Year: 2019

We all remember what impact the Great Recession had on large corporate legal departments. Like every company unit in a downturn, most legal teams felt extreme pressure to hold down costs. However, our data shows that despite a two-year dip in profits for Big Law partners, rates and hours continued to climb.

That’s why it’s interesting to see the culture shift explained over at Law.com, where Legaltech News reporter Victoria Hudgins describes how corporate legal departments are shifting emphasis and investment into legal data solutions.

“There are many ways we need to be nimble as a law department,” said James Michalowicz, senior manager for legal ops at TE Connectivity. “We need to be lean, and the technologies we’ve invested in allows us to be that way and allows for better positioning when a recession does occur.”

We agree, and we’re here to help legal teams weather any coming storm — recession or not.

Bodhala recently hosted an industry dinner that gathered top lawyers from premier private equity firms. At the dinner, a top PE lawyer with a major asset management firm told us that the cost of their premier firm partners, after years of rate increases, are beginning to be seen by the firms as problematic, even with budgets in the black. These are the best economic times possible for private equity, he said. “When things slow, legal will be viewed as a cost center that must make big cuts.  What are PE legal departments putting in place to get ahead of this so it does not present a corporate risk at that time?” 

We can help.

Bodhala, a groundbreaking legal technology platform created by lawyers to transform the half-a-trillion dollar global legal industry, was born in the aftermath of the Great Recession. While the economic downturn highlighted many needs for immediate cost controls, the advent of big data showed there’s hope to solve for many bad behaviors in Big Law: block billing, unexpected rate increases, lack of timely billing data, and inappropriate staffing decisions.

We recognized then that there needed to be a shift in the dynamic between legal departments and their outside counsel. Backed up by not only anecdotal evidence but with millions of dollars saved by our clients every year, we have already helped move the status quo forward.

Our proprietary benchmarking metrics and rate review algorithms generate detailed insights into every aspect of legal spend. An intuitive dashboard puts the information you need to make more cost-effective decisions about legal service providers at your fingertips, effectively boosting efficiency and reducing your bottom line. 

Contact us today to talk about how we can be that shield for any clouds that may roll in: https://www.bodhala.com/demo-bodhala

Dive Deeper

You might have found yourself thinking outside legal bills are a pain to reconcile. You’re not alone! In the first entry in our series on the legal department of the future, we help you avoid the 3 biggest legal billing problems our clients face.

FREE WHITE PAPER

With superstar rainmaker poaching on the rise, clients of Big Law firms must adapt so as to not be left holding the bag for the new normal where “money and data rule” at their law firms.

Over at Law.com, Christine Simmons sits down with elite legal recruiter Mark Rosen, where he talks about the poaching of a top M&A rainmaker and his team from Cleary Gottlieb Steen & Hamilton.

Over the last year, our team has recognized a shift in partner compensation structures, leading to massive payouts to the biggest players at the highest level of Big Law. This trend undergirds a number of other forces driving massive increases in billing rates for premium legal talent. The Wall Street Journal described this phenomenon citing Bodhala data in a groundbreaking deep-dive article earlier this year. Get that story here.

In late October, several sources described the departure of Cleary’s Ethan Klingsberg and his $30 million book of business.

According to Bloomberg, Klingsberg’s work included leading XL Group’s $15.2 billion purchase by Axa, Staples on its $6.2 billion sale to Sycamore Partners, and Google’s $2.9 billion sale of Motorola Mobility to Lenovo in 2014.

Along with him, his new firm, London-based Freshfields Bruckhaus Deringer, picked up a team in a direct move to boost M&A business, hiring on corporate lawyers Pamela Marcogliese and Paul Tiger, and litigator Meredith Kotler.

The new compensation plans will guarantee massive rewards for the team.

“Klingsberg, the rainmaker leading the group move from Cleary, will be much better rewarded at his new firm. He said Klingsberg is guaranteed $10 million a year for at least five years at Freshfields, after making “a little more than $3 million” at Cleary. The other partners moving to Freshfields also got “substantial increases.”

