In 2003 American film maker Morgan Spurlock only consumed McDonalds food for 30 consecutive days. As a result, the then-32-year-old, Spurlock gained 11.1 kilograms, a 13% body mass increase, increased his cholesterol to 6.0 mmol/L, and experienced mood swings, sexual dysfunction, and fat accumulation in his liver. He produced a now famous and award winning documentary ‘Super Size Me’ that follows his experiment from day to day. A 58 grams Mars bar contains 260 Kcal, which is just as much as a 150 grams bowl of Bircher Muesli. Despite having the same number of calories, their nutritional value could not be more different. High revenue does not mean high contribution to the firm's success In law firms, partners are measured by the amount of revenue they create. But like calories, revenue does not mean much. It is the quality of the revenue that counts. It is not unusual that partners who accumulate the highest revenue have a special status within the firm. Such partners weigh in heavy on discussions and partnerships try to keep them happy so that they do not leave. All this however might be misguided. So, let me explain why the partner who makes 20% less in revenue, could be 20% more profitable. Have a look at the graph: In order to understand the economics, it is important to start with the notion of ‘fixed costs’. Unlike most other business, in law firms the costs do not vary with the level of production. We distinguish between direct costs i.e. the salaries of the lawyers and indirect cost, which are the costs for housing, IT, marketing and so on. On an annual basis all these costs are more or less fixed and can not be influenced. Law firms do not fire lawyers if business happens to be slow for a few weeks as it will be near impossible to recruit talent if business picks up again. The same goes for support staff compensation, occupancy and IT. Also, these costs are basically inflexible and on the short term not influenced by the production level. When we take all annual costs of a firm and divide this by the total number of budgeted hours, we can calculate the costs per hour. To keep things simple, we do not take into account the differences per level of experience and just calculate the blended hourly costs for the firm. In the example shown in the graph, the fixed cost per billable hour is 161. Regardless what, every billable hour comes with 161 in costs that need to be recovered before there is a profit. The profit then is the margin between the actual realized blended rate and the blended costs. Focus on profit contribution rather than revenue In the example the first partner has billed 1.000.000 against a blended rate of 220. With a base cost of 161, the margin/profit per hour is only 59. Out of a total revenue of 1.000.000 this partner therefor contributes 267.273 in profit. The second partner has only billed 800.000, which is 20% less than the first partner. The blended rate however in this case was not 220 but 270. As there are no additional costs, this immediately increases the profit margin to 109. As a consequence, despite producing 20% less in revenue, the second partner contributes in absolute numbers 20% more in profit. We encourage our clients not to focus on revenue but on profit contribution instead. Obviously in order to do so, you need to know your bottom line. Revenue from smaller files hurts the reputation Besides the fact that revenue does not equal profit, there is another reason why not all revenue is created equal. That is reputation building. Typically the mandates that help a firm and a partner build a strong reputation in the market are not the small matters. For building a reputation there is a huge difference between 5.000.000 in revenue coming from 10 matters with an average file size of 500.000 and the same 5.000.000 in revenue but coming from 200 matters with an average file size of 25.000. The 500.000 euro/dollar/pound matters will significantly help build the reputation of the partner and the firm, as where the 25.000 euro/dollar/pound matters will not be noticed by the market at all. There you have it. Two reasons why not all revenue is created equal and why the fixation of most law firms on partner revenue might be a bit short sighted. We would encourage you to from now on also carefully look at the quality of the practice before some partners are elevated to the level of untouchable and super important to the firm. Maybe number two is actually doing much better than number one.

Early August, at the time when most of Europe enjoyed the summer holiday, I have been to Shanghai China to work with the managing partners and board members of China’s leading law firms. Law firm leaders had flown in from all parts of the country: Beijing, Shenzhen, Tianjin, Guangzhou and other cities to attend my lectures. I feel truly privileged having had the opportunity to work with all these great lawyers. Having many inspiring conversations, I learn form them as they learn from me. The legal sector in China is relatively young. The first business law firms were only founded in the 1990-ties, so most firms are less than 25 years old. The pace in which China’s legal industry has developed is incredible. Today the level of professionalism is on par with most of the western countries, perhaps with exception of the main business centers such as New York and London. An amazing achievement over such short period of time. The operating model of most law firms in China is based on raw and extreme ‘eat what you kill’. Typically, partners have their own P&L and have to pay each other a fee of around 20% in case of a referral from within the firm. Only a handful of law firms operates more or less as an integrated firm. Personally, I am not a huge fan of the ‘eat what you kill’ operating model. I recognize that it can make some individual partners very rich, but average partner incomes tend to trail behind those of the integrated law firms. One of the problems with ‘eat what you kill’ is that it allows for the quality of individual partners to vary wildly. Not only the legal quality, but also the type of clients and the practice. Since each partner has his/her own P&L there is no urgent reason to be bothered if some of the other partners operate in a lower segment of the market. More often than not ‘eat what you kill’ firms struggle to deliver uniform quality across partners, practice groups and offices. Any client that has worked with such a firm will recognize this. Eat what you kill may benefit the individual partner, it does not benefit the firm or the clients. Not so long ago, I had a conversation with a well-known tier-1 M&A partner in a premier European ‘eat what you kill’ law firm. As this partner got two large mergers at the same time, he had asked if he could use some associates from other partners in the M&A group. This then was refused by the other partners as they feared that their associates would be tied up when the time would come that they needed them themselves. Personal interest above firm interest and client interest. Needless to say, the partner had to turn the second merger down, which ended up with a competing law firm. How frustrating. One might be inclined to think that this example is rather extreme. It is, but in our day-to-day practice we come across issues within ‘eat what you kill’ law firms all the time. If every partner is in the end only driven by personal gain and personal interests, the firm will lose out. Our data proves that firms in which partners collaborate and work together as a team are more successful than those in which partners compete. Clients don’t like it if partners don’t collaborate. These types of law firms under-perform integrated law firms as it comes to ‘cross selling’ services to clients. It must be said that also integrated profit-sharing law firms are not free from competition among partners. This has everything to do with the way in which partner performance is measured. If partners are pushed to generate a certain amount of revenue in their own name, then that is what they will do. They will try to open as many files in their own name as possible, even if a fellow partner does most of the work. We frequently see this happen. The more you think about it, the more apparent it becomes that its actually strange that in many law firms the partners are competing with each other. How extreme this internal competition is will largely depend on the profit-sharing model. If law firms were set up as ‘normal’ businesses the firms as a whole would always be more important than the individual. Management guru Tom Peters was a partner at McKinsey. Despite his worldwide success he was asked to leave in 1982 as for Mr Peters his personal interests had become more important than the success of McKinsey as a whole. Strong and powerful brands and businesses can only be built if everyone if fully aligned and committed to the success of the company (firm) as a whole. Same in sports: there is no room in the team for people who are not team players. Sometimes law firms are like football (soccer) teams where each player wants to score the goal. We all know that that doesn’t work. Back to China. At the end of my lectures one of the participants handed me with a handwritten letter on the hotel stationery. The letter was in Chinese and it said -inter alia- that she thanked me for opening her eyes. Throughout her career as a partner she had believed that the method of each partner having his/her own P&L was the best way to ensure optimal performance and remaining attractive to rain makers. After hearing my lectures over the past few days, she had now come to the conclusion that maybe indeed the collective had to be stronger than the individual for a firm to become truly excellent in every way. This coming from a board member of one of China’s most eminent red-circle law firms means a lot to me. I am keeping this letter as a reminder that law firms do not by definition need to remain as they are. Even in the business of law, the business model can and should change.

