Erik Feig, General Counsel MRIS
Steve Bell, CMO, Womble Carlyle
John Rider, Director of Practice Mgt., Womble Carlyle
Eileen Kett, Sr. VP and General Counsel, Club Med
WMACCA Small Law Department Initiative
December 5, 2013

Things have gotten, ahem, complicated.

• Few hard assets
• No cushion
• Investments (i.e. change) challenging at best
• Revenue declines felt instantly and must be addressed IMMEDIATELY

• Multiple owners, each with a “say”
• Sometimes resembling “line” businesses, but to an extent resembling co-located individual proprietorships
• Complete consensus difficult
• Management by dictate untenable

• Reduced buyer demand since at least 2008
• Supply increasing every year
• New-normal competitors (e.g. LPOs, technology) adding still more pressure and variety on the supply side
• New business formats focused on new metrics (e.g. triple bottom line) creating new expectations about sharing and collaboration

• C-Suite resolve
• Focus on value
• Adaptation of manufacturing quality initiatives
• Diversity
• Pro Bono
• Social responsibility

• In the context of client delight:
– PPP
– Maintaining Rates
– Cost Control
– Leveraging the fixed costs
– Revenue
– Becoming more businesslike and corporate
– Differentiation

• Devoted to clients
• Resistant to change
• Justifiably proud
• Guardians of professionalism
• As a generality, lacking in sophisticated business acumen and entrepreneurialism

• Most IHC were once outside counsel
• Not exactly the optimum crucible for creativity, boldness and positive change

Examples of law firm adjustments
• PPP
– Process Management
– Project Management
• Maintaining Rates
– Focus on “client experience”
– Focus on relationships
– Adding value not billed

Examples of law firm adjustments
• Cost Control
– Paperless
– Technology
– Staff ratios
– Physical space
– Out-sourcing, farm-sourcing, all kinds of -sourcing
• Leveraging fixed costs
– Mergers, roll-ups, vereins
– Engagement staffing models, including paraprofessionals, contract lawyers, nonlawyers

Examples of law firm adjustments
• Revenue
– Law-related businesses
• Document review
• Obscure specialties such as immigration
– Ancillary businesses
• Building ownership
• Economic Development incentives
• Management/technology consulting

Examples of law firm adjustments
• Becoming more businesslike and corporate
– Account managers
– Pricing specialists
– Business service provision
• N/C for costs once billed (postage, telephony, etc.)
• Strategic communications

• Differentiation
– Segmentation
– Openness
– Relationships
– Connections to clients (e.g. Sharepoint,
OnRamps)
– “Best” adherence to IHC/client social values
– Flavor of the month

• IHC have leverage
• IHC have not yet learned how to fully apply this leverage
• Law firms working hard to fill the gap and have created a number of tools. (Do IHC know about these tools and how to utilize them?)
• Law firms acknowledging client rights
• IHC have created their own tool kits, e.g. ACC
• What other tools are needed?
• How can we work together to do so?

A Small Law Department Perspective
Eileen Kett, Esq.
Senior Vice President, General Counsel
Club Med Management Services, Inc.
Eileen.kett@clubmed.com

• 30,000 in-house lawyers from over 10,000 companies
(and 75 countries)
• Value Challenge launched in September
2008
• Everyone agrees there must be dialogue and change on both sides

In recent ten-year period, 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.

• 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

• 82% - Employ AFA’s
(94% of firms say they use AFA’s)
• 75% - Requested discounts
• 71% - Firms aren’t responding to client business needs
• 68% - Shifted to regional and boutique firms
• 68% - Requested alternative fee arrangements
• 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

3 main objectives for using
Alternative Fee Arrangements
1. Reduce legal costs by 25%
2. Provide high predictability
3. Improve outcomes
While firms maintain and even enhance profitability…..
You’ve got to meet at least one objective to stay in the game.
You will need to accomplish all three to win.

• Until 30 years ago, legal work was done at fixed prices, contingency fees, long-term retainers and similar arrangements
• Firms often functioned as client’s general counsel
• Billing legal work solely by hours is a recent invention

Perform two competing functions:
• Monitor production o How many hours needed to perform the work o Goal should be to reduce both the hours needed and the cost of each hour
• Generate profits o Firm benefits by increasing hours for a task or matter o Likewise benefits by regularly increasing hourly rates
AFA’s bring this longstanding tension to the forefront.

• “The only thing firms have to sell is hours”
– Should be selling expertise and skill instead
– Focus on the three Value Challenge targets
(reduction in cost, predictability, outcomes)
• Stop using shadow hours
– Inherently lose-lose
• If would have been less with hours, client thinks got bad deal
• If would have been more, firm management says AFA’s don’t work
– Focus instead on the three Value Challenge targets

As a small law department:
How do I work more effectively with Outside
C ounsel and how do AFA’s fit into the picture?
• Focus on Adding Value (Huron Chart)
• Ensure your legal spend is being used on the right matters
• Use AFAs: Start with law firms you have an existing relationship or a defined scope of work.
Key Component is TRUST

• Typical Small Law Department Objections:
– We don’t have the leverage to influence the law firms
– My CFO thinks fixed fees are too expensive
– How do I price the work?
– How do I know if it was successful?

• First step is to make sure you are using outside counsel for the correct matters.
• Work with senior law firm attorneys who have the expertise you need AND a business mindset.
• Avoid the TRAPS:
– Asking for a discount on hourly billing; or
– Requesting the law firm to assign a lower price attorney
You will pay for it eventually in your own management time
• Bundle work together to make it interesting to the firm
• Try a Pilot Program and agree to re-evaluate and adjust periodically during course of the matter

Real estate development project for condohotel project, including bundle of services such as letter of intent review, drafting of agreements, and filing for regulatory approvals.
• Project based pricing set out in phases, including initial phase of LOI and due diligence, governmental approvals, drafting of agreements and title work.
• Includes targets for government subsidies and concessions.
• Able to shift costs into time frames necessary to meet budgetary constraints.

Retained services agreement for general advice and scope of work for geographic area
(e.g. Mexico).
• Annual fixed fee retainer, payable on a monthly basis.
• Client is entitled to certain services (e.g. telephone call advice, corporate filings, simple contract review) each month under the retainer.
• Matters that pass a threshold (e.g., labor matters that proceed beyond Labor Board level) get kicked out of the retainer umbrella and are tracked and invoiced separately.
• Periodically review new services that are being provided and adjust retainer on an annual basis (e.g. increase in labor costs versus prior year).
Lead law firm attorney is part of my “in-house team” and participates in monthly legal meetings with operations, human resources and legal department

Immigration services including application and followup for visas and permanent residency (green cards)
• Simplified flat rate for all major visa categories from initial questionnaire and filing of application (including responses to requests for additional information) and consulate appointments.
• Flat rate is charge back to company department as a
“cost of hiring” similar to a recruiter’s fee.
• Only additional costs billed are the government filing fee.
• Also includes limited phone calls for general immigration questions.

1. Reduce legal costs by 25%
2. Provide high predictability
3. Improve outcomes
• Focus on adding value – are you allocating internal and external resources correctly?
• Strategic and regular use of AFAs
You have the leverage – NO excuses – just GO FOR IT.

• Thank you to:
Michael Roster – Co-Chair of the ACC Value
Challenge Steering Committee
Catherine Moynihan – Director of Legal
Management Services at ACC
Huron Legal