By Purvi Sanghvi
Tell me and I’ll forget. Show me, I may remember. But involve me and I’ll understand.
–Chinese Proverb
The involvement of pricing directors in the client conversation has added a positive layer of direct contact when it comes to the client relationship. As clients are boosting up their legal operations functions with business people to guide in-house counsel, they are seeking similar counterparts within law firms. Having a link between business functions helps move along processes (such as billing and rates negotiations) while allowing the legal operations team to talk with someone that “speaks the same language.”
As a strategic pricing director, I have become that point of contact for one of our most valued clients – GlaxoSmithKline (GSK). Paul Hastings has moved our portfolio of business with GSK to a completely flat-fee model and given me the opportunity to work directly with Justin Ergler, Director of Alternative Fee Intelligence and Analytics at GSK.
Why the change? According to Ergler, “We want to align incentives. Clients have been telling firms for years to be more efficient while maintaining quality.” Under the hourly model, the stumbling block has always been, the more efficient a firm, the less revenue is earned…a far cry from a win-win scenario. Conversely, the flat-fee model gives the firm the ability to control their own destiny when it comes to the profitability of an engagement. “When a client has a firm that is efficiently delivering excellent value and the firm has the opportunity for an upside in terms of profitability,” Ergler continued, “everyone’s interests are aligned and you’ve created the win-win scenario that was absent under the old model.”
As with all new initiatives for clients, we knew our internal processes had to be at a world-class level to achieve success. And success was not measured by fees collected, but rather by the value received by the client. Ergler explained to us from the very beginning that “…focusing on value rather than savings helps to remove the adversarial nature of fee discussions. It encourages collaboration when building fee proposals and ensuring mutual understanding of how the fees ’roll up’ to an overall amount.”
For years, law firms were charged with proving “savings” for the legal division to prove their worth. However aligning the interests of the firm and the client require moving away from this model to a better, value-driven model. “ ‘Savings’ is one of the most common metrics used to measure the success of Legal Operations functions at large corporate clients,” Ergler said. “While it is easy to understand for business people outside of the legal department, it is not a true measure of whether or not the company is receiving ‘fair value’ for the money they are spending with their outside counsel firms. Clients can record a large amount of ‘savings,’ but still pay more than they should for the value provided. Conversely, there can be an engagement where the recorded savings are very low, but it is a fair deal for both parties based on the value the firm is providing and the fees they are receiving for providing that value.”
Hence, the move to focus on value delivers the sought-after ‘win-win.’
Value, simply put, is understanding the relationship between the benefit GSK is receiving and the fees it is paying. The new model encourages Paul Hastings to define the value we aim to provide to GSK – all the way from the team we choose to the level of expertise we bring. This clarity helps the client better understand why they chose Paul Hastings over another firm for “x” issue; and the more we provide these crucial details, the easier it is for them to see the benefit.
We have established a circle of trust to guarantee the success of this endeavor.
Our arrangement with GSK involves scoping out the work and communicating the assumptions, internally and externally. The keys to making this arrangement a success are frequent communication and transparency. Internally, communication means involvement of a huge cross-functional team, including: administrative assistants, project management champions, senior associates, billing team liaisons, knowledge management attorneys, and other key partners who hold leadership roles. We discuss our operational needs weekly (if not every few days) to ensure everyone is on the same page. Involving them in the conversation paints the big picture, generating more ideas and better contribution. When issues arise, multiple hands are ready to help.
Externally, Ergler and I have agreed to meet formally on a monthly basis to review the scope of the work, but I often find myself speaking to him weekly to resolve questions and explain assumptions.
The large investment in time and involvement by everyone is needed to ensure mutual understanding of how different tasks/assumptions factored into the overall fee, and will pay dividends in the event we have to make fee adjustments. Changes in scope are OK… as long they are forewarned and communicated. Higher fee forecasts are allowed… as long as they are communicated and supported by changes in scope. Similarly, fees may be reduced if it turns out less work is required. A “no surprises” model will yield multiple benefits for both sides. I will certainly stay involved to help drive the movement towards a better, value-driven relationship. One thing to note: the effort is scalable and I hope to find more opportunities to implement this type of change to better serve Paul Hastings’ clients in innovative ways that create value.
About the Author
Purvi Sanghvi is the strategic pricing director of Paul Hastings LLP. She can be reached at 212.318.6825.