I received this email from John Chisholm, a consultant from Australia whom I will have the pleasure of working with next month during my visit Down Under.
How many times have we heard this story:
This may interest you.
A short time ago I attended a meeting with the CEO, CFO and General Counsel of a largish company. The CEO had invited me to see if I could assist them obtain better value from their legal panel.
It was pretty obvious from the outset that the CEO was not so much concerned about the cost of the company’s legal spend (although to be fair he would have liked it to be less) but moreover the fact that he and his CFO could never BUDGET accurately for the legal spend. There always seemed to cost overruns. There were always reasons for the legal costs overrun explained the CEO. “Valid” reasons corrected the General Counsel.
It was also pretty obvious from the outset that it was not the General Counsel’s idea that I be there at this meeting. As the conversation progressed it was also apparent that the General Counsel found himself increasingly “defending” the position of the law firms. We talked about how we might work through a model whereby we sit down with their law firms and try and agree on the work to be carried out by the law firms and how we could agree on some fixed prices up front with those firms.
Alas the General Counsel always seemed to have some reason or another why fixed fees would not work, why the law firms would not and could not go for them, how the company would not be able to keep track of what the firm was doing, and that in fact such fixed prices might well be detrimental to the company and result in an increase not a decrease in external legal expenditure!!!.
After 30 or so minutes of a discussion that was going round and round in forever decreasing circles the CEO slammed his fist on the table turned to his General Counsel and exclaimed “….look I am after a solution to this but the more I hear you seem to be if not the problem at least part of the problem? Whose side are you on?”
I relay this story not to embarrass any in house counsel but just to highlight how wedded we are to, and how ingrained into our thinking, has become time based billing. It was not that the General Counsel was deliberately being difficult its just that quite genuinely he believed that he could have much greater control over external lawyers by negotiating and monitoring their hourly rate and their monthly invoices than he could in agreeing to a fixed fee. “How would I know if the fee I agreed to was the right fee or not?” he postured. Furthermore he felt trying to extract a fixed fee from the firm could seriously damage the relationship with the firm.
What unfortunately this General Counsel failed to grasp as we all know was of course there is no right or wrong price…never has been never will be………there is only the price someone is willing to buy at and the price someone is willing to sell at. This is how business in the real world operates. This is how the CEO and the CFO of his company operates. Indeed it was how the company he works for operates.
What the General Counsel also failed to understand was that his CEO was not after the cheapest legal spend he could get away with…….he just wanted some CERTAINTY of the legal spend.
I remain unclear why it’s so hard to understand that what customers want is certainty in price—just as most people select a fixed-rate mortgage rather than a variable-rate mortgage, and pay a premium for the risk reduction. Jay Shepherd recently wrote about this very topic on his blog.
Firms need to reduce the risk for their customers. They are in a far better position to do this than the customer, since they can spread risk over many customers.
There’s another analogy I heard this week about why the billable hour sucks. I’ve used the following shopping analogy I don’t know how many times.
Imagine going to the grocery store, filling your cart with items that have no price on them. This is the stupidity of the billable hour.
But someone told me it’s actually worse that that. Rather, it’s like having your professional fill up your shopping cart with items they like.
How long will it take for professionals to kill this beast?