As the Chief Practice Officer for Akin Gump, Toby Brown has become an influential thought leader in the practice of developing law firm pricing arrangements that help create successful relationships with clients and firm partners. As a Peer Excellence award recipient from The National Law Journal, Toby is widely recognized as a modern-day pioneer in law firm pricing strategies and practice management. Westfleet Advisors sat down with Toby to talk about pricing and business strategies as they relate to law firms, and how they impact client relationships.
You are the Chief Practice Officer for Akin Gump. What does that title entail?
Well initially, my role was Director of Pricing, and the Chief Practice Officer role grew from that, so obviously pricing is part of that expanded role. An extension of that is legal project management and then beyond that is practice management.
Practice management, as I define it, is really the support for the business units also known as practice groups and how they grow and build their profitability going forward. So, pricing, legal project management, and practice management were my original “three pillars”, but since then, we’ve identified a number of other practice-based resources that fit within my broader role of really reengineering the practice in order to adapt to the changing needs of the market.
These practice resources include our ediscovery unit, trial services, the library which we are reconfiguring into what we’re going to call knowledge services. Another extension of that is the paralegal staff that essentially reports up through our practice management structure.
As you can see, anything that’s deemed a practice resource now falls within my group, and my group is really the manifestation of a longer term effort to shift from office centricity to practice centricity. And that sounds on the surface relatively simple, but when you realize all the moving parts that have to be reconfigured, it’s pretty complex and that’s where I come in.
Interesting. If you’re not careful you’re going to turn that law firm into a very well-functioning business.
It’ll take some time.
A little wood to chop there, right?
In terms of the market and the landscape, I think it’s fair to say that we’ve seen more progress toward law firm innovation in the areas you’re responsible for—pricing, budgeting, process management, i.e., basic business competencies of law firms—during the last decade than maybe any other decade before. You’ve really been leading the charge of this evolution. Looking back to what you would have predicted 10 years ago as to where we would be today, is the amount of progress that’s been made to date greater than or less than you would have predicted back then?
Less than, but I attribute that to my eternal optimism.
Lately, I have coined a phrase that I’m constantly “resetting my speed meter to slower”. In fact, there is constant change, and I think sometimes people don’t appreciate the amount of change that has actually already occurred. But, at the same time, you see the as-yet-unfulfilled potential of a lot of these trends, and this where is my optimistic side comes into play.
I can clearly see the path, and I’m always pushing for that change to happen faster. Our industry is not one known for embracing change, but we are embracing it now, just not at the speed I always hope we will.
What do you think the major causes of the slower pace are? Is it just the nature of the profession?
Well, I have all these phrases I use, and I coined one of these back in 1999. I call it the “paradigm of precedence”. I think that an aggregating factor for our industry is that from law school, from cradle to grave in this industry, precedence is what matters in terms of legal philosophy. Lawyers look backwards to make decisions about today. It’s not a profession steeped in destroying what happened in the past, rather it’s built on what happened in the past, which I think increases the difficulty of innovation.
Beyond nuances of the legal profession, change is change, and people always struggle with change. Until they have some specific motivation to change, they tend to continue doing things the way they have been doing it. The legal profession has sort of an extra hurdle that is our backward-looking approach to the world.
Do you think that the pace of progress is gaining momentum or is it leveling off or is it basically the same?
I would say it’s gaining momentum. Clients are truly waking up now. You hear about how clients have become so sophisticated in the way they consume legal services, but I don’t really buy that. That’s not a knock on clients, it’s just clients are primarily defined by in-house legal departments, and with few exceptions, most of those people came from law firms.
So, the way they were trained to do it is the way law firms have been doing it, and their motivation to date has just been the CFO or the CEO instructing them to control costs. Their only way they know to do this is, asking for bigger discounts. So, there really haven’t been what I would call significant structural changes in the way in-house legal departments are organized.
That is changing right now, and an example I’ll give you is of a good friend of mine who was recently hired by Shell Oil to implement that kind of change. And so you have a major company like Shell, some pharmaceutical companies, some insurance companies, and others, who are the leading edge, but that change is now occurring, where a year ago it wasn’t.
Well, I shouldn’t say it wasn’t; it was very, very spotty a year ago. I see that structural change as an indicator of increasing momentum. I’ll give you another example I gave at a recent presentation. Four and a half years ago when I put out a call to everybody I knew who is in this legal pricing and practice management space, I got four people together. At a conference four weeks ago, I had 400 people together, so I do think it’s gaining momentum. That’s obviously something that I am excited about, and I think it’s going to keep gaining momentum, absolutely.
You mentioned sort of a lack of innovative spirit and real sophistication of consuming legal services on the client side. There’s been a lot more talk about AFAs than there has been really successful incorporation of them, resulting in a surprisingly low utilization. I’m curious, if you agree with that, how much of that is client-driven?
Well generally I do agree with it, and I think it’s completely client-driven. I can’t tell you how many times where clients have said very vaguely “Oh, be creative,” and I’m like, “I can be creative”. I come back with a creative proposal—in fact I’ve got one example here in Texas, it was a pipeline company—I came back and said “Look, we can do this for a fixed fee,” and there was a pause and then the client said, “No, we don’t want a fixed fee. We’re afraid we would pay too much.”
Relative to what they would have paid by the hour?
