Association of Corporate Counsel is workingon a "Value Challenge Index." Susan Hacktt, Senior Vice President and General Counsel for ACC, talked about the Index before the Los Angeles chapter of Legal Marketing Association today.
Susan made several significant points. One concerned the traditional allocation of revenue: 1/3 for overhead, 1/3 for associate compensation and 1/3 for partner income. The net result is that 2/3 of the revenue received by law firms is funneled toward attorney compensation.
Susan suggested that General Counsel, as lawyers, understand this formula and are therefore more resistant to outside counsel increasing billing rates. Lawyers wanting to earn more to move up in the AmLaw PPP (profit per partner) ranking isn't sufficient reason for the corporate client to pay more. And the rationale that expenses have increased is also not well received ... 1/3 of the firm's expenses may have increased somewhat, but the more sophisticated clients believe that the primary factor for increased expenses is increased associates' compensation. Since associates' contribution to the law firms' delivered value is suspect, clients are reluctant to pay increased rates. In fact, some clients refuse to pay for any first year associates' work on their matters.
Another expense item that is causing General Counsel some consternation is the high attrition rate amongst young lawyers. The turnover rate in the first five years for most large law firms can be as high as 80%! This causes substantial expense to the law firm. And clients are becoming increasingly reluctant to pay for this cost ... cost which comes in the form of the second lawyer to the matter reviewing the file and otherwise getting up to the knowledge level of the departing lawyer.
The "Value Index" being developed by ACC is intended to measure, among other things, client satisfaction with the services provided by their outside counsel. The concept is that of a scorecard, not a ranking. Defining "value" will be a difficult task. Ultimately, the definition may have to be left to the respondent. ("Beauty is in the eye of the beholder.")
Among some of the concepts being considered, however, are: i) Delivery outcome that the client wants; ii) Longevity of the attorney-client relationship; iii) The right mix of outcome and anticipated cost; iv) Clear communication before, during and after the services; v) Customized and innovative approach to the service; and vi) Top notch quality, or "peace of mind."
Criteria for value may include: i) Understands goals and expectations; ii) Legal expertise; iii) Efficiency/process management; iv) Responsiveness; v) Innovative/flexible teams; vi) Results delivered; vii) Values: Pro bono/diversity/green/professionalism.
The bottom line is that ACC members, lawyers themselves, are having difficulty identifying outside counsel who will deliver value ... some define this to mean quality service at a reasonable price. The attempt here is to create, first, a dialogue about definitions and what to look for, and, second, appropriate resources to reach the legal goals Corporate America. This is a daunting task. But, clearly, the dialogue has begun!
Lawyers need to participate. Your livelihood and the future shape of the profession may be at stake.