This morning on the BBC News website, I read the an article outlining how a Norwegian aluminum producer is recovering after hackers took 22,000 computers offline at 170 different sites around the world. Norsk Hydro refused to cave in to the cyber-criminal's demands for money and have spent 50 million Euro trying to restore their business to full strength. The attack comes as evidence grows that hackers are getting paid off in secret by large organizations who want an easy way out. This article is the last before the summer holidays. We will be back as usual on Friday September 6. This last article of the season will be poorly read, I know this even before publishing. I know from experience that cyber security is very low on the list of partners at law firms. It is not a sexy topic. While Legal Tech is surrounded with a positive vibe and law firms almost tumble over each other to do statements on their websites and press releases on Legal Tech, most remain utterly silent as it comes to cyber security. There is an enormous discrepancy between the investment in Legal Tech and the investment in cyber security. This may one day prove to be a costly mistake. We have seen law firms crippled by crypto lockers Not only large companies, the power grid or the government are targeted by hackers. Also law firms are attacked although this rarely gets mentioned in the news. Based just on our TGO Consulting practice, over the past 12 months we have witnessed two clients who getting crippled by a crypto locker. Within less than 30 minutes after the attack no one in the whole firm could access any file. All files were encrypted by the hackers. Both firms sought the help of specialized IT consultants and both ended up paying a substantial amount in Bitcoins to unlock the files (there is no guarantee whatsoever that the files will be unlocked after paying the ransom, after all you are dealing with criminals). Another client of ours, got their email system hacked and compromised. The hackers send out emails on behalf of lawyers and secretaries to all contacts of the firm. These emails contained a document for review. After opening the document the receivers’ computers also got infected. This obviously is a very bad situation. Both for the law firm and for the clients. Please do not think the law firms mentioned are amateurish. All 3 are considered the elite in their respective jurisdictions. If this happens to them, it could also happen to your firm. For lawyers confidentiality is key. Law firms are not only being targeted by crypto lockers and viruses, but hackers are also actively after the data. Just type in ‘law firm hacked’ in Google and you get over 7 million results. Results feature well known cases such as ‘Panama Papers’ and Cravath and Weil being hacked back in 2016. While some cases are well documented, most hacked law firms manage to keep out of publicity. The Insurance industry estimates that 1 in 5 law firms are being hacked. Again, this could very well be your firm. If it can happen to Cravath, why would it not happen to you? Clients demand proof that law firms take data security serious Increasingly clients of law firms are asking their panel firms to state what measures they take to assure the security of confidential data and the protection against hacker attacks. Having a robust cyber security policy will be an important requirement to get business. Given all facts mentioned above there is surprisingly little sense of urgency among partner groups. Even to the extent that sometimes sensible measures implemented by IT experts need to be rolled back because partners find them inconvenient. This is potentially a dangerous attitude. So instead of raving about their Legal Tech, law firms should start prioritizing Cyber Security. Here are some basic measures for every firm to take. Make sure all software is updated. We see too many law firms that still run on outdated versions of Windows, just because of all the legacy systems they have running. Older versions of Windows are less secure. That is why WannaCry could wreak havoc and cripple major companies back in 2017 Restrict access ta data to a need to know basis. Many law firms have a file system that can be accessed by every lawyer and every secretary in the firm. While this might be convenient, it is not safe No data stored locally unless needed on that specific day. All laptops fully encrypted. Only remote connect through VPN. Never send documents to self by email. Give regular (at least twice a year) training to all staff on all aspects of cyber security. Train people on cyber hygiene and learn the how to recognize suspicious emails. We at TGO Consulting for example have a policy never to click on links or open documents that were sent unsolicited, even if it seems to come from a client. Before opening we will always ask the sender to confirm that the document has actually been sent by them. This simple policy has saved us twice from getting infected by malware during the past 6 months. Do never use USB to carry client documents. Never use USB that has been received as a giveaway. USB should be treated in the same way as a syringe: use only when fresh out of the box. Even then only use USB for non-confidential presentations and destroy after use. Do not let anyone except for your own lawyers and staff ever enter the ‘production floors’. Clients and third parties are limited to the meeting rooms. Make sure that you know exactly who is doing the cleaning in the morning. Make sure you have done a background check on each and every cleaner. Keep record of when they enter and when they leave. Do not permit cleaners to carry cellphones while at work. Third parties that need access to production areas should be properly identified and should be accompanied by a staff member at all times. The person checking the sprinkler, could be there to steal information, so stay with them for as long as they are in production areas. Do never work on clients’ documents while traveling on airplanes or trains. I fly a lot for business and you will not believe the number of times I have seen the person next to me or across the isle work on confidential documents. Only last week the person next to me during a flight was preparing for a presentation to the board of a listed company. Without any effort I could see in which areas sales was going down and in which areas this company was going to invest and how much. This could arguably have led to insider trading. Just don’t do it. Watch a movie or read a book instead. Never talk about confidential matters outside the office. Again, you will be surprised how much confidential information can be overheard while traveling. If two colleagues travel they will almost always end up discussing work. Not to mention telephone conversation. People easily forget that they are not alone when they are focusing on the conversation. So don’t talk client matters outside the office. Data Security is as much human behavior as it is technology: educate and train your lawyers and your staff! The list above is by no means complete, but it shows that a big part of cyber security comes down to human behavior. This is both good news and bad news at the same time. The bad news is that all your investments in IT security and defense will not be effective if humans are not behaving in the proper way. The good news is that you probably don’t need to invest a lot before your cyber and data security can improve. Start by training your lawyers and staff on a permanent basis. Setting up such a program might be an excellent way to spend the summer, so training could start as soon as everyone returns after the holidays.

It is our experience that law firms that need help most, are the hardest to help. That is one of the reasons why TGO Consulting focuses on the elite law firms in each country. Mid-tier law firms in general remain mid-tier for a reason. The culprit is predominantly the culture in the partner group. Based on our initial assessment of the partner group culture, we usually are able to tell after one meeting if we can help a firm to be more successful or not. I would go as far as saying that culture might me more important than legal skills. Let me put one thing straight from the beginning: we are not ‘tree-huggers’. We do not do personality tests, we do not do teambuilding activities, we do not do ‘purpose’, mindfulness or 24-hour retreats. We are and remain business consultants that focus on our clients’ bottom line profitability. We see culture as a tool for better business results. Now we have that out of the way, let’s look at some of the aspects of partner group culture that are strong indicators for a firm’s success, or the lack thereof: Lack of Trust Typically partners become uneasy when we ask whether they would trust any of their fellow partners to go to their client without them being present. There might be various reasons why a partner would feel uncomfortable. Maybe they feel that some of the partners are not such great lawyers. Could be that some of the partners lack the social skills or are simply too nerdy and detailed and the client would not like this. It is not only negative reasons why a partner feels uneasy with a fellow partner visiting their client. Some fear that the client might like the other partner better and that future mandates would no longer be exclusively in their name. Whatever the motivation behind it, in many law firms there is a lack of trust between the partners. This lack of trust is standing in the way of cooperating when developing new business. One of the characteristics of highly successful law firms is a high level of trust between the partners. Typically, the most successful firms have a rigorous vetting and selection process as it comes to appointing new equity partners. Partner promotions at these firms are not driven by opportunism and internal politics. Only those that rigorously meet all the criteria and are supported by all of the other partners, are promoted. The result being a high quality close knitted team where partners fully trust each other. Lack of trust is commonly also the basic driver behind the traditional partner performance criteria focusing on personal revenue and personal hours. The emphasis on individual performance is fueled by the fear that maybe a partner could under-perform and become a ‘parasite’ living of the profits generated by other partners. No partnership would want to carry such ‘backpacks’. Lack of trust creates emphasis on monitoring performance as an individual. Focus on detail and on the negative Would you say in general partner meetings at your firm focus more on the negative or on the positive? Being strategy consultants for law firms, we have witnessed many partner meetings at many different law firms. To our experience discussions during partner meetings tend to focus on the negative. Rather than discussing business opportunities, partners discuss things that are not good. Partner meetings are almost invariably inward focused, discussing internal issues rather than clients and market opportunities. Professionally, lawyers are trained to focus on risks and weak spots. Spotting and avoiding mistakes are what a lawyer does on a daily basis. Qualities that make a good lawyer, become a hindrance when it comes to managing the firm. The focus on the negative and the sensibility for potential risks, heavily influence the dynamics during a partner meeting. On top of that often partner meetings are also very detailed, discussing topics that should be dealt with on an operational level, rather than the partner group. Too much detail and focus on the negative are standing in the way of developing opportunities, markets and clients. No discussion when needed One would be inclined to think that lawyers are good debaters and that during partner meetings partners would liberally exchange and debate their opinions. Excellent results are only achieved after a good discussion and a free exchange of ideas and different points of view. Reality is different. Lawyers that do not hesitate to fight for their clients’ interests can remain silent during a partner meeting, not speaking up even when they disagree. The strange thing is that partners do bring their professional risk avoidance and attention for detail to the meeting, but not their professional ability to have strong discussions. Partnerships that lack the culture of having strong and opinionated discussions while still maintaining the good relationship, perform better than partnerships where only a handful of opinion leaders speaks up. If there is no culture of discussion and fiercely disagree in a constructive way, a culture of backroom politics and discussion behind people’s back will develop. Creating a toxic and/or lethargic climate in the partner group. No need to be friends Lack of trust, focus on details and on the negative and the inability to have opinionated discussions are strong indicators that the culture in the partner group is frustrating further growth and development of the firm. In strong partnerships the partners do trust each other. Successful firms have partner meetings that do not focus on details, risks and things that can’t be done, but on markets opportunities and clients instead. Partners in successful firms do not fear each other. They speak up when they disagree. They can have strong arguments but remain solution driven and focused on the content of the matter. To be a successful firm there is no need for partners to be friends. On the contrary, being friends tends to blur the relation. In strong partnerships partners have great self-confidence, trust each other and keep focused on the bigger picture and business opportunities. I urge you to now take a moment and asses where your partner group is today.

