Author: Onit

Since the start of the COVID crisis, we have posed the following question to our clients – How is your law firm sharing in your economic pain?

Looks like we were right in doing so.

According to a recent Financial Times article, private equity firm, KKR, asked its law firms, which include the likes of Simpson Thacher & Bartlett, to “share in their economic pain” by providing discounts of at least 15% on work completed this year.

This, coming from one of the most prominent consumers of complex law firm work, shows that law firms can no longer avoid the negative economic effects of a crisis.

This has set the trend for other private equity firms to follow.

Despite initially calling the request “galling” and “outrageous,” most advisers have accepted KKR’s request.

Many Bodhala clients have made similar requests to their law firms. This goes to show that even long-term law firm relationships are at risk if these firms are unwilling to participate in ceding some profits on rates – especially when those rates have increased at above-inflation for decades, as shown through our contribution to this WSJ article.

As “The Great Retrade” has taken shape across industries, this news did not come as a surprise to Bodhala.

From the real estate industry to airlines, insurance, and hospitals – companies have carefully reevaluated and retraded every line item in their budgets in an effort to stay afloat amidst the chaos.

Historically, law firms have sheltered themselves from the negative effects of past crises. From the dot-com collapse to the 9/11 terrorist attacks to the 2009 Financial Crisis, law firms emerged unscathed from the crushing impacts these events had on our economy.

Bodhala predicted that things would be different this time around.

And so far, we have been correct.

Even the most prominent private equity firms, regardless of their balance sheets, are experiencing cost pressures due to the economic slow-down, and they are demanding that their business partners share in the burden.

KKR’s request to law firms came from CFO, Robert Lewin, as the private equity firm has spent roughly $18 billion on deals since February 2019.

After reporting a net loss of $4.2 billion in their first quarter of 2020, KKR was left with few options but to direct their cash conservation efforts towards their law firms.

And they’re not alone in doing so.

As corporate legal departments try to optimize their spend, law firms are receiving more and more “IOUs” from their clients.

Heading into the second quarter of the year, law firms projected an 8% lengthening in collections as their clients carefully monitored their accounts payable.

Since the start of the economic downturn, Bodhala has fielded client requests for data-backed insights on how to handle their law firm payables during COVID.

It appears the following advice we have offered our clients is reverberating across corporate legal departments:

• Renegotiate fees and freeze your rate cards
• Examine law firm invoices with heightened scrutiny
• Run matter RFPs to explore high-quality alternative firms at lower rates
• Hold off on paying your legal bills
• Ask for higher broken deal discounts
• Freeze staffing on litigation
• Evaluate your law firm’s economic health

KKR’s request is resetting the market, leading us to ask:

If one of the largest private equity firms in the world is safe-guarding their legal spend, shouldn’t you be doing the same?

Bodhala’s groundbreaking legal technology platform provides the data needed to optimize your spend on outside counsel.

Across industries, our clients have leveraged our platform’s insights to drive real, actionable change within their legal departments.

To help you with these issues we have created this free form letter for you to download to start the conversation with your law firms.

Subscribe to our blog to stay up-to-date on our follow-up content, including advice on how to handle law firm objections.

As corporate legal departments deal with the effects of COVID and begin to address the potential long-term impact on their business, Bodhala’s team of legal experts presented a complimentary webinar to guide attendees through various cost optimization strategies.

Hosted by Ketan Jhaveri, Bodhala’s President, and Chris Bennett, VP of Strategy, the pair dove into the challenges our clients have faced throughout the crisis and how they leveraged data and Bodhala’s platform to pivot accordingly.

From real estate to airlines, insurance to hospitals, we have witnessed “The Great Retrade” take shape across industries as companies try to conserve cash.

Jhaveri and Bennett explained that, historically, law firms have sheltered themselves from the negative impacts of crises, continually charging inflated fees while other industries suffer immensely. 

So why does this matter to you?

“With the shift in supply and demand, you need to keep a watchful eye on the billing practices conducted by your panel firms,” noted Bennett. It is now more important than ever for general counsels and legal operations professionals to protect their business from financial oversight and poor panel firm management.

Jhaveri posed the following question to the audience, “How is this downturn impacting your law firms and your work being handled by those firms,” adding “If they’re hounding you for an unpaid invoice, it’s likely things need to change.”

Data is the key to driving this change.

At Bodhala, we’re providing legal departments with the data they need to not only optimize their spend, but to justify it. 

Jhaveri added, “Law is not always about getting the lowest price – you do pay for quality and accessibility – but it is also about allocation and ensuring you’re hiring the right lawyer at the right law firm at the right price.”

