What You Can Learn From CounselLink’s 2019 Enterprise Legal Management Trends Report

Episode Notes

Transcript

The Legal Toolkit

What You Can Learn From CounselLink’s 2019 Enterprise Legal Management Trends Report

05/05/2020

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Intro: Welcome to Legal Toolkit bringing you the latest legal trends and business initiatives to help you manage your law firm with your host Jared Correia. You are listening to Legal Talk Network.

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Jared Correia: Welcome everybody to another episode of the award-winning Legal Toolkit Podcast here on the Legal Talk Network. If you were looking for Baby Yoda, check with the other bounty hunters.

If you are a returning listener, welcome back; if you are a first-time listener, hopefully you will become a longtime listener, and if you are Quentin Tarantino why can’t you just write a straight historical treatment.

As always, I am your show host, Jared Correia, and in addition to casting this pod I am the CEO of Red Cave Law Firm Consulting, which offers subscription-based law practice management consulting services for law firms, Bar associations and legal vendors. Check us out at redcavelegal.com.

I am also the COO of Gideon Software, Inc., which offers chatbots, a no code chatbot builder and automated scheduling tools all created specifically for law firms. Find out more at www.gideon.legal.

You can listen to my other, other podcast; The Lobby List, a family travel show I host with my wife Jessica on iTunes. Subscribe, rate and comment everybody.

But here, on The Legal Toolkit, we provide you with a new tool each episode to add to your own legal toolkit, so your practices will become more-and-more like best practices.

In this episode we are going to talk about the recent CounselLink Trends Report, but before I introduce today’s guests, let’s take a moment to thank our sponsors.

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My guests today are two. First Scott Wallingford the Vice President and General Manager of Legal Software Solutions at LexisNexis. Scott has been in that role since 2015 and helps to manage an active portfolio of software solutions including InterAction, CounselLink, and Juris.

Scott, welcome to the show.

Scott Wallingford: Thanks Jared, great to be here.

Jared Correia: And also as if one person from LexisNexis is ever enough, we have another one Aaron Pierce who is the Vice President and General Manager of the CounselLink Business.

With over 20 years of technology leadership experience and over 10 years in legal software space, Aaron is passionate about helping legal professionals achieve greater outcomes through data-driven decisions, and isn’t that a beautiful thing?

Aaron, welcome to the show.

Aaron Pierce: Thank you, Jared. We do travel in groups.

Jared Correia: All right, what are those called like flocks, murders; how would a group of like data-driven legal professionals be described?

Aaron Pierce: An array.

Jared Correia: Oh, I like that. So you had an answer ready to go. I am impressed. Let’s talk a little bit about LexisNexis HQ, right, you guys are located in Raleigh, Durham, can you speak a little bit to the chicken cheddar biscuits at the time-out restaurant in Chapel Hill?

Scott Wallingford: Not on my end.

Aaron Pierce: I am a Raleigh guy, not a Chapel Hill guy.

Jared Correia: Not a Chapel Hill guy, crookest gentleman on the chicken cheddar biscuits? All right, can I tell you a little bit of something then, since we are on the show here? You live right there, chicken cheddar biscuits Time-Out Restaurant and Chapel Hill are tremendous. I recommend that after we are done here, you run out and get one, we do a recap show and then you tell me all about it. Sound like a deal?

Aaron Pierce: Sounds like a deal.

Jared Correia: All right, let’s get paid. Let’s get talking about stuff our sponsors want to talk about because we are supposed to be talking about the legal industry after the fact and not the biscuit sandwich industry.

The CounselLink survey; Aaron, can you tell me a little bit about this survey? How did it start, how often is it updated, and kind of what are the goals of produced a survey like this for you folks?

Aaron Pierce: Yeah, absolutely. So it came from a recognition about ten years ago that as a SaaS software product counseling was sitting on a goldmine of valuable information that we think is of benefit to the industry as a whole.

(00:05:00)

So law firm rates, matter disposition, matter information, and we took an effort about ten years ago to pull together this database of anonymized information that’s contributed voluntarily by our customers and then we provide that information within the counseling application, but we also publish an annual trends report and we kind of take a look at the data that we are seeing in this aggregated data and — some meaningful conclusions based upon that information. So really the goal is provide benchmarks to the industry both for corporate legal and for law firms to help inform decision making around how you price legal services.

Jared Correia: Now before we jump into the survey proper I think it makes sense to talk a little bit of how CounselLink works, right, because it sounds like the functioning of CounselLink is directly related to pulling the data into the survey, is that right?