All of you know how to do a mark-up in MS-Word and how to use track changes. This is a functionality that is used by lawyers on a daily basis. But what if you receive a heavily edited document without the track changes and you have to compare it against the original? Did you know that MS-Word has a handy built in function for that? If you do, you are part of the 68% of lawyers that know how to use the MS-Word ‘legal blackline’ option. The other 32% reverts to tedious manual labor for comparing the two documents. As it comes to more ‘complicated’ features such as inserting a table, making an index or working with ‘styles’ the percentage of lawyers that is aware of the functionality and knows how to use it, drops dramatically. Most of us have been working with MS-Word for all our working life and yet we hardly know how to use it (apart from the most basic functions). It is like buying a F-22 fighter jet and using it as a Cessna, doing 200 km/h instead of 2,25 Mach Despite their limited knowledge, all lawyers are happy to use MS-Word. Things get trickier as it comes to PowerPoint, being something we would rather leave to our secretary (who probably also does not know, but is afraid to admit). Excel will definitely be a no-go area for most of us working at a law firm. The issue with software is that it takes a lot of time and practice before you reach a good level of proficiency. This is time most people, lawyers no exception, do not want to spend. On top of that lawyers are extremely busy working on client matters. Left with the choice whether to work on a client matter that needs urgent attention or spend time learning software skills that might help to work faster and more efficient in the future, most lawyers will choose the former. Lawyers don’t like learning software and they couldn’t be bothered to spend the non-billable time. We at TGO Consulting did some research back in 2018 and it turned out that the vast majority of law firms has a document management system (DMS), yet only a small minority actually uses the system as intended. In a document management system, you are supposed to save only one copy of a document in which every lawyer can work. In reality many lawyers prefer to save their own version of a document under a different name. This practice totally misses the point of having a DMS in the first place. I recently had a conversation with the managing partner of a sizable global law firm. A firm that invests a lot in the latest technology in order to help the lawyers be more efficient. He told me that analysis has brought to light that on average only 43% of all lawyers was using the new software tools. Best case would be 72% and worst case being only 24%. This shows that buying and implementing the software is only half the story. Having lawyers actually use it is the challenge. Not to mention understanding and using all the features. Inadvertently exposing data due to a serious lack of knowledge. In 2017 when a lawyer representing a former Wells Fargo employee, subpoenaed the bank as part of a defamation lawsuit, he and his client expected to receive a selection of emails and documents related to the case. The 1.4 gigabytes of files that Wells Fargo’s lawyer sent included copious spreadsheets with 50.000 high-net-worth investors’ names and Social Security numbers, paired with financial details like the size of their investment portfolios and the fees the bank charged them. The files were handed over with no protective orders and no written confidentiality agreement in place. The documents were sent by Angela T. a partner with a New York law firm hired by Wells Fargo, which was not a party to the suit. Based on the fairly narrow subpoena that the lawyer submitted — it sought communications about his client’s employment and compensation — there was no reason for the bank to turn over such information, especially without any redactions. Only after the story had been reported by the New York Times, Angela T send an email to the lawyer admitting the mistake: “We went through a long process of a very large email review with an outside vendor with instructions on exclusion which was spot checked. Clearly there was some type of vendor error — which I am confirming now.” In more simple terms: they had used e-discovery technology but had not quite understood how that works in terms of what was included in the search results and what was not. A serious mistake. This again underlines that understanding the software is crucial. Yet Angela T had not spent the time learning. Something she will probably forever regret. Legal technology as a ‘deus-ex-machina’ solution In chapter 8 of my first book, ‘Death of a Law Firm’, I describe how lawyers as it comes to the management and strategy of their firm are often looking for ‘deus-ex-machina’ solutions. A force from the outside, that as by magic will fix a perceived problem and make it go away without the lawyers’ active involvement. Legal Technology typically falls in this category. Investments in legal tech are not only done without a proper business case [read the article], but also without regard to the substantial amount of time that needs to be invested in order to master and properly use the new technology. We strongly believe that eventually for all law firms it will become indispensable to use new and existing technology to become more efficient in doing research and producing documents. Technology augmenting lawyers, not replacing them. Whether this is already an issue for your firm today, will depend on the type of matters and the type of clients you are working for. Most of TGO Consulting’s clients are the elite law firms and for them already today focusing on increasing efficiency in production is a core consideration. We advise our clients on navigating the Legal Tech landscape, setting priorities and creating business cases that will yield a return on the investment in Legal Tech. The time that needs to be spend on software training by lawyers who already have a huge workload, is always part of the equation. It needs to be.

As I wrote in one of the previous posts ‘Clients don’t have legal issues, they have a business to run’. Ideally a company would like to avoid legal issues altogether. That is why most SMEs try to avoid disputes involving lawyers at all cost. Actually, this is not unlike medical issues. No-one wants to be ill, people in general will want to avoid doctors and hospitals. The difference is that the medical profession has recognized this decades ago and started to focus on prevention and prediction. It would be very unsatisfying if doctors would only cure people who are already ill. That is why there has been a lot of public and private research trying to figure out why people get sick and what can be done to prevent this from happening. By now we all know that smoking might cause tumors and that lead pipes plumbing for tap water could seriously affect the development of the brain and nervous system off children. Discovering AIDS in 1981, the first priority became prevention as there was no adequate cure at the time. More recently the medical profession has also focused on prediction. What you can predict, you can perhaps prevent. Predicting an outbreak of flue, will open the opportunity to vaccinate more individuals and thus limiting the number of sick people and even the number of deaths due to complications. By now we know that certain genetic patterns have a higher risk of developing certain medical conditions. More frequent periodic screening might lead to discovery in an early stage, increasing the possibility of a successful cure. Why is this relevant for the legal industry? The surprising thing is that from an academic point of view lawyers have never focused on prevention and prediction. When I went to law school, like all of you, I had to study lots of case law. As a consequence, lawyers are focused on the outcome of a dispute and not on why disputes arise in the first place. I am frequently in touch with law schools and law faculty all over the world. I am not aware of one that does systematic research on how and why disputes originate in the first place. From an academic point of view this seems like an omission. Prevention: creating a litigation feedback loop Universities, I suggest, should start systematically paying attention to the origins of disputes that end up in court. By doing the analysis, I am convinced certain patterns will arise. Probably the result will be that many disputes could have been avoided if for example less ambiguous contract clauses would have been used. There needs to be a feedback loop of which systematic analysis of the root of the dispute is an integral part. It is important that this becomes an integral part of legal education and an area of research in its own right. These kinds of feedback loops should also be used by law firms and corporate legal departments. The majority of law firms and the majority of legal departments work is silos and have no formalized process to analyze what is causing litigation and using this information to make changes in other parts of the organization. Systematic analysis and systematic exchange of information will substantially help prevent future litigation. This will help lower the cost and the pressure on resources. Analyze – Communicate – Optimize, that should be the drill. Law firms might fear that such practice will cannibalize their dispute resolution department. Any litigation prevented could be seen as a potential loss of income. This however is old school thinking, based on the current time-based billing system. From the value-based perspective it is easy to see that there is monetary value to help clients prevent litigation. Law firms could easily ‘sell’ their feedback loop and price it in their transaction and advisory services. It can even be priced in the litigation services as this will hold the ‘promise’ that potentially the client only needs to litigate once. How value pricing works is explained in my book Data & Dialogue, a relationship redefined. Prediction: anticipate what might happen a couple of years down the road Back in September 2017 I was invited to deliver a keynote at the 22nd annual conference of the IAP (International Association of Prosecutors) This was a great event, bringing together best practices from prosecutors all over the world. One of the things I learned is that several police forces are already experimenting with Artificial Intelligence based tools that help predict were crimes might happen. This will help the police department to adequate locate resources and might even help prevent crimes from happening. Given the early stages, none of this is perfect, but the first results look promising. If data-analytics can help prevent a highly individual thing as crime, it certainly must have the potential to help prevent commercial disputes. Academic studies show that there are certain underlying patterns that can help predict what will happen next. For society it often starts with discussions on social media, followed by discussions on major news platforms. This in turn leads to discussions in politics, leading to legislation. Legislation, after a while will lead to enforcement. By studying and analyzing what is trending on social media today, companies could anticipate tomorrow’s legislation and enforcement. These cycles typically take between five and ten years. By recognizing these patterns and by using artificial intelligence to filter out what is relevant and not, it will become possible to predict what might become a legal issue in ten years' time. Knowing this we can include this in our contracts today to prevent future issues. Let me give two examples where this can be applied. The first is the rapidly changing sentiment in societies across Europe towards exuberant remuneration of bankers and executives. Despite the fact that it was perfectly legal at the time the contract was signed, it had become unattainable once the contracts had to be executed. Simply monitoring the sentiments could have prevented this. The second example is the acquisition of Yahoo by Verizon. The problem here was that close to completion it became apparent that Yahoo had been subject to a major data breach which it had failed to report. Again, by monitoring technical developments and media reports on other data breaches, it could have become apparent that cyber security should have been part of scrutinous due diligence. This obviously could not have prevented the breach, but might well have led to a provision. For law firms prevention and prediction will be a new service line that will require a new and more holistic and proactive approach. Once in place it will inevitably lead to stronger ties with clients because it will be more tied in with the client's business goals.