Our team identified seven keys areas where general counsels and legal operations professionals leverage data to manage cost pressures within their legal departments, including:

1. Rate Cards
2. Matter RFPs
3. Litigation
4. Broken M&A Deals
5. Law Firm Health
6. Invoice Payments
7. Bill Review

Here are some interesting discussion points from the webinar:

1. Bodhala client’s success with benchmarking

Our benchmarking methodology is based upon clustering – using like comparisons that can be measured against one another. With benchmarking, we arm clients with the information needed to start a data-driven conversation with their law firm. This drives clients towards the value they see fit and allows them to negotiate better rates by benchmarking their law firm against those of similar caliber. Recently, a Bodhala client leveraged our benchmarking capabilities to drive down the cost of a premier partner that they had been utilizing for years.

2. Bodhala enhances LEDES files

The Legal Electronic Data Exchange Standard (LEDES) file was developed over two decades ago with the purpose of providing a standard data format for electronic invoices. While LEDES files serve their purpose of getting invoices paid, they provide no insights on spend or how to manage relationships with outside counsel. At Bodhala, we have created a data transformation team that ingests invoice data in the platform and transforms the data in a meaningful way that allows clients to make true apples-to-apples comparisons and provide actionable insights to their departments. 

3. Bodhala’s approach to UTBMS coding

Uniform Task-Based Management System (UTBMS) codes were created to standardize the categorization of legal work and expenses; however, they can be problematic. After evaluating UTBMS codes within insurance and finance clients, we have noticed that these codes have a multitude of gaps and overlaps. This led our team to create our own litigation AI model to apply the proper UTBMS codes to clients’ data. At best, UTBMS codes submitted by law firms are 60% accurate – our model performs with 99% accuracy.

4. Bodhala’s diversity functionalities

The law has historically been the least diverse, white-collar profession in the country. Five years ago, Bodhala launched a product allowing our clients to track which lawyers are handling their matters and their origination credit. Our clients are looking to drive actionable change in their law firm relationships.

To learn more about implementing these changes, you can check out our webinar recording here or download our most recent whitepapers, Legal Operations: Time to Shine and General Counsels: Taking the Lead.

This week, Bodhala participated in Consero’s virtual conference – Legal Operations & COVID-19: How Law Departments are Adjusting for the Future.

Bodhala CEO, Raj Goyle led legal operations leaders from Fortune 500 companies through dynamic conversations on how to leverage data to make more informed decisions on spend management and pressing diversity initiatives during these challenging times.

Here are some of the key themes from the sessions:

Data is the key to driving real change.

• From cost optimization to compliance to diversity and inclusion, legal operations professionals are looking to leverage data to drive actionable change within their legal departments. One attendee, a legal operations business analyst, noted that her company is relying heavily on data to understand the diversity of the law firms they utilize and the timekeepers staffing their matters. Numerous attendees shared that although data is the key to driving change, it is difficult to rely on data from e-billers as it is both messy and inaccurate. Check out our infographic, 7 Reasons Why You Need More Than an E-biller to Create a Winning Legal Department, to learn more.

The pressure to cut costs is on.

• Attendees noted the increased pressure to cut costs, as their CFOs have started to examine legal bills with heightened scrutiny since the start of COVID. Outside counsel rate cards were identified as the “low hanging fruit” that can offer immediate savings. Most companies approved their 2020 rate cards ahead of the global pandemic outbreak in March, meaning that the majority of companies are being charged inflated rates that do not reflect the current economic climate. One attendee, a legal operations specialist, noted that she, in tandem with the company’s general counsel, would be evaluating the legal department’s spend line by line to identify cost efficiencies in response to pressure from the CFO. To learn more about how legal operations professionals are championing their roles in response to COVID, check out our most recent whitepaper.

There is a magnifying glass on diversity.

• Given the current climate, diversity initiatives have accelerated as companies are carefully evaluating their efforts to promote a diverse and inclusive environment, both internally and externally. Legal departments are implementing various measures to hold themselves and their law firms accountable. But, the bottom line is that data needs to drive these changes. One attendee, a legal operations business analyst, shared that her team is relying on data to examine the diversity of timekeepers staffed to her company’s matters after noticing an extreme lack of gender and racial diversity within her panel firms. Read our blog post to understand how Bodhala is helping teams make data-driven decisions on diversity and inclusion.

Ways to Act on Diversity Now

Understanding the diversity of timekeepers staffing your matters and tracking origination credit is the quiet revolution that will lead to diversity in the legal profession. 

If there was ever a moment for legal operations professionals to take the bull by the horns, the time is now.

Ask your GC if this information is currently being tracked, and if it’s not, ask why.

Are you armed with the data you need to drive change within your organization?

Bodhala’s Insights

Bodhala is passionate about empowering legal operations professionals with actionable insights that can drive meaningful change within their organizations.

From top timekeepers to average hourly rates, and everything in between, all you need to know about your outside counsel spend and law firm staffing is housed in your data. 

