October 31, 2005
The Practice of Law; It is a Business!
Michael Gruskin, the General Motors legal executive who negotiates the deals with outside counsel says, “It is a business, folks. You are the vendor and I am the customer.” Except for the small category of bet-the-company cases, GM is going to do business with the most efficient law firm offering the most value for the dollar.
When you talk to General Counsels they make it clear that law firms have to begin to operate like a business. Those that become more efficient are going to get business and those that continue to operate “their way”, the old way, are going to be on the losing end of the economy.
There is no question about it, the corporate world is doing everything it can to reduce its legal cost and specifically to reduce your bills per case or per portfolio of business but not necessarily at your expense. From their standpoint, corporations believe that if you can become more efficient you can sell the “time” you save to other clients and on other cases. Thus, the law firm can preserve current partner income levels. Of course, if the law firm can move to fixed price engagements and portfolio services, that increase in efficiency will increase realization and per- partner income. But make no mistake, folks at General Motors, Microsoft® and etc., believe that is your problem not theirs. They want lower cost and greater certainty from the law firms they work with. They are going to increase business with those that deliver and decrease it with those that “do not get it.”
They know which law firms “get it,” and which do not, due to the increased database of information on law firm performance accumulated as part of the e-billing process. As noted in an earlier post, Steve Levy, head of IT for Microsoft’s in-house legal area, says there are three phases to e-billing. Analysis of case cost and law firm performance is the second phase and it is paying off for corporate legal consumers. Michael at GM explains, “We know far more about a law firm’s performance and inefficiency than the law firm knows and that is sad.” GM knows the ratio of partner to associate use. They know when partners are doing work that an associate should be doing. They know when the firm doubles up on work that should be done by a single fee earner. When the customer knows more about the vendor’s product and cost structure than the vendor, that vendor is at a material disadvantage.
CFOs and CEOs of corporations are demanding that their GC become businessmen or women. That means lowering legal cost and getting the best value from their vendors—that is you.
So what is the answer? The e-billing panel at the recent Juris international users meeting (October 22-23, 2005) would point the blame at the typical law firm organizational structure and accounting methods. The partnership mentality needs to give way to a corporate one and the cash basis of accounting has to return to the dark ages from which it came in favor of modern accrual accounting and associated cost accounting.
Law firms cannot make the grade with only 25% of a managing partner’s time. Full-time dedicated management is one factor that stands out as the difference between law firms that fail and those that succeed.
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Filed under Blog by Tom Collins