Over the past few years I have had countless conversations with lawyers, both in-house and in private practice. When analyzing these conversations, some interesting observations emerge. The first thing that becomes apparent is how different the mindsets are. In-house lawyers have to be team players by definition. They are employed by a company and are part of a legal function, who’s task it is to support the business by managing legal risks in order to ensure business continuity. This is a team effort and always in close cooperation with other functions within the company. There is no place for strong egos or competition on an individual level. In-house is not about the individual lawyer, it is about the company. Lawyers in private practice have in a way the opposite mindset. Lawyers act primarily as individuals and ‘compete’ with each other within the firm. The intensity of this 'competition' will vary per firm, but it will always be present to some extend. In-house operates as a team, outside counsel operates as an individual first. Being team players, in-house lawyers tend to be more open to alternative solutions and less contentious than their outside counterpart. Being called upon when the going gets tough, outside counsel has to provide certainty and has to step in to defend the client’s interests. Like a gladiator stepping into the arena, outside counsel is armored and carrying weapons. The mindset is to find every potential hazard and to make no mistakes. Outside counsel has to be right, in-house is allowed to not immediately have all the answers and ask questions. Again, very opposite mindsets. Outside counsel feels the pressure to have all the answers, always. Despite these differences, both in-house and outside counsel remain lawyers before anything else. Being lawyers makes them see things primarily from a legal perspective. Working in a business environment is very different from working as an academic, a judge, a prosecutor or a legislator. Companies do not have legal issues; they have a business to run. For the lawyers it is paramount to understand that business. To understand the framework and the purpose for what they do. This often, for both groups, is a struggle. Lawyers are not engineers, lawyers do not have a sales background or in-depth knowledge of financial or market dynamics. For a lawyer ‘understanding the business’ will always be a challenge. Obviously in-house lawyers have in this respect a clear advantage being part of the business day-in-day-out, but even then it remains a challenge to fully understand the business. For law firms we could compare with their support staff. Despite the fact that their HR, Finance, IT, Marketing and BD professionals work amidst lawyers, it does not mean that they understand the law firm’s business. Understanding the business is pretty hard if you are not part of the primary process. Most lawyers never really understand ‘the business’. Things being as they are described above, I see a lot of lost opportunity to add more value to the relationship. In essence there is given the length and the intensity of the relationships between in-house and outside counsel, surprisingly little dialogue. Sure, there is lots of communication, but this is almost exclusively on actual matters and the way they are handled. Anything even slightly outside the actual content of the matters is often ‘outsourced’ to the department in charge of the client feedback program. Some law firms go as far as employing a ‘Client Listening Manager’ (just google this term and you will be surprised). These initiatives focus on relationship and delivery. Lawyers still struggle to understand their clients’ business. Understanding the business can not be outsourced, it can only be done through meaningful dialogue between the lawyers and the business. Day-to-day communication and client feedback programs are no substitute for dialogue. Lawyers, both in-house and outside can only deliver value if they understand the business. Understanding the business means understanding the economic drivers and the business model of the clients. This requires insight in the company’s strategy, product development, market developments and client dynamics. Unfortunately, this kind of insights are often hard to get. Yet, without the proper business context, lawyers can not deliver real value. ‘Client Listening’ cannot fix this. Having conversations only between in-house and outside counsel does not fix this. In-house lawyers often appeal to their outside counsel to better understand their company's business. Law firms respond by appointing ‘client partners’ and by organizing in market or sector groups. This only half solves the problem. Client partners typically primarily look after their own business and sector groups often experience frictions as it comes to who benefits from the efforts. This leaves clients underwhelmed by their law firms’ initiatives. Clients need to grow up and 'demand' instead of 'expect'. Clients have an interest in taking the initiative. I would recommend clients to organize an annual ‘strategy day’ on which all panel firms are invited at the same time and where there are plenary sessions followed by breakout sessions on different lines of business within the company. Attendance should be mandatory and lawyers should not charge. Clients should demand that the panel firms send lawyers of all relevant practice groups and participate actively in discussions. If understanding the business is crucial to value, as it is, clients should no longer expect, but demand their outside counsel to acquire the knowledge. This should be made mandatory for all panel firms. Such ‘strategy days’ will equally help the in-house team to remain up to speed with the strategy and the latest development. It will also benefit the relationship between in-house and outside as both will be on the same page. It will open the door to dialogue rather than mere communication. For those of you who are in private practice, embrace the idea and propose to your corporate clients that they organize such a ‘strategy day’. Don’t try to make it exclusive and make sure all competing panel firms are equally represented. If not, it will completely miss the purpose. My new book ‘Data & Dialogue, a relationship redefined’ stresses the importance of dialogue between companies and law firms and vice versa. It gives hands on insights in what can be done to improve the relationship. Data & Dialogue is available through your local Amazon website, both in paperback and e-reader. Buy your copy now.

Companies all over the world and in all sorts of industries or sectors constantly have to adapt to changes in the market. Keeping up with developments and expanding into new lines of business or new markets can be challenging. More often than not a business has to enter into uncharted territories, where there is little guidance or historical data to fall back on. This is not only about 5G edge computing, Artificial Intelligence or self-driving cars. Also, more traditional industries are faced with massive changes. The construction industry is moving towards circularity and aircraft engines are no longer being ‘sold’ but exploited as a service (they don’t sell the engine, they offer propulsion). All this raised legal questions on ownership, finance, liabilities, the regulatory framework and much more. However diverse, what all developments have in common is that some uncharted legal territory is involved. There is a need to have free brainstorming discussions in the earliest stages of product development. Long before there is a concrete direction to pursue. In my day-to-day practice, I have regular conversations with business leaders and their legal teams. After a while I started noticing that on strategic product development there is often a significant gap between what companies need and what law firms offer. Frequently companies share their frustration that their outside counsel is unable to provide them with significant input in the early stages of new developments. Companies are looking to embed their outside counsel in internal working groups that are working on exploring developments that will drive change in their business. This cooperation is sought for the early stages, well before any concrete product will be launched. It is part of the strategy development process. The issue is that few if any law firms are able and prepared to do this. There seems to be a misalignment between what clients need and what law firms can offer. So, this is the situation: companies are looking for lawyers to actively participate in early stage thinking processes. Law firms are in general unable to meet this demand, leaving clients frustrated. Let’s examine what is causing this disconnect between demand and supply. In general, when law firms are talking about innovation, they mean digital innovation but technology does not equal innovation. Countless law firms make statements on their websites on how innovative they are. These days many law firms even employ an official ‘Head of Innovation’ or ‘Chief Innovation Officer’. Innovation has become a PR and IT thing and is often delegated to an individual or department. Innovation is hardly ever carried into the micro-vessels of the firm. Innovation is seldom part of the primary process. There is very little appetite for autonomous legal innovation. Few law firms have working groups that think about legal aspects of future developments in society and technology and their impact on their clients’ businesses (no, Blockchain does not count). Narrow spectrum expertise Increasingly law firms are organized in silos that operate independently alongside each other. Also lawyers have become more specialized (I have written about this before). These developments have narrowed the scope of lawyers. Today’s lawyers show little interest outside their core area of specialization. Why would an expert in construction law be even remotely interested in ISDA and derivatives? And that exactly is the problem. If contractors or property developers start building circular buildings, they might be interested in putting a cash value on the future recycled building materials and sell it already before the building is even completed. Someone else could then turn this in a tradable derivative helping to create upfront cash flow. I’m not saying exactly this should be done, it is merely an illustration of the type of lateral thinking that clients are looking for. Silos and specialization are currently standing in the way. Lawyers are no longer equipped to look beyond the scope of their expertise. Pressure on individual performance The other aspect that might stand in the way of meeting clients’ demand as it comes to ‘brainstorming’ might be the business economics of the law firm. Law firms in general are pushing very hard for individual partner performance. Partners need to perform individually, not collectively. Partners are under a lot of pressure to meet their individual targets. For clients it is sometimes hard to imagine just how stressful it is to produce >1500 billable hours and > 1.5 million in annual revenue. The pressure is always on. So why personally invest valuable time in innovation and risking not meeting the targets. Much safer to handle innovation on a firm level and spread the costs and the risks evenly among all partners. Simply not interested in the law Just to provoke a little and to make a point, I sometimes state that lawyers are not interested in the law. This will sound strange at first glance. How can someone who made a career as a lawyer not be interested in legal issues? What I mean is that lawyers are typically only interested in the file that is on their desk right now. This is the culmination of specialization and personal pressure described above. After years of practice most lawyers have lost their general legal curiosity. Why be interested in the legal aspects of issues that do not have any direct relevance for one’s personal day-to-day practice. Legally lawyers are becoming narrow minded. When trying to remain relevant in an ever evolving, increasingly complex and interconnected world, this is not very helpful. Lawyers need to regain their curiosity! Solving tomorrow’s problems and helping create business opportunities for clients requires lawyers who are capable of connecting the dots. True innovations can only come from multidisciplinary creative thinking. In order to remain relevant to their clients and provide value, lawyers need to regain their curiosity. The natural curiosity everyone possesses as a child. The curiosity that helps explore, navigate and understand the world and to find new solutions. This is a quality the profession will need to develop and nurture from early on. Even as early as from university. The legal profession needs to escape from the silo’s, stimulate true interest in legal dimensions and start contribution to its clients’ innovations.