Aaron Pierce: Yeah, absolutely yes. So CounselLink is as I said it’s a SaaS-based tool providing legal spend management as well as work management capabilities to corporate legal departments. And so the key here is that outside counsel that corporate legal departments engage with will submit their fees as well as their invoices into the CounselLink platform where the corporations can review and approve and adjust as necessary. And in the course of all of that work is where we gain the inside to the aggregated legal stand information that then makes its way into the database as well as into this ultimately into the structure.

Jared Correia: Cool, got you, that makes sense. All right, so this survey itself that we are talking about the CounselLink survey for 2019, that’s divided into six key metrics. So can you talk to me a little bit about each of those now you decided to utilize those as the main metrics in the survey?

Aaron Pierce: Absolutely. So four of the six key metrics are really related to that core hourly rate information. So we have blended rates by practice area, we have partner rates, rate growth by size of firm or geography or practice area. There remains a heavy focus on hourly rates because it is really what’s most interest in the benchmarking data and frankly the vast majority of legal work continues to be priced on an hourly basis.

The other two metrics that can be a little bit more interesting potentially are the number of law firms that account for 80% of a department’s outside counsel’s spend. And so what we are seeing is most legal departments have consolidated their vendors to be able to leverage that volume and get lower fees overall and so we like to follow through on that trend. And then the last metric is the percent of spend or percent of matters that are billed under some form of alternative fee arrangement.

Again, getting out of that hourly world and into understanding where alternative fees may be more effective that helped to see where use of alternative fees might be increasing in particular areas.

Jared Correia: Right, and I think that’s reflective of the reality of situation, so that makes sense.

Scott, you have been quiet to this point, you probably went out to get a biscuit. Do you have anything to add to that?

Scott Wallingford: Well, I think what you are seeing here in terms of CounselLink and leveraging the data and actually publishing surveys is reflective of how we run the software division of LexisNexis, which really is lead by listening, and by that we spend a lot of time with our clients trying to understand their key needs, whether it’s a law firm trying to grow or in this case a corporate law department trying to figure out how to better manage their spend selection of Counsel et cetera increasingly right, the world is run on data, that’s no different for law firms or corporate law departments, and so CounselLink is really trying to help our clients be better informed about how to select the right partners for their legal service.

As Aaron said when you are seeing more-and-more consolidation by corporate law departments to use fewer firms for a larger portion of their work, it’s important to pick the right partners. So it is really much more than what’s the right fee to charge but it’s how do you select the right strategic partner to drive your business forward.

Jared Correia: Right, makes a lot of sense and so since this survey is structured under these six key metrics, let’s talk about each of those in turn for the remainder of the show. So let’s start with the first, which is this notion of blended hourly rates by practice area.

Aaron, what is the volatility of blended hourly rates say about what law firms can do better in terms of setting rates to more effectively capture value?

Aaron Pierce: Yeah, so both law firms and corporate legal departments should be driving for low volatility of these blended rates when they are looking across a set of similar matters. So there shouldn’t really be that much volatility, and what a firm charges for employment matters is related to immigration, as an example. And so what you are going to see in the results is in large part due to the fact that the ten different categories that we might have are pretty broad. And so we are going to encourage people to look at their own legal work at a more granular level and examine how volatile their rates might be within that.

Jared Correia: That makes a lot of sense. Scott, anything on that, did you like to add?

(00:10:00)

Scott Wallingford: No, I think that Aaron hit it well. This is all about making sure there’s lower volatility higher throughput on the legal service that law firms would like to provide and corporate counsel would love to secure.

Jared Correia: Right, works better on both sides.

Scott Wallingford: Yes, it does.

Jared Correia: We have talked a little bit about this survey to this point, we are going to get into it in more depth in a second, but for now we have reached the end of the first part of our show. So let’s take a break and we will come back after these words from our sponsors.

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Jared Correia: Thanks for coming back. I have returned from buying a new pair of sandals which I do every 30 years just like Eugene Tooms. So let’s get back to our conversation with Scott Wallingford and Aaron Pierce both of LexisNexis. We are talking about the 2019 CounselLink Survey Results and what they mean for lawyers.

So the second metric highlighted in the study of six is the consolidation of technology by law firms, what does that mean and how is that trend accelerating for buyers of legal services and also for law firms themselves, how are each affected by this?