Bodhala arms you with the data you need to hire the right lawyer at the right law firm at the right price.

Hercules, “the god of analytics” is Bodhala’s trailblazing proprietary database that operates as a single source of truth for legal data, and provides our clients with a 360° view of the legal market.

Running on Hercules, the Bodhala platform has an intuitive dashboard that analyzes:

• Rates
• Observed discount percentages at relationship and practice area/work type level (anonymized)
• Matter types
• Factors that create peer sets, providing accurate apples-to-apples comparisons of cost and staffing
• Timekeeper diversity

With our platform, Bodhala clients have utilized data and metrics to review invoices with heightened scrutiny, implemented scorecards to create true side-by-side comparisons of law firm rates and performance, evaluated firms’ diversity based on data-backed insights, and more. 

Bodhala’s Resources

We’re here to help you find efficiencies in your company’s legal spend – connect with us to learn more about how we can help.

Salvaging a business during bankruptcy comes with a hefty law firm price tag.

Surviving bankruptcy is a delicate balancing act. 

As businesses scramble to preserve assets and employees, they must retain law firms that can guide them through the unknown. 

In some of the largest bankruptcy filings within recent years, law firms have received massive payouts while significant workforce reductions occurred. 

More often than not, employees are laid off without severance even though company executives, boards, and bankruptcy judges allow law firms to charge hugely excessive fees throughout the bankruptcy process.

Company executives and board members have suffered severe reputational damage by not effectively managing the needs of their distressed businesses and employees.  

Although layoffs are often inevitable and lawyers play a critical role in bankruptcy filings, Bodhala data shows that law firms have charged exorbitant rates that exceed those of other mission-critical legal services.  

History will repeat itself during COVID as a potential record number of bankruptcies loom.

Enter Bodhala.

There is power in your data to control spiraling legal fees. 

Bodhala’s Hercules database – consisting of 32,000+ law firm profiles, 5 million matters, and over 500,000 timekeepers – helps you ensure you hire the right lawyer at the right law firm at the right price. 

Historically, rates for bankruptcy and restructuring work are undiscounted street rates. As the Trustee Program states, the rates must be comparable to similar work, but our data shows that rates for similar work are significantly lower than those currently being approved by the Trustee Program.

The market is significantly overcompensating law firms for bankruptcy and restructuring work. 

Throughout some of the largest bankruptcy cases over the past several years, employees suffered immensely while law firms padded their wallets. Let’s review how this played out at Lehman Brothers and Toys “R” Us.

Lehman Brothers

The investment bank’s collapse came in September of 2008, catalyzing the financial crisis that rocked the U.S. economy to its core.

More than 30 law firms were retained throughout the bankruptcy and liquidation process, making Lehman Brothers the most expensive bankruptcy in history. Firms accrued over $2 billion in legal fees.

Lead counsel for the investment bank, Weil, Gotshal & Manges, racked up over $484 million with lawyers billing up to $1,000 per hour.

So what happened to the employees?

The company’s entire 25,000-person workforce was laid off.

Employees were angry, distraught, and left to pack up their desks while bankruptcy lawyers began their feeding frenzies. 

Lehman’s CEO, Richard Fuld, suffered severe reputational damage as a result of the bankruptcy. Some referred to him as one of the worst CEOs of all time due to his negligence in protecting the company from the inevitable doom when he had the chance.

Toys “R” Us

The beloved toy store chain succumbed to bankruptcy in 2017.

As a result, the company received a hefty legal bill as their lead counsel, Kirkland & Ellis, took home $56 million.

Judge Keith Phillips reviewed and approved the firm’s fee application which listed the top two earners as raking in over $3 million dollars, billing hourly rates between $995 and $1,480. 

105 partners and 131 associates at Kirkland & Ellis worked on the bankruptcy case with seven partners and associates billing over one million dollars EACH in fees. 

What did the Toys “R” Us employees take home?

The employees who missed out on Thanksgiving dinners to accommodate Black Friday shoppers, those who sacrificed family gatherings to cover shifts, and spent their birthdays working instead of celebrating…they must have received something, right?

Think again.

The entire 33,000-person workforce was laid off without severance pay. 

Though the company initially promised employees severance, they quickly rescinded the offer as the retailer continued its downward spiral.

The Toys “R” Us bankruptcy was an outrage and led to the public shaming of the executives, board members, and bankruptcy judges that oversaw the filing.

The list of cases in which employees suffered while top law firm partners walked away with huge sums of money goes on. It will only continue to grow throughout the COVID crisis if we do not hold law firms accountable.

It is now more urgent than ever to find efficiencies in your company’s legal spend.

Bodhala is your partner for making this happen.

Our platform helps you ensure that you are balancing precious dollars between employee stakeholders and law partners.

Real transparency, real accountability, real control – that’s what we’re all about.