From a sociological perspective, law firms are very different from any other business*. On the one hand there is within a law firm the clear distinction between fee-earners and staff (the non-fee-earners). Despite the fact that both categories are part of the same organization, they form two distinct separate classes: an upper-class (fee-earners) and a middle-class (staff). These two classes do not mix well. Even a non-lawyer, CEO or COO will as it comes to it, in the end be seen as part of ‘middle-class’. Typically, when a corporate event such as a skiing trip is organized, it is only for the fee-earners (upper-class). For staff there are often no such perks. The other relevant distinction is between equity-partners and the rest. This type of social ‘class system’ found in law firms is quite unique and is not found in other businesses. In any ‘normal’ type of business, all employees would be seen as equally important. In my early days I have worked in retail and certainly the sales team is not more important than the buying department, logistics, real-estate management, or any other function. Each employee has its own role and contribution, and everyone felt an equally important part of the same organization. This holds true for all forms of businesses. It also holds true for in-house legal departments: regardless, the job title or role, everyone is part of the same team. No ‘upper-class’ and ‘lower-class’. In ‘normal businesses’ there is also no equivalent for equity-partners. Yes, some business is family owned. Some other businesses have founders and large shareholders among the workforce, but these ‘owners’ tend to all work for the same common business goal. What makes law firms unique is that each equity-partner works primarily for his/her own benefit, rather than for the benefit of the firm. What further makes law firms unique is that equity-partners form a special ‘upper-upper-class’ that lives and operates different from ‘normal’ company management (or large shareholders). Sociologically law firms are a species sui generis. For the purpose of this article we will concentrate on the equity-partners. If we can change equity-partners, we can change the firm. There are clear distinctions between the most talented and experienced non-equity lawyers and those who made it equity partner. Once you are promoted equity-partner you not only become part of a ‘the club’ also another form of transformation takes place at the same time. In the first week of May 2019 we have witnessed the inauguration of the Emperor of Japan and the King of Thailand. Both gentlemen underwent a transformation similar to a lawyer who is made partner. The day before the coronation both Naruhito and Vajiralongkorn were humans and now, they are considered sort of ‘divine’ and infallible. Becoming equity-partner is not dissimilar. The one day you can still ‘be wrong’, the other day you are supposed to know everything and supposed to always be right. Equity-partners are supposed to be (and sometimes see themselves as) Super Heroes and act accordingly. All these sociological quirks are part of reality but not per se in the future interest of the firm. Data suggests that law firm business results will be better if there is more equality and teamwork. Not only between lawyers and staff, but also between equity-partners and lawyers and among equity-partners. So, in order to improve business results, we might need a different type of equity-partners: humans, not super-heroes. Let’s look at the 6 most important criteria to look for when appointing a new equity-partner. Creativity The reason that I do not mention legal skills, is that this should be a given. Any lawyer lacking the required legal skills should have been dismissed long before the partner nomination procedure starts. All remaining senior lawyers should have legal skills equal to the equity-partners. The first and most important criterion is therefor ‘creativity’. The ability to find new and effective legal solutions. The verbal creativity to convince people and let them see the world your way. The creativity needed to find an alternative approach or solution if needed. The analytical creativity to spot when things that seems logical and factual, are actually fraud. As the legal industry will move towards value-based billing, it will need lawyers that can deliver this value. Value will be in ‘creation’ and not in ‘production’ as it is today. Practice Development The second most important skill to look for is the ability to bring in new business. Equity-partners have the responsibility to bring in new business. A great lawyer that does not possess the ability, the ambition and the skill to bring in the right clients and the right matters, should never be made equity-partner. Practice Management This one is sort of obvious, but often overlooked. Being an equity-partner means that you have to be able to plan ahead in a structured manner. The times that a partner could leave requests lingering on the desk only to remember and panic the last minute are well behind us. Both associates and clients do not want to receive stuff five minutes before a deadline expires. Tomorrow’s equity-partners must have the ability to seamlessly work with project-management professionals. People Skills / Emotional Intelligence Being an equity partner requires well above average people skills. Without the right people skills, it will be very hard to attract the right clients. Without adequate people skills it will be impossible to manage and keep a good functioning team of associates. Gone are the days that partners were allowed to shout at associates (or anyone else for that matter). The new generations of Millennials and Gen-Z simply are not willing to work with bullies. They certainly don’t mind working hard, but they want to be taken seriously and treated with normal respect. Emotional intelligence is absolutely required to work with today’s sophisticated clients. Lawyers that are not able to understand the client’s social and emotional motives and drivers, will not be able to deliver the value that clients are looking for. Autistic partner behavior is a thing of the past. Presence / Confidence An equity-partner must have the ability to represent the client when the stakes are high. This will only be possible if the partner has a good (and relaxed) self-confidence. Partners must have the ability to handle really complex and tense social situations. Explain and defend their client’s position in person (in writing is much easier) even if the other party is much more powerful and holding better cards. Partners must ooze confidence and have a presence in the room. Integrity The 6th and last of the criteria would be integrity. These days we have seen far too many examples of lawyers who got involved in shady business on behalf of their clients. We have seen lawyers accused and found guilty in #metoo situations. We have witnessed lawyers over-billing their clients, partners covering up mistakes by other partners, partners favoring friends, and so on. One could say that is goes without saying that integrity for partners is paramount. Unfortunately, reality shows that it is not. We are aware that in law firms partner promotions tend to be sort of revenue focused and opportunistic and that in many firms there is at present no structural approach that would include all of these 6 criteria. We are convinced that, given what the legal profession will look like in the near future, law firms should start applying different criteria and raise the bar substantially as is comes to new equity-partner promotions. Having said that, we do not believe in Super Heroes and we do not believe in a class society. On the contrary. Tomorrow’s partners need to be able to collaborate and work in teams and will need to be more human than ever. Only real humans can relate to other humans. In the end the legal profession is very much about humans, their interactions and their emotions. * the 'class system' has been overemphasized for discussion purposes

For my working life, I use LinkedIn a lot. Not only do I post articles, I also read articles posted by others. As far as the legal industry is concerned posts on legal technology seem to dominate LinkedIn. It seems as if thousands of lawyers are participating in hackathons, working on block chain or are working on developing AI based legal technology. I am aware that LinkedIn is not representative for all lawyers, but judging from what lawyers post, like and comment, legal technology seems more important than actual legal topics or real world client interaction. In a way Legal Tech is like teenage sex: everyone is talking about is and everyone thinks everyone else is doing it. We have witnessed several law firm partner meetings where one of the partners states with much aplomb that the competing law firm down the street is using all sorts of fancy technology, so why is his firm lagging so much behind. Much of the investment law firms do in Legal Tech is driven by the fear of losing out. Often the relationship between lawyers and Legal Tech reminds me of the well known French cartoon Les Lapins Crètin (Rabid Invasion in English). Partners running around very excited, but without a clue. So what are the current legal technologies? In 2016 we have done an inventory of legal technology and we found around 1200 companies producing and selling software and technology in the legal sector. One year later this number had risen to 1600. Today it will probably be close to 2000 products and companies aspiring to conquer the legal sector. While it is impossible to list and describe every single one of these 2000 products, we have made the graph below that divides the market into 10 main categories that can again be divided into 24 sub sections. I expect the graph to further speak for itself. Please be aware that among the 2000 companies most are ‘hopefuls’ that try to strike gold through developing a product for the legal market. History teaches us that 85% of the Legal Tech companies storming the legal market today, will have ceased to exist in about 5-years’ time. Recently I have been part of a jury for a Legal Tech Award. During such a process one cannot help noticing how much competition there is. Just for GDPR there were over 25 entries that all looked similar yet claimed to be unique. The vast majority of Legal Tech is on venture capital. They desperately need you as a client