Aaron Pierce: Yeah, the trend to consolidate as we mentioned previously that kind of fewer law firms utilized by corporate legal departments really has been accelerating and has been accelerating over the last ten years or so. It seems over the last few years to have stabilized a little bit, in our last report 61% of corporate legal departments used ten or fewer firms for 80% of their legal spend, and so again, this really gets back to building strong relationships having key firms that you utilize for the vast majority of the work that you do within the legal department.

Jared Correia: Right, and Scott, doesn’t that mean from a law firm perspective somebody who wants corporate legal buyers to hire them, don’t you have to be that much better than you were five, ten years ago to get hired and stay hired?

Scott Wallingford: Absolutely, the world has fundamentally changed, the way corporations secure their legal services, the partnerships that they attract or any strategic partnerships in that sense, it’s very different than the business used to be developed in one in years past. Data is at the root of how you perform, how you demonstrate that you as the law firm can be more effective for the corporation than they were five years ago. You have to speak the language of business and that is increasingly data when it comes to dealing with corporate counsel.

Jared Correia: Absolutely right, and I think so surveys like yours, CounselLink data that businesses have access to like this is essential when you start making decisions about where to place your legal span, right Aaron?

Aaron Pierce: Absolutely.

Jared Correia: All right, so let’s talk about metric three, right. So the third metric that you addressed in the report is this notion that’s related to alternative fee arrangements or AFAs, as some people abbreviate them. If we talked about this a little bit like everybody has been talking for years about AFAs replacing or overtaking hourly fees that hasn’t happened to this point, and as you addressed the reality of it is that more law firms are still using hourly rates, so more corporations are buying legal services at hourly rates. Do you see that changing at some point, is there a trend line that you have identified or does this look to be the situation for the foreseeable future?

Aaron Pierce: Yeah, I think the revolution is not happening necessarily as quickly as the hype may have lead folks to believe in the industry, but the trend line is continuing to move up. And so we are still seeing that uptick in the use of alternative fee arrangements relative to hourly billing. In the latest report more than 12% of matters had at least some sort of non-hourly arrangement associated with it, and as you look into different categories there’s categories like employment and labor where we are seeing upwards of 20% of the volume billed under some sort of alternative fee arrangement. So that could be simple flat fee or some form of contingency or other alternative arrangement.

Particularly interesting to note within the last report is that mergers and acquisition saw a pretty significant increase in AFA activity, nearly doubling about 10% of the matters in the database and so you are starting to see particularly as M&A transactions are increasing the opportunity to get a little bit more creative in how you practice.

(00:15:14)

Jared Correia: So ultimately and maybe this is a question for Scott, where do you think the pressure to change is going to come from as law firms move from hourly rates to AFAs, is that going to come from the law firms who want to engage business on the corporate level or is that going to come from corporations who are going to force lawyers to change their billing practices, or is it going to come from somewhere else entirely, like potentially the adoption of a ABS model in the US?

Aaron Pierce: Yeah, it’s a great question Jared. I think you are going to see it come a little bit from all three, but the dominant metric or the dominant force is going to come from the corporate side, and by that I think they are looking for more creative ways to align incentives between getting the right legal service to approach the right legal issues in a cost-effective way, where people still have — are quite a bit focused on the hourly rate, you are seeing mixes of people and partner rates and all of those types of factors that go in to what the firm actually pays for the matter to be complete. You also have AFAs, which is another way to get to a very similar measure.

So I think the force is still coming from corporates to say how do I make sure I am getting the best legal service for the right type of problem at a very cost-effective rate that makes sense on all these performance dimensions and then you work out with the law firm what’s the exact right structure. So just because we still see a preponderance of work done under hourly rates does not mean that you are not having a change in how work is purchased.

Jared Correia: Right, I think that’s an important point to make as well because like big corporations are just like individual legal consumers right in a sense that everybody wants to get after a cost certainty at some level, correct?

Scott Wallingford: Oh, absolutely, if you think about the number one thing in business and where did all this start, right, from a strategic sourcing mindset years ago, it was about getting more predictable spend around the things that are important to continue your business successfully. Back in the day it started with commodities and how do you do paperclips, it’s moved to much more sophisticated services today that’s not just about getting a lower price, it’s about picking the right partner such that you focus on the right incentives and then you take away the friction in the system that was not necessary for the business to get done.

And that’s where I think you see a lot of these metrics helping both the corporations and the law firms focus on what is really important here in that relationship to be successful and then those relationships continue, you will see more and more firms serve clients for approaching decades as opposed to you do work for two years and then you are out.

Jared Correia: It makes sense, data-driven decision making in legal, who knew it would ever happen. We are getting there.

