In past years, legal departments were viewed as a cost center — the cost of doing business. In turn, legal departments had large budgets to spend 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.”
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.
In its most basic form, “value” is a measure of worth — both objectively and subjectively. For example, it could be said that an attorney’s time is valued at an average of $490 per hour. Rate of pay is an objective measurement that is calculable, comparable and sets the standard for hourly billing.
However, it can also be said differently: the value of legal work is determined by the business’s needs at any given time. This is subjective. It is not easily calculable. And this is the type of “value” legal departments are seeking — in lieu of the objective hourly value.
Value-based billing refers to the pricing of legal services based on the client’s perceived worth. In theory, it creates an exchange where incentives are aligned—much like any other marketplace. But in order to get it right, both corporate legal departments and law firms must come to a compromise on how they define value.
When our clients at Mitratech define outside counsel value, their responses range from wanting more diverse staffing on their matters to wishing that outside counsel would work as an extension of their legal department.
Law firms define value a little differently. For one thing, they are part of an institution built on the billable hour. Everything from staffing decisions to hiring to compensation is framed around the billable hour. Despite attempts to move away from it, the billable hour remains at the core of most law firms’ business models.
The disconnect between law firms and clients stems from the fact that many billing partners still believe successful results equates to value; whereas clients understand that successful results can be purchased from any number of law firms, and that the delivery of legal services determines value.
The point is, no two people have identical priorities, and therefore no two people will have a common definition of value. However, for corporate legal departments and outside counsel to work together effectively, it’s imperative for clients to communicate with outside counsel in order to define and align expectations around value.
Regardless of the particular definition in a given situation, value is representative of a collaborative approach between legal departments and outside counsel. It is a willingness — by both sides — to help each other accomplish the business goals of the law firm and the client.
For more information on building relationships with outside counsel, download our eBook, “Common Ground: A Guide to Better Relationships Between Corporate Legal and Outside Counsel”