in order to further develop their product and in order to get more funding. Fake it till you make it as they say in Silicon Valley. Much of the Legal Tech sadly falls into this category. What problem are you going to fix and how will you monetize the investment? We recommend for any law firm to have a clear strategy as it comes to investing in Legal Tech. This strategy should at least describe the problem you want to solve and calculate how the firm is going to monetize the investment. Surprisingly, this elementary step is often skipped, and law firms embark on a Legal Tech adventure into the unknown without a clear view on how the project will contribute to the bottom-line results. Lawyers are lawyers, are pressed for time and fully occupied by their clients. In general, there is little interest to dive deep into Legal Tech. Partner groups decide on a ‘gut feeling’ that investing in Legal Tech is the right thing to do. Please be aware that I am not saying that law firms should not invest in Legal Tech. On the contrary, I think it is essential to invest in technology. The core message here is that there needs to be a vision and a strategy first. The most obvious reason to invest in Legal Tech is the fact that the distinction between Creation and Production as the two parts of the legal process [Read More Here] [And Here] will inevitably put increasing pressure on Production to be done in a more efficient manner. If today an associate needs 3 days to complete an agreement, in the near future the same work by the same associate needs to be completed in just one day. It is still the same human being that is in full control of the content, it will just need to take less time. Legal Tech is needed to make this possible. Increasing efficiency should be one of the prime areas of Legal Technology. Make no mistake, I am not saying that the computer is going to replace the lawyer. The work of a lawyer will not be reduced to ‘just pushing the button’. The lawyer will need to remain in full control. The same task will just take less time to complete. This is not unlike writing letters, which was once done by dictating a memo which the secretary would then type and hand back for review before being put in the post. A method which was very time consuming. Today the same letter would be typed directly in Word and send by email. This takes only a fraction of the time and is far more efficient while the content (the product of intellectual labor) remains unchanged. If lawyers become more efficient, you will either need less lawyers or more work. If we look at the Venture Capital investments into Legal Tech, most investment is made into products that can help enhance the efficiency of lawyers (both external and in-house). E-discovery is a great example: humans are now augmented by technology and the whole process today takes only a fraction of the time is used to take when all was done by hand. Substantially less lawyer time needed to complete the same task at the same or better quality. There are two more areas that I think are worth highlighting in this article: Cyber Security and Data Analytics. For lawyers, cyber security should be paramount. Not only is confidentiality part of the core business, the primary process is also totally reliant on data that is digitally stored. We have seen crypto lockers cripple law firms as no lawyer could access any files. So please take your cyber security very serious! The second area would be data analytics. As you could have guessed from the title of my new book, data analytics will reshape the business of law. This will be done by identifying and eliminating inefficiencies in the process, but also as part of a movement towards Prevention and Prediction which will be the topic of one of the upcoming articles. We see great opportunities for law firms that will take the lead in this area. Today we are already working on this with some of our clients.

This article was first published on Bloomberg It has received surprisingly little attention, but some large corporations have been mining and analyzing data on their legal spend for years. What initially started out as fiddling with Excel spreadsheets has now evolved into sophisticated data analytics. This has not been an easy journey. These companies have subsidiaries all over the world and invoices from the law firms they used were structured in many different ways and often filed locally on different systems. Pulling all this data together and making it uniform has been a herculean task, but it has been done, facilitated by the adoption of e-billing systems. Legal matters come in thousands of different forms and shapes. To do meaningful analysis on the basis of which valid conclusions can be drawn, incredible amounts of data are needed. This is the prime reason that law firms have great difficulties in using data analytics to predict the amount of time needed for a new matter. Law firms simply do not have sufficient data to work with. For the world’s largest corporations this is different. Their legal spend outpaces the revenue of any individual law firm. These companies by now have more than enough clean data to do meaningful analytics. For data, more is always better. There now is a cross industry alliance called SALI working on a uniform industry standard for the classification of legal matters. Once this standard has been finalized and put in place, every party in the legal industry will be able to classify legal matters in exactly the same way. This will open the door to pooling of (scrubbed) data in order to make data analytics even more reliable and relevant. Soon there will be sufficient data to analyze and benchmark any type of matter in any jurisdiction. Every increment of time spent will be transparent. Using Data to Increase Efficiency Analyzing time-keeper data will enable companies to see where and how they spend their legal budget. Data analysis will also be used to pinpoint the inefficiencies that have up till now been an inherent part of the process. After the financial crisis, the Association of Corporate Counsel launched the value challenge as a platform to help its members lower the costs of external lawyers. For more than 10 years now clients have employed a number of methods to get better value. All were centered on price and rates. Despite all efforts, little progress has been made. Data analytics now opens the door to have a closer look at time-spent. Early results look promising. Eliminating inefficiencies in the value chain can deliver savings up to 25 percent, everything else remaining the same. Same law firm, same rates, same quality, same result, just less time “wasted” along the way. In a business that is selling time, it will pay off more to save on time than on price per unit. Data analytics will not stay limited to the small group of pioneers that first started it. As the SALI initiative shows, there is a potential for open source sharing. Why keep all the data for yourself as it is clearly in everyone’s interest that the pool of data gets as big as possible in order to provide even more reliable insights? There will be a huge opportunity for the party that will host and maintain the data, albeit without monetization (no company will contribute data to a database and then have to pay to access it). Not All Hours Are Created Equal For about the past 50 years, the legal industry has worked on the basis of time-based billing. Yes, we increasingly see alternative fee arrangements, but in the end, these are also based on time-spent. The value of legal services to the client is, however, in reality not related to time. From the client’s perspective it is strange that an hour spent by a partner on a defense strategy has the same price as an hour spent by the same partner listening in on a conference call. One could argue that the hourly rate does not cover the value of the hour spent on strategy, but that the hour listening in on a call would be overpaid. Not all time spent by a lawyer holds the same value to the client. However, in real life this imbalance is more or less evened out because of the large total number of hours on a matter. When clients with the help of data analytics start focusing on time-spent this balance will be distorted and the underlying business model will no longer work. As there will be less and less “over paid” hours to compensate for the “under paid” hours, the time-based billing model will crash. Time does not represent value. It never has, but it sort of worked. Not anymore. Data analytics will reshape the business of law. The future will be value based billing. Read more on this topic in my new book: Data & Dialogue, a relationship redefined (available on Amazon)

After more than two years of writing, my new book was finally published on 1 April 2019. Data & Dialogue, a relationship redefined is now worldwide available on amazon.com and all local amazon sites. In the first 30 minutes over 100 copies were sold. This is going to be big! The book explores the relationship between companies and the law firms they use. It explains in great depth the inner working on each side, in order to help clients better understand what drives lawyers and lawyers what drives the client. As you may know, I have written the book together with Vincent Cordo, who is a highly experienced Legal Operations Executive and is widely considered one of the thought leaders in his field. One could say that no-one knows better what clients are looking for than he does. During the process of writing the book, I have had conversations with many of the world’s leading GC’s and with some of the CEO’s that employ them. I have spoken with the managing partners of the elite law firms, the Big-4, litigation funders, legal tech providers, leading academics and more. Writing this book, we have had input from all those who are at the very frontier of development of the legal industry. Thanks to all these insights, the book contains an unparalleled amount of knowledge to share. Towards a data supported relationship Data & Dialogue, a relationship redefined, shares in detail what is going on right now at a leading group of multinational companies that have bundled forces to develop and share best practices and time-keeper-data in order to better manage their relationships with external law firms. Those of you that are not familiar with these developments will be blown away by what has already been