2d- or 3d-year attorney level or higher by end of course
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• 35,000 in-house lawyers from over 10,000 companies
(and 85 countries)
• Value Challenge launched in September 2008
• Must be dialogue and change on both sides
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In the past ten years, costs to U.S. companies went up 20% . . . except legal costs, which went up 75%.
Legal expenditures constituted .4% of GDP in 1978 . . . and rose to 1.8% of GDP by 2003.
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http://www.acc.com/valuechallenge
1. Reduce client legal costs by 25%
2. Provide high predictability
3. Improve outcomes
While firms maintain and even enhance profitability.
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• 75% - Requested discounts
• 71% - Firms aren’t responding to client business needs
• 68% - Shifted to regional and boutique firms
• 61% - Dissatisfied with outside counsel rates
(Fortune 1000 GC’s)
• 49% - Shifted law firm work to lower priced firms
• 47% - Moved more work in-house
• 41% - Using alternative fee arrangements
• 36% - Reduced total amount of work sent to outside counsel
Sources: Consero Group 2013 Spring GC Survey; 2012 Altman Weil CLO survey and Corporate Counsel reports; December 24, 2012
National Law Journal; 2011 ACC CLO survey; other
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• Only 31.4% recommend primary law firm
(down from 35.9% in 2012, 42.3% in 2011)
• Clients give the following reasons
(actual quotes):
1.
Secondary law firms now provide substantially better client service than my primary law firm.
2.
Primary firms do exactly what is asked—nothing more.
3.
Primary law firms are married to their own ways of doing things and won’t change.
4.
My law firm used to be much more flexible….
5.
I am trying to change my approach to managing the legal department; my primary law firm does not seem as excited as
I am in getting the changes done.
Source: BTI http://www.btibuzz.com/buzz/2013/6/25/after-5-year-upward-march-client-satisfactionplummets.html
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Increasing numbers of GC’s are saying:
• 15% of legal spend is totally non-price sensitive
• Remaining 85% turns heavily/exclusively on price
Seldom based on mega firms
(unless a truly multinational matter)
Third-party vendors are providing data:
• Hourly rates by region, matter, etc.
• Costs-per-matter by type and geography
• Efficiency ratings for firms & individual attorneys
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• Clients are unhappy
• Realization rates are falling
(92%, 82%, upper 70%)
• Questionable numbers
• Transition away from hours
• Law firm failures
• Mergers as disguised liquidations
• Spin offs from mega-firms
• New competitors
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• Increasing debt
• Reduced hiring by law firms and others
• Over supply of lawyers
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• Decline in applications
• Decline in quality of applicants
• Economic squeeze
• Transfers and LLMs
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• New entities
(Axiom, Legal Zoom, former Clearspire)
• Multi-disciplinary practices
(Empire, accounting firms)
• Alternative business structures
(UK, Australia – private investors, multiple disciplines, multiple services)
• Unbundling of services
(e-discovery, etc.)
• Metrics
(Ty-Metrics, Sky Analytics, etc.)
• Knowledge management
(PLC, Lexis Nexis Practice Advisor,
Google; your future)
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• Concerns from GCs and law firm leaders
– Internal
(employee rights, use of time, litigation, e-discovery)
– External
(representing the company/firm, inadvertent disclosure, government use, hacking)
• Ongoing benefits
– Alumni connections
– Continuing education
• Opportunities
– Solo and small firm practitioners
– Lawyer and law firm consortiums
– Client networks
– Visibility
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• Industries and professions
– Automobile
– Airline
– Medical
– Media
– Others you know and represent
• Common hurdles
– Existing methodologies
– Legacy support systems
– Income expectations
– Culture
Curious phenomenon: Those most successful under the old business model don’t just risk losing market share . . . they often fail (Oldsmobile, Pontiac, Pan
Am, Eastern, TWA, Borders, Alta Vista, Kodak, BlackBerry, Bingham, Brobeck, Coudert
Brothers, Dewey, Finley Kumble, Heller, Howrey, Thelen, Wolf Block, others).
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• Law firms, clients and law schools are unlikely to change until they need to
• Equilibrium v. moment of truth
• Once the moment of truth arrives, however, change is rapid and far-reaching
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• Back to basics
• Turnkey solutions
• Knowledge management
• Interconnectivity
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