Most notable is what seems to be driving the move. Rosen said he believes Cleary’s “unsustainable” lockstep compensation failed to compete with Freshfields’ desire to pay top dollar for top talent. Per Rosen:

“It’s not a fair system. I don’t believe you can compensate an attorney who is responsible for $40 million worth of business the same way you can compensate someone with $4 million in business. Five years from now or even sooner, I don’t think there will be any pure lockstep firms left.”

Our team recognized immediately that this validated what our data and analysis has been telling us. Today, white-shoe firms are creating new lateral tracks to attract the biggest players — and their Rolodexes. This change has led to massive yearly increases in law firm rates across all levels of experience.

The fact is, partners have no loyalty to the lockstep system anymore. We’re finding that elite lawyers expect to get in the range of one-third of their book in annual guaranteed comp, or more.

This trend has intensified as competition for blue-chip clients heats up. For example, Kleinberg’s move potentially puts the M&A portfolios of elite clients such as Google, AXA, Verizon, Goldman Sachs, Lowe’s, Walgreens Boots Alliance, Square, Stanley Black & Decker, Tiffany & Co., and American Express at play.

What does this mean for purchasers of Big Law talent? Superstars, whose advice is truly gold-plated, will be rewarded handsomely. However, because of the Nobel-Prize winning concept called the “winner’s curse” in economics, firms will inevitably overpay for the few partners out there that have more than a $25 million book. This market incongruity will lead to unjustifiably higher rates passed on to their corporate clients in order to finance the move of the same partner from Firm A to Firm B.

This trend will continue, and the focus on money and data will continue to grow.

Bodhala clients strongly believe that they should not pay more for the same partner who has moved from Firm A to Firm B. We arm your inside legal departments with the tools they need to control unwarranted rate hikes. Your data, powered by our machine learning algorithms, can help you analyze, interpret, and optimize your legal spend.

Our team is eager to work with corporate legal departments to help explain this trend, and how forward-thinking general counsels can navigate through this “new normal.” Our proprietary benchmarking metrics and rate review algorithms generate detailed insights into every aspect of legal spend. An intuitive dashboard puts the information you need to make more cost-effective decisions about legal service providers at your fingertips, effectively boosting efficiency and reducing your bottom line.

Using billing data you already own, we provide:

• Legal spend transparency through data cleansing and rate card discount normalization to allow comparison,
• Reporting granularity, based on information from your own data,
• Rate benchmarking, creating a true price market,
• Guided counsel identification, and selection.
• Fit of work: Bodhala recognizes that there is a time when you need the premium firm. Our platform can help you identify those times, and separate them out from when you don’t.

No matter what form a law firm’s partnership track takes, or whatever shifts in the market take place, we know the only true metric is what you can find in the data.

We’re eager to help you understand this new trend. Contact us today to learn more.

Dive Deeper

Some of your lawyers might be superstars, but not everyone can be LeBron James. Check out how our proprietary system can get your legal team’s billing right, every time, with this FREE white paper:

FREE WHITE PAPER

Firm executives might consider themselves like professional sports teams, stacking the deck with superstars. But can they defend asking clients to pay every partner — every player on their team — as if he or she were an MVP?

Ketan Jhaveri, President and co-founder of Bodhala, shares a take on the modern-day law firm economics. Some people in a firm are that good. But the fact is, not everybody can be a unique once in a generation superstar, so stop pricing them like they are.

Dive Deeper

Some of your lawyers might be superstars, but not everyone can be LeBron James. Check out how our proprietary system can get your legal team’s billing right, every time, with this FREE white paper:

FREE WHITE PAPER

It’s your not-so-favorite time of year again: it’s rate card season! Whether you are in the legal department or procurement, your frustration level is probably at an all-time high as you manually try to track your legal rates from years prior.  

The truth of the matter is legal department employees poring over data in countless spreadsheets are not going to be able to establish the baseline needed to give the GC a fighting edge in negotiations. There are too many variables for human eyes to process. But there are steps you can take set your team up for success. 

As your team is inundated with rate cards from your outside firms for their new rate cards for next year, there’s a lot of jargon and confusing variables to consider, so we’d like to set forward some guidelines — a cheat sheet — to help you understand the steps ahead.