achieved. Have you ever heard of SALI (page 113 – 115 of the book), the inter-company working group to define uniform matter coding/classification for the legal industry? Once the uniform classification standard has been agreed, there will virtually be no limit to the amount of data that can be used for analysis as companies can easily share the scrubbed data. More data means higher reliability. The industry is moving towards data supported relationships at a pace faster than most law firms are expecting. Data analysis will not only provide valuable insights to companies on where and how they are spending money on legal issues (Quarterly Business Reports, page 102 and onward), it will also enable companies to define benchmarks and identify inefficiencies in the value chain. As I have explained in earlier articles, clients are not per se looking to pay less. They are looking to receive better value. Better value does not automatically mean a lower price. Both high and low price can equally represent good and bad value. The relationship is explained by means of the TGO Value Matrix© (chapter 4 of the book). Supported by data analytics clients will demand lower prices for those parts of the value chain that deliver low added value (production) and will be prepared to pay more for those parts of the process that have clear added value (creation). Time-based-billing will prove to be unsuitable for this situation as there is no objective relation between value and time. More time does not mean more value, as is also true the other way around. Clients demand better value, not a lower rate Discussing this with law firm leaders I am often met by a lot of frustration. Many lawyers are convinced that clients are only looking for the lowest price. Lawyers are often frustrated that besides price nothing seems to matter. Mention ‘procurement’ and some start foaming from the mouth. A great number of lawyers is convinced that quality and service do not matter anymore to their clients. The surprising reality however is that a significant majority of clients is not looking for the lowest price. The graph shows a ‘balanced scorecard’ as it is used today by many clients. As you can see in this example there are 15 criteria that taken into consideration in deciding which law firm will be awarded the matter. You will notice that only 2 out of the 15 criteria are price-related. Each of the criteria gets a weighting factor. As the example shows both ‘overall pricing value’ and ‘strategic approach’ get the highest factor. Price obviously is important, but overall value is what counts. As explained: price and value are not the same thing. When I show this graph to lawyers, they agree that it makes total sense. It would be reckless for a client to just go for the lowest price. Actually, this is what we all do in our daily life. Which person would always buy the cheapest product, take the cheapest airline, wear the cheapest clothes and so on? From a rational functional point of view a low-cost airline will get you from A to B just like a premium airline will. Both are equally safe. But still the majority of travelers would prefer to pay more for the extra service, the more generous luggage allowance and the more convenient time slots of a premium airline. For them the higher price represents a better value. Also in our personal life value and price are not the same. The book Data & Dialogue, a relationship redefined is available on amazon.com – amazon.de – amazon.fr – amazon.es – amazon.it and on amazon.co.jp. The book has 300 pages. Prices vary per market form GBP 25 to USD 29 and JPY 3,472. Buy your copy and let me know what you think. There is an inspiring future with great opportunities ahead of us!

2018 I retired as Co-General Counsel and so it may be timely for me to give a few reflections on compliance best practices. I was GC at Ashurst, an international corporate law firm with offices in sixteen jurisdictions. Thus my perspective has been framed by a globalised/international approach but I think that many of the core issues and strategies are applicable to other types of law firms with a different profile and/or a different client base. A notable trend in law firm management from 2000 has been the development of law firms instituting their own internal General Counsel, Compliance and Risk Management functions. This has primarily been prompted by self interest – in acknowledgement of the size and complexity of modern law firm enterprises. It has also been prompted by client and regulator pressure and requirements. Whether or not firms have a self standing Compliance and GC function depends on many factors. These include the size, turnover, complexity, areas of practice, geographical spread and so forth. Even if a firm does not have [yet] these as separate functions, nonetheless some partners or managers will have the relevant responsibilities and many of my following comments are equally applicable to them. “Compliance” is a word or concept that is bandied about with flexibility – a bit like “cyber”. It can mean different things to different people. I regard it as a spectrum on which compliance, risk management and governance sit along with many subsets e.g. regulatory compliance, legal compliance, reputation management, ethical practices, strategic alignment, quality assurance and constitutional issues. Additionally, a firm’s notion of compliance also depends upon the experience and maturity of the firm, including how long it has had compliance processes in a formal sense and how they grew up and so forth. Many firms compliance practices have grown in an organic way may not have been reduced to writing. There is an increasing need to have documented processes and practices to show to regulators and clients. One of the most important keys to successful compliance is getting sufficient of the firm, and in particular key opinion formers, to buy in to compliance. Once beyond the tipping point the rest generally follow. Getting “buy-in” can take time, be influenced by software systems introduced to address the most important needs, be dependent upon the character and experience of the GC and on the overall ethos of the firm. However if adequate compliance is to be achieved, “buy-in” is essential. In international firms compliance processes should be applied in such a way that there is an appropriate balance between the need to have one global approach to a particular issues – to enhance the “one firm” selling point – with the need to be sensitive towards local office and jurisdiction approaches and laws and regulations. This rarely becomes a big issue but nonetheless needs to be recognised as one and kept under review so that any variances are known and adequately controlled and do not develop into fissures. Compliance best practice requires everyone in the firm, lawyer and non-lawyer, to be trained to an appropriate standard. Many issues (e.g. information security and assurance and data protection) apply to everyone in the firm whereas some issues are more relevant to particular sectors e.g. business inception. Not only does initial training have to be given when people join the firm and/or there is new legislation but there is also a need for periodic up-dating or refresher training. Best practice involves having a multi-fold approach to training involving many different channels including face-to-face, e-training, mobile app devices, webinars and so forth. In some areas there is a legal requirement for refresher training (e.g. AML refresher training in the UK) which makes it a little easier but more generally there is no such legal sanction so one must rely on the carrot or stick approach. Client terms and client commitments, often contained in “Outside Counsel Guidelines”, are increasingly important and onerous and introduce new compliance requirements. Before any new terms are entered into or renewed they should be reviewed by compliance. This is to check that the firm can meet the client requirements, particularly any IT and data security requirements, to ensure that they do not cut across any other clients terms (e.g. conflict requirements) and the firm’s strategic alignment interests. Dissemination of client requirements to the firms’ lawyers and relevant departments e.g. finance and IT is a challenge too. There are software systems to help. Another approach is to place the obligation on the client or matter partner to cascade the client requirements to the legal team on a matter. Of course, one of the greatest current challenges, not only to law firms but to clients worldwide, is the whole issue of data security and protection that has been put into particular sharp focus by the General Data Protection Regulations (GDPR) introduced by the EU last year. In this context the Panama Papers and subsequent leaks are also very important. The need for firms to have a much better understanding of both client data they hold and their own internal data and personal information and the need for appropriate consents, measures and controls to be applied to that information and data, have created a new sub-set of compliance teams and/or made firms re-evaluate and reconfigure their information and data security groups. It can no longer be left to the Business Development or Marketing function. Given the ubiquity of this issue there is generally less need to get “buy-in” but nonetheless there may still be an element required e.g. explaining to partners it is an opportunity to re-engage with their contacts or clients rather than it being seen as an intrusion. As the potentially adverse consequences if data is improperly held and/or disclosed, this is an area where refresher training is going to be particularly required. Whilst firms have to achieve relevant legal and regulatory requirements, there is rarely only one particular compliance approach that has to be applied to achieve the outcome. Usually there is flexibility and acknowledgement that the best practice for any one firm needs to take into account the firm’s history, the firm’s current standing and experience and its future development strategy. Chistopher Vigrass has been a London based partner at Ashurst throughout his professional career. The last decade he has acted as the firm's General Counsel and Head of Compliance. With is knowledge and experience he is widely considered one of the industry's pioneers in his field. Today Chris is an independent consultant.

