By viewing opportunities to work together through a value lens, corporate legal departments and outside law firms can strengthen their relationships for the good of both parties. For both groups to gain the maximum value from their collaborations, they must have clear and open communication with each other, and both sides must innovate and change with the times.
This eBook defines the implications of a value-based approach to collaborating with outside counsel and how technology can help break down communication barriers in the legal ecosystem. The paper explores what legal departments should consider when thinking about value, how outcomes and realities can impact the likelihood of success, as well as what the keys to success are and how to measure them. It also discusses the role of data in creating clear communications.
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Within the legal ecosystem, two diametrically opposed paradigms for success contend. On one side are corporate law firms, where rising billable hours and billing rates drive revenue. On the other side are corporate legal departments, which measure their success in large part by cost containment and reduction.
There’s a lot of money at stake in this clash of titans. In 2015 alone, companies spent an estimated $437 billion on legal fees. It is common for clients to have varying degrees of doubt regarding the accuracy of an invoice just as an attorney may be skeptical regarding the client’s willingness to fully pay for services performed. In a way, they are both right. Law firm realization rates continue to fall to all-time lows as a result of pre-emptive write-downs and a long-time culture of client discounts.
The juxtaposition of opposing principles has led to where the industry stands today. Cognizant of the fact that clients and attorneys need each other as they operate within a broken system, the industry is seeking ways to build a business model that better aligns expectations and rewards efficiency.
Alternative Fee Arrangements ( AFAs) – l ater rebranded simply to “fee arrangements” — have shown promise as a solution. Once the golden child of aligned incentives, AFAs may have found their limitations. In 2012, 79.2% of legal departments utilized AFAs. In 2015, that number dropped to 68.4%2. While it’s true that AFAs, as a percentage of spend, increased f rom 2 0.5% t o 3 5.6% during the same period, it is likely because legal departments and law firms have begun to optimize AFAs on certain matter-types. High-volume, low-value matters, for example, work better than unique, high-value matters which account for the dramatic increases in AFAs on insurance3 and intellectual property matters4. For those high-value matters, where complicated fact-patterns and strategies are likely to require more collaboration between attorney and client, however, AFAs are often not an option. So while AFAs were once seen as a way to foster collaboration, they are best applied to the types of matters where collaboration is least needed.
In past years, legal departments were viewed as a cost center — the cost of doing business. In turn, legal departments had large budgets to be spent on outside counsel, who were tasked with protecting the company. In that way, expectations were results-oriented. Today, however, legal departments serve an increasingly important purpose of managing risk and therefore seek a more business-friendly approach towards outside counsel: They seek “value.”
In this whitepaper, we explore the implications of a value-based approach and how new innovations in technology are breaking down the barriers of communication in the legal ecosystem.
Ultimately, a value-based approach depends on legal departments having the ability and willingness to establish transparent lines of communication with outside counsel and for both sides to depart from the status quo….
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