All right, so let’s turn our attention to what concerns about half the study actually, which is partner rates. So let’s start and we will get into this in the third part of the show which is coming up, but let’s start by discussing some of the trends that the study relays respecting partner rates.

Aaron, can you kick us off on that front.

Aaron Pierce: Yeah, I think the headline particularly in the section is that while most people would know that partners at large law firms have traditionally charged more for their services than those that work at smaller firms, the data really shows that the rate gap between the biggest firms and the rest of the industry has widened dramatically in recent years.

Firms with more than 750 lawyers have billable rates that are 53% higher than the 00:18:31 firms, the 500-750 lawyer firms. And this compares to a 45% gap in last year and a 40% gap the year before that. So it’s really that delta is accelerating between the very biggest of firms and the remaining firms in the industry.

Jared Correia: Scott, anything on trends that you want to address before we take a break?

Scott Wallingford: No, I think that the data speaks for itself.

Jared Correia: Oh yes, and that’s a good summation to end on, at least this section of the podcast.

So we will take our second and last show break. While I try to figure out how to make the perfect Mac and Cheese; it’s an ongoing struggle, listen to these words from our sponsors.

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(00:20:08)

All right, thanks once more for sticking around; I didn’t get any better offers either. We continue to talk with Scott Wallingford and Aaron Pierce of LexisNexis who have been discussing with me the results of the most recent CounselLink Trends Report which came out in late 2019. So let’s find out more.

So Aaron, as you were saying previously, before we hit this break, there is a massive gap and growing with partner rates in small firms versus large firms, now that’s to be expected to some extent of course, but are there ways that small firm partners can close that gap and should they be looking to do so? Is that like a differentiator that’s effective for them in acquiring corporate work?

Aaron Pierce: Yeah, I think it certainly can be. I think it’s important for them to keep their eyes on the benchmarks, understand where the rates are and make sure that to the extent that they are able to be in line, they are in line. So they won’t necessarily be able to charge as much as the largest firms that may provide a different suite of services, but there is always a niche for firms of different sizes to be able to fit it on when they can focus on how they can provide that higher value work and keep in line with what a reasonable fee is to charge for that work.

Jared Correia: Right, that makes a lot of sense. And I guess it’s probably obvious in follow up to that that partners rates are higher in larger cities and states; that makes sense too. What about those trends respecting rate increases that you talked about and the differentiation between big and small firms. Is that growing consistently in large states and cities too or is that delta higher in metropolitan areas versus smaller areas?

Aaron Pierce: There is certainly variability year to year as to which geographies or which kind of big metro areas might have the highest rate increases. Boston, Chicago, Los Angeles, New York, Seattle, all had growth of at least 4% over the last two to three years.

But the other thing to keep in mind particularly when looking at the benchmarking data and understanding the data is a lot of the rate trends are strongly correlated to the type of legal work being performed. So as we have seen an uptake in M&A work over the last several years and corporate transactions as well, those are the highest dollar value work that you are going to see and they tend to be handled by larger firms that are in those larger cities, but not necessarily exclusively and so the more high value work that law firms can take on, the more likely they are to be able to see those types of rate increases in their own billings.

Jared Correia: Right, that’s interesting. So you are also seeing differentiators in the types of work that small versus large firms are taking on.

Aaron Pierce: Absolutely.

Jared Correia: That’s interesting. Scott, do you have anything to add on this front in terms of like rates based on geography?

Scott Wallingford: Well, I think you hit the nail on the head, it’s actually less about the geography and more about the type of work, but that specific type of work, especially M&A is going to be concentrated in certain geographies, closer to the investment banks typically, which is why you see the New York, Chicago, LA, Seattle.

Jared Correia: So let’s talk a little bit about that. Okay, say I am a lawyer who wants to get corporate work and I want to make as much money as possible, I am not greedy or anything, but you know, what kind of practice area should I be focusing on; you mentioned a couple, but is there a group that I could rely on for consistent work that’s going to pay me the most money?

Scott Wallingford: So notwithstanding the move to kind of more flat fees that we are seeing among the M&A side of things; I mean I think the M&A realm is the realm that’s experiencing the most growth and also tends to have the highest legal fees.

Jared Correia: I liked how you gave a lawyerly answer there. You were very close to saying it depends, which makes sense. And in turn are you seeing any trends in new practice areas beyond M&A that corporations are really finding a need for that large and/or small firms could take advantage of, like looking forward, not like today’s results?