During the process of writing my new book ‘value’ has been one of the center points. Clients are always looking for better value. In-house departments are trying to deliver value to the companies that employ them, and lawyers are under increasing pressure to deliver value to their clients. After a lot of thinking and doing extensive research we have eventually developed the TGO Value Matrix© I have written about this in one of my previous blogs [click here]. The matrix will indicate what price point will reflect a good value proposition. What it does not show is what the substance is that creates the value. During the handling of a matter, lawyers spend time. This process starts on day one and lasts until the matter is finished. This process can be divided in many small steps in which at any time one or more lawyers are involved. Involvement will depend on required expertise and experience levels needed to complete a certain step. During the whole process all time-keepers are keeping track of the time they spend. Typically, in multiples of 6-minute increments. Total time is then multiplied by the going rates and we have a price to charge to the client. Not all hours are created equal. The fact that every increment carries the same price suggests that every time unit has the same value to the client. The problem is that this is not the case. Not all hours are created equal from the client’s perspective. A partner will charge the same hourly rate for outlining the strategy as for reviewing documents or taking part in a status-update conference call. Yet, from the perspective of the client outlining the strategy will have much more value than the time spent listening in on a lengthy conference call. In order to better understand which steps of the process create the most added value, we need to distinguish between ‘creation’ and ‘production’. Creation is what is the product of the unique skills, brainpower, experience and expertise of the lawyer. To think up a brilliant strategy may take only a moment of enlightenment, but it can make or break a matter and has great value to the client. If charged by the hour this value would not be reflected in the price. I know a lawyer who was called by a client, a listed company, when a big credit had been revoked by the bank, just one week prior to a quarterly investors call. Not a good situation for a company to be in. This lawyer managed to solve the issue and have the credit reinstalled in time for the call. So, what is the value, two days of work? No, to the client this was worth 150.000 euro and the lawyers charged accordingly. Happy client, happy lawyer. Besides creation, there is production. Production is everything that is needed to make things work. Production is execution. It is for instance the production of all documents needed. Since these documents are all created within the framework set in the creation part of the process, these have as such very little added value to the client. The problem, again, is that lawyers are charging the same hourly rates, regardless whether it is creation or production. Regardless the added value to the client. I recently had a conversation with one of the real estate transaction superstars in a certain jurisdiction. This lawyer on his own generated over 10 million in revenue. I asked him if he felt, that under his leadership and direction the end result would be the same if he had to work with an experienced team of associates from a mid-tier firm that also does real estate transactions but charges 50% lower rates. He confirmed that the result would likely be the same. The value is in his experience, market knowledge, negotiating skills and strategic brilliance. The team is only needed to produce and process the documents. The pressure on lawyers will increase to lower the cost of production. This is an area where technology certainly can help. Already today there are many IT solutions that can significantly lower the time spent on production. In the future there will be even more technology that can be employed to do all steps of the production as efficiently and cost effectively as possible. People will soon become too expensive and too inefficient to play a major role when it comes to the production elements of the matter. It is clear that this split between creation and production will have a severe impact on today’s time-based business models of law firms. Today clients are paying very little for the most valuable part of the process: creation. And clients are paying too much for that labor-intensive part: production. One could argue that today on average the client pays the right price. Even if this were the case it will no longer be true if the time spent on production is reduced and reduced until machines are capable of doing most of the production work. Lawyers will need a new business model that is based on value-based billing and in which the time-spent is no longer leading. I am convinced that this is the direction in which the industry will be moving. In 5 to 10 years’ time there is no money to be made producing stuff. The value will be in the ability to create and to come up with smart legal solutions, smart strategies and creative thinking that will determine on a conceptual level what direction to take. To deliver value through creation we need lawyers with different skills. Once the industry, both clients and law firms, starts to realize that the value is in creation and once -that will be pretty soon- technology will be able to handle most of the production, the role of lawyers will be significantly different from today. Today law firms have substantial leverage and have based their business on a small army of associates who are performing boring tasks at substantial hourly rates. These lawyers today do not need more than to be diligent, precise and have a good knowledge of the law and legal procedures. No rocket science, just do what needs to be done. Producing and processing document after document. This is exactly what lawyers are trained by universities to do. Once when in the near future creation will become the core of the value added by lawyers and law firms, we will need a different kind of lawyers. There will be less and less need for old fashioned lawyers. The monopoly on legal knowledge has been lost and the production work will have little or no value. In order to survive lawyers will need to be smart, street wise, business savvy, creative, pragmatic, solution oriented, have excellent people skills, and so on. We are no longer looking for diligent students with above average academic grades. The legal industry will need lawyers with an entirely new set of skills. None of these skills are currently taught at universities and law colleges. To remain in business and meet the clients’ demand for better value, lawyers will need to focus on human skills. For me this paints a picture of an inspiring future in which being a lawyer will be more ‘fun’ than ever before in the last decades. Finding the right talent and training and educating today’s lawyers will take time. Who wants to be successful tomorrow has little time to waste!

Next month, my new book ‘Data & Dialogue, a relationship redefined’ will be published. The book is about new developments in the relationship between law firms and their clients and vice versa. The book describes what is today already going on at the frontiers of that relationship and how industry pioneers are working towards data supported relationships. In highlighting the challenges and the opportunities the book will outline what the relationship will look like in the future. In doing research for the book and speaking with law firms, in-house teams and leading academics, it turned out that there was need for a viable model for calculating ‘value’. That is why we at TGO Consulting have developed the TGO Value Matrix©. We have tested and evaluated the TGO Value Matrix© with in-house teams and it turned out to be robust. It provides for the first time a usable tool to establish what is value to the client in different markets and for different practice areas. As the model shows, there are two main factors that determine which price will be perceived as ‘good value’ to the client. On the vertical axis we have ‘return on investment’. ROI is how much money the client can potentially make (or save) by spending money on external legal counsel. When a company has to spend money in order to make money, this is seen as an investment. This is equally true for legal. Spending money on a lawyer is no problem as long as it helps me make more money. This explains why companies do not mind spending money on M&A lawyers. The acquisition or the merger represent a potentially good business opportunity. This equally holds true as it comes to limiting damages. Spending money on a lawyer in order to prevent or reduce a potentially huge fine or penalty, is seen as a good return on the investment (investment in a star lawyer handling the case). The horizontal axis of the TGO Value Matrix© represents what we call ‘commoditization’ of legal services. Commoditization happens when the client can easily choose between multiple lawyers and multiple law firms that can handle the matter equally well. This has nothing to do with the complexity of the case. Especially in the more mature legal markets like London or New York, there will be plenty of qualified and experienced lawyers that can handle complicated matters and as a result the value perception and thus the price, will go down. The more readily available a certain expertise becomes, the less surcharge it can command. Interestingly what is considered a commodity will depend on the market. For example in project finance, all but the most complex work will be considered a commodity in London, while in Nigeria you might struggle to find one or two lawyers who have knowledge and experience in the field. Commoditization is to be distinguished from ‘bespoke’ as the two are often mixed up. Almost all legal advice will be bespoke as it will be tailor made for a single client and a specific matter. So commoditized work is almost always bespoke. There are just too many experienced lawyers to make it ‘special’ to the client. Many lawyers can handle the job equally well. While doing our research leading up to the development of the TGO Value Matrix© we found two other factors that have a significant influence on the client’s value perception: relationship and brand power. Analyzing data, we discovered that there is a 0,9 – 1,1 correction factor for relationship and a 1 – 1,1 correction factor for reputation. This means that clients are prepared to pay up to 10% more for lawyers with whom they have prior outstanding experience as where lawyers who have no previous relationship with the client will need a 10% discount to be perceived as equal value. Lawyers and law firms who have a exceptionally strong reputation can command a price that is up to 10% higher than their peers that have equal quality but not the stellar reputation in the market. Please be aware that both factors can not be added: existing strong relationship and a strong brand reputation will still only allow for a 10% higher price (and not 20%) when compared with other lawyers who from an objective point of view have exactly the same experience, quality and skills. Now having explained the factors that determine what represents value to the client, it is time to explain how to read the TGO Value Matrix©. Value is represented by the diagonal line that runs form top left to bottom right. All points that are on the same line at 90 degrees on the diagonal represent equal value to the client. This is in part represented by the red color. All points in the graph that have the same intensity of red are equal value. Here is an example for the New York market that will help explain: Top left you see multi-billion-dollar M&A, IPO, and Litigation. These have a very high return on investment for the client and there are even in New York only a hand full of lawyers that have extensive experience whit this type of matters. So we have a very high return on investment and a limited number of lawyers qualified for the job. Also, on the left, but more towards the bottom we have complicated competition issues. Here we have again a limited number of lawyers capable of successfully handling the matter, but there might not be a high monetary return on investment to the client. So even though the number of qualified lawyers is limited, the price perceived as good value will be significantly lower that with the high value M&A. Simply because there is only little of no monetary return on the investment. Towards the bottom right segment of the TGO Value Matrix© we see matters that can be handled equally well by many lawyers and that provide little or no return on the investment for the client at all. Spending money on external counsel to handle this type of mandates will be seen mainly as costs to the client and thus the client will only want to spend as little as possible. Please keep in mind that this type of advice will still be bespoke. Bespoke does not protect from commoditization. It will be in this segment of the market where legal technology and market disruptors will have their biggest impact. Matters that are in the lower right part of the TGO Value Matrix© will soon be under tremendous price pressure as clients are determined to get better value. In order to develop a strategy for your law firm or your practice you need to ask yourself the question where you are: are you part of the opportunity or part of the cost? We are happy to help with answering that question and defining how to move forward. So please share your thoughts and let us know what you think!