First, let’s lay out the basic nature of law firm economics: your work over the course of a year can be done by dozens of timekeepers at any one firm and hundreds or thousands across your portfolio. Each of these partners, associates, and paralegals has a different rate.  

While you may look at a blended rate to simplify things, these individual rates matter.  Even at a more general rate card level, a firm typically has ten to fifteen different rates for the associate and counsel level and ten to twelve different partner rates, depending on firm-specific seniority.   

Misunderstanding this rate structure can make it difficult to understand the true rate you’re paying for the work being done from the start. 

On top of that, there are several levels of rates that can change depending on a number of factors, including your history with the firm, the practice areas implicated by a matter, and the internal dates of matriculation for timekeepers at firms. It creates a laddering of rates in a sense. We call it the Hidden Staircase of law firm rates.

The Importance of Data in this Process

It’s hard to overstate how tricky the process of negotiating rates can be. To help you understand where this negotiation starts, think back to how your legal department’s spend has gone throughout the year prior. In every matter, you receive hundreds, if not thousands, of billing line items.

You can look at data points to get a sense of the direction of your spend. While it’s tempting to think that poring through spreadsheets or basic eBilling platforms can uncover a law firm’s tricks, they simply can’t. While these platforms give you, at most, a flat snapshot into your legal billing, there’s a richness, context, and breadth that’s missing. And while legal departments can try and triage in search of a solution for understanding the process, it’s important and far more challenging to dig deeper and get a broader view across your spend.

Our Approach Versus the Status Quo

At Bodhala, the leading tech platform enabling corporate legal teams to analyze and optimize their spend, we unlock the power of your data to help you get a firm grasp on rate negotiations. Most legal departments keep track of billing through spreadsheets and online forms systems, and we know that getting a handle on next year’s rates requires such a level of detail and finesse that it’s nearly impossible for companies to do on their own. 

Part of our power is our unique ability to analyze and explain your spend through data ingestion. Paired with Bodhala’s world-class machine learning data analytics platform, our robust legal billing rate negotiation process helps you get the most granular view on your spend, regardless of matter type or complexity. 

Our Proprietary Rate Card RFP Platform Enables Our Customers To:

• Simulate future spend expectations against past work
• Understand the complicated modern law firm economics behind associate and partner matriculation, which adds another dimension of complexity
• Distinguish discounts at the line-item level versus invoice level
• Understand how outside counsel has billed for work done
• Get real, data-backed predictability to manage spend moving forward into next year

In the Meantime

We want to be a helpful guide on this Hidden Staircase toward next year’s legal rates as it exists today. It’s our goal to help give some clarity to these steps and make sure all sides are accountable for their claims and make good on their agreements. This process might seem frustrating, but there are moves you can make to ensure your legal department gets the most equitable and most valuable rate agreement for your money.

We lay out what all these steps mean below, but suffice it to say, some of these rate discussions can get “in the weeds” rather quickly.

Starting the Rate Card Negotiation

We’ve outlined some strategies to use with your law firms as you begin the process of your next yearly rate negotiation. The main focus should be on bringing every step on the staircase to the surface, set terms, and agree to a negotiated understanding of those terms.

Step 1) Rack Rates: Set the Baseline

First, you should ask your counsel to memorialize the currently-in-force yearly actual billing rates to your company, and what their next year’s Standard Rates (“rack rates,” “street rates”) will be. Tip: You should include a statement that “no rate increases will be accepted until there is explicit approval by the client.”

Step 2) Relationship Discounts

Maybe you’ve heard your legal department gets a discount off rack because of a long-term relationship. It’s time to memorialize that understanding: for next year, your outside counsel should provide both the proposed billing rates for your company AND the published rates in their rate card. This enables you to know the current prevailing discount percentage they are providing off of published rates at present, and for what they are proposing for the coming year.

Like what you’re seeing?

Download our free white paper report to learn steps 3-7 on how to understand, predict, and act on every step of the rate card negotiation process.

THE HIDDEN STEPS WE EXPLAIN:

• Work-Type Discounts
• Net Effective Rate for Next Year
• Volume Discounts
• Write-Offs
• Your Matter-Based Net Effective Rates

Download The Full Article

Shoot us an email at [email protected], and let’s talk about how to get started.