BUSINESS OF LAW: Having studied business before going to law school made it easier for Kean Miller attorney Greg Anding to embrace—and promote—a more fiscally efficient management culture at the firm. (Photo by Brian Baiamonte)
Kean Miller attorney Greg Anding studied business as an undergrad, so he got some business training before law school. Many lawyers have no business background whatsoever, which isn’t a problem if all your firm expects you to do is crank out billable hours and do good work.
But in recent years corporate clients have been putting more emphasis on controlling legal costs, often seeking to cap fees rather than accept open-ended billing arrangements. As law firms assume more financial risk, they’re being pushed to re-examine their business models and find ways to get more efficient without sacrificing quality.
“We’ve always driven the car down the road,” Anding says. “We’ve not taken the time to pull the car to the side of the road and see what needs to be done to fix it.”
Kean Miller has begun using Lean Six Sigma, a managerial approach meant to improve performance and reduce waste through collaboration. Former General Electric CEO Jack Welch is the best-known American proponent of Six Sigma principles, which have caught on in various industries.
“Why wouldn’t you want to work with a lawyer and a law firm that spoke your language—the language of business,” says Catherine Alman MacDonagh, a former corporate counsel and founder of the Legal Lean Sigma Institute.
MacDonagh—also an adjunct professor at Suffolk Law School, George Washington University and Northwestern Pritzker School of Law—says Kean Miller is the first Louisiana firm to bring in her institute to train its lawyers, and in the spring will be the first to host an open enrollment course. Anding heads Kean Miller’s asbestos litigation group, the first at Kean Miller to begin putting Lean Six Sigma concepts into action.
Anding organized a daylong group retreat, including lawyers, clerks, secretaries and paralegals. They talked through a hypothetical asbestos case from beginning to end, refining the process to ensure the best person handles each step.
Say, for example, a particular expert needs to be deposed. If one of the partners has already taken that person’s testimony five times, it makes sense to let that partner take the new deposition, since they won’t need as much time to prepare.
More broadly, the goal is to identify areas of specialty and direct the work to whoever can do it most efficiently, Anding says. In the past, a case might have been assigned to whichever partner and associate were next in the rotation, who would proceed to work up the case without much collaboration from their colleagues.
“It’s important to all be communicating and making sure we’re on the same page, and knowing whose strengths and specialties lie in which areas,” he says. “There may be things that person A is really good at doing and enjoys doing, and I’ve got person B doing it.”
The billable hour hasn’t gone away. But major clients in recent years have begun asking for fixed-fee or capped-fee arrangements, Anding says, although they still want to see an hourly breakdown of the work being done for them.
While companies traditionally haven’t demanded predictable pricing from their law firms, MacDonagh says, those days are over. She says it’s inconsistent for lawyers to sell themselves based on their expertise while claiming they can’t predict how much a given case or task will cost or how long it will take to resolve.
“You can’t have it both ways,” she says.
“Why wouldn’t you want to work with a lawyer and a law firm that spoke your language—the language of business.”
Catherine Alman MacDonagh, a former corporate counsel and founder of the Legal Lean Sigma Institute
Dona Kay Renegar, president of the Louisiana State Bar Association, says more business training by law schools probably is needed. The LSBA lists a number of practice management resources on its website and offers various business courses such as a two-day conference focused on solo and small firms. Approved business training courses count toward mandatory continuing legal education, and new lawyers now must take a law practice management class, Renegar says.
As clients tighten their belts, many are suggesting creative ways to budget their legal costs, she says. Some insurance companies, for example, are asking for separate budgets for different stages of the legal process: one for investigation and case development, one for written discovery and so on.
The trend toward flat-fee arrangements creates challenges and risks for lawyers, she says.
“If you’re going to take a worker’s comp case for a $5,000 flat fee, how do I know—if there’s a dispute in the middle of that—how much you should earn as a lawyer?” Renegar says. “We’re grappling with that issue right now.”
Some cases are more complex, and therefore more difficult to predict, than others. But firms should at least be able make ballpark cost estimates and set some basic parameters, says Samira Salman, former in-house counsel for Shell Oil and founder of Salman Solutions, a business growth and deal advisory firm.
“It does come from experience, but you should always as a lawyer have a mentor that you can go to for advice,” she says, adding that lawyers can be taught project management, strategy and business skills.
Salman, an LSU and LSU Law Center graduate, last year returned to the law school for Apprenticeship Week to teach a course about building a successful business. Students had to develop an elevator pitch, outline a basic business plan, build a financial model, read basic financial statements and craft a marketing plan.
She says lawyers should think of themselves as a brand and create their own budget, even if they’re with a large firm.
“This is something they definitely don’t teach you in law school,” Salman says.
Law students typically don’t learn much about how to manage the business aspects of a practice, says Harry “Skip” Philips Jr., managing partner with Taylor Porter and adjunct professor at the LSU Law Center. He says his firm spends a lot of time teaching their new lawyers about the business side of things.
Clients in recent years have gotten more involved in how they’re being billed, Philips says. Larger clients have guidelines about what they will and won’t pay the firm for.
Some clients might only be willing to pay a paralegal, as opposed to a lawyer, for certain tasks, while banning first-year lawyers from performing other tasks. They might ask for volume discounts, or request a “most favored nation clause” that guarantees they won’t be charged more than other clients for similar work.
Some even use a third party to review their invoices.
“We’d never see that 10 years ago,” Philips says. “I think they’re treating the lawyer/client relationship much more like a traditional business relationship.”
Philips says he’s rarely able to give a client a budget for a complex case that’s exactly right. Fortunately, clients understand that adjustments often have to be made, as long as they’re kept in the loop.
“They don’t like surprises,” he says.
But while client expectations are evolving, some things haven’t changed.
“I think they still want a close personal relationship with their lawyers,” Philips says. “They want lawyers to understand their business.”