Aaron Pierce: Yeah, I mean that one is it depends, right, it’s hard to see, in the trends, again, we are seeing the corporate side and the M&A is always going to continue to be among the highest and a number of different practice areas that tend to have lower average rates. So I think hitching your horse to a corporate or to an M&A is going to continue to be the way to go over the next few years.

Jared Correia: Good advice. Scott, Aaron; let’s start with Scott, anything we haven’t addressed about the survey that you wanted to hit on?

Scott Wallingford: No, I think we have covered a lot of the key points. There is great data that CounselLink has to help inform that strategic relationship between corporate law departments and outside counsel and the benefits of data is it causes people to think about how they are doing the strategic relationship a bit differently and having, as Aaron said, we have been doing this for 10 years and there is a great longitudinal base of data that shows how things go up, how they decline over time as new forces are at play in the dynamic between corporate counsel and law firms.

(00:25:06)

Jared Correia: Yeah, having a long-term study like this is really essential I think and it kind of dovetails with massive technology changes that have been happening in the legal industry as well, so that’s really helpful to see fleshed out.

Aaron Pierce: Like we said at the beginning and here at CounselLink we like to use data to help make better decisions about how you run the business of law and about how you practice law and with this particular report, it gives you great opportunity to put a lens on yourself, understand how you fit and whether you are on the corporate side or on the law firm side as far as the trends are concerned and it gives you a benchmark against which you can continue to look at making those improvements to your practice.

Jared Correia: Right. I am still trying to get over the massive disappointment that you guys have not yet had the chicken sandwich at Time-out Restaurant yet, I am going to send you the link to that as soon as we are done with our podcast and hopefully I can get a report at some point.

But now here is the big North Carolina question and you can both answer and hopefully you are on opposite sides, Duke or North Carolina?

Aaron Pierce: Well, the funny part Jared is we are actually headquartered on North Carolina State’s campus.

Jared Correia: Oh, oh, you are throwing me a curve ball.

Aaron Pierce: Just the end of Third Dimension here.

Jared Correia: Wow. Okay.

Aaron Pierce: But I am unequivocally Duke through and through, but I am an alum, so that helps.

Jared Correia: Oh. All right Scott.

Scott Wallingford: So I was born and raised in the Bay Area in the West Coast and so growing up it was more about Stanford or Cal than it was ever about Duke or North Carolina.

Jared Correia: Fair.

Scott Wallingford: And quite frankly the zeal with which many Southerners take their college basketball, it was eye-opening to me when I moved here. So I am a happy fan and I love to watch college basketball, but I have no Southeast affiliation.

Jared Correia: Way too equivocate, well done sir. May I say though, San Francisco Dons 1955 and 1956 NCAA national champions, right?

Scott Wallingford: There you go.

Jared Correia: Bill Russell.

Scott Wallingford: That’s right.

Jared Correia: That was a good squad.

Well, we have reached the end of yet another episode of The Legal Toolkit Podcast. Let’s bring it home, seems like we are going off the rails just a little bit. This was the podcast about CounselLink’s 2019 Trends Report and we have been talking with Scott Wallingford and Aaron Pierce of LexisNexis.

Now, I will be back on future shows with further insights into my soul, the soul of America and the legal market. If you are feeling nostalgic for my dulcet tones however, you can check out our entire show archive anytime you want at legaltalknetwork.com.

And I would be remiss if I did not say that I am a Duke fan as well. Now everyone will hate me.

Thanks again to Scott Wallingford and Aaron Pierce of LexisNexis for making an appearance as my guests today.

All right, Scott, Aaron, and we will start with Scott here, can you tell everyone how they can find out more about you folks, what you do and about the LexisNexis products you work on.

Scott Wallingford: Sure. We spent a lot of time today talking about CounselLink and the easiest way to find us is counsellink.com, that website will take you right in, show you everything we are working on and connects to a broader portfolio for the LexisNexis legal software.

Jared Correia: Awesome. Aaron, anything from you, personal cell phone?

Aaron Pierce: Scott pointed you to the right place. I will say that Legal Trends Report is one of the many things that you can get access to via the counsellink.com website, so I look forward to hearing from folks that get a chance to take a look at it.

Jared Correia: Check it out. Don’t call Aaron on his personal cell phone.

Thanks again. I talked to Scott Wallingford and Aaron Pierce of LexisNexis.

Finally, thanks to all you out there for listening. This has been The Legal Toolkit Podcast.

Outro: Thanks for listening to Legal Toolkit, produced by the broadcast professionals at Legal Talk Network. Join host Jared Correia for his next podcast covering the current business trends for law firms.

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