By the hour, yes. When it came down to it, they felt like they knew how the billable hour works and had in place the processes for managing around a billable hour, so they were more comfortable with it. And frankly, it is far easier for them to go back to their boss and say “I got another X percent discount” than it is to go back to the boss and say, “I need some money to completely restructure the legal department. It’s going to save us money in three or four years, but I need some more money right now,” because their pressure is to spend less money.
Now, I agree that utilization of AFAs is growing slowly if not stagnant, but I also like to flip this question on its head a little bit. Whatever percent of law firm work is done on a non-hourly basis, if you define that as an alternative fee, we can agree that that’s not changing as fast or much. However, if you turn it around and ask, how much legal work is being done in the true old-fashioned way, which is law firm gets to name its rates and bills however many hours they think is appropriate? And if you flip the question around that way and say what percentage of work falls into that category, that is a different question.
I think if you polled firms, you would find out that is a shrinking world, and maybe that is another place where momentum is gaining. The old days of name your rate and bill your time, those days are gone. Even though you can’t say there’s more fixed fees, you can definitely say there is more price pressure across the full spectrum.
That’s a good point. Turning to litigation matters—and I want to focus on extraordinary matters versus volume or routine matters—in what ways are contingency-based arrangements different from other AFAs for those types of engagements, both from the law firm’s standpoint and the client’s standpoint?
Well, we’re in the process of reconfiguring, yet again under my umbrella, how we are approaching contingency-based arrangements. If I were advising a firm, and this is the way we’re approaching it, I’d look at it as a pool of risk.
Traditionally what lawyers have done is said, “we’re going to win this case and when we win, the settlement’s going to be X and our percentage is going to be Y and then we’re going to make all this money,” but what they should be doing is saying, “in a given timeframe—one year, two years—we’re willing to accept the risk of X million dollars of unpaid legal fees on a probability that we’ll get paid on some of it”. This way then, a firm would be saying we’ve defined our appetite for risk at the global level, so the next time someone comes and says “I have a really great idea and we’ve got a situation with a client and we should just do this [on a contingency],” the firm can say, “no, we’ve reached our level of comfort in terms of contingency risk.”
I think firms are headed in that direction but they’re not there, so what firms tend to do is to kick their lawyer skills into gear and become very eloquent about why it is such a great idea to take on this contingency-based case. And a lot of times, I would say that approach is legitimate, i.e., this is a client we’ve had for years, we’ve got a comfort level with them, they’ve got a comfort level with us, and together we’re relatively comfortable about the risk that this is not going to pay out.
From the client’s side—this is somewhat conjecture—but my sense in conversations with clients is that they tend to chase those cases more for, I’ll say, emotional reasons, even though there absolutely is money involved. By that I mean they’re saying, “we’ve been wronged–let’s say it’s patent litigation—we need to go after the other side and stop this behavior, we’re really upset about it, and we’re going to make a hundred million dollars on it.” Too often I think clients are actually sitting on quite a number of potential plaintiff-side cases where they just look at them and say, “you know what, we don’t have the resources to pursue these, so we just won’t.“
Sometimes they don’t even realize they’re sitting on, again, a pool of potential money, so I don’t think they pursue as many of those as they might. But again, I’m making some leaps of faith there just based on interactions with clients and their reactions in my experience.
I think you’re right, though, I mean nobody gets fired for just letting some potential case sit around and not be pursued. They get fired for peeling off five million dollars out of the corporate treasury and pursuing the case and losing it.
Agreed, or even if you can define that risk as low on the numbers side, i.e., they’re not going to fund the case, they still have to take a resource on their legal team to manage it.
A client might think, “we could have spent this defending ourselves against all these patent cases, or we could have spent the same resources going after a recovery, on the plaintiff side. Should we be doing that?” And again, no one got fired for defending patents. They might, I guess, if they lose. But, they could get fired if they said, “we pulled off all these resources defending our own IP to go attack somebody else’s.” It’s riskier.
In your experience, to what extent are clients asking for contingency arrangements, whether that’s a full contingency or a hybrid or even a reverse contingency on the defense side when they’re facing down an extraordinary litigation matter?
I would say low, and in part, for the reasons we were just discussing.
I think they could be doing a lot more of it. There are times when I see this more regularly. Well, I’ll call it the partial contingency, where they’ll say, “you put a portion of your fee at risk,” and it’s definitely a risk on our part, but it’s not the kind of risk we’re talking about on full contingency. But even then, we end up with a significant struggle over it because when they approach me on those, I’m happy to do that, but what we need to do is define common goals and sometimes it’s a challenge to define victory.
Was it settlement at a certain number? That’s pretty easy, but if we’ve got a motion for summary judgment and we’ve got 14 causes of action and get 8 of them dismissed or removed at the summary judgment motion, is that a victory? Depends on which eight, and you end up in these very challenging discussions defining success in order to do those partial contingencies.
Despite the challenges, I would rather have more of that. If I were talking to a client, I would encourage them to engage more in that risk-sharing behavior with their outside counsel.
How do you think the availability of third party litigation financing changes those dynamics?
I think it has the potential to change it significantly. However, in the short run, as I’m sure you are acutely aware, there is a lack of understanding, and then even once they understand it—and this goes back to our paradigm of precedence—absent a lot of precedents in the market that litigation finance works, they view it as risk.
But it’s different, even though we both know their risk is really low, as I mentioned earlier, i.e., they’re going to have to commit some resources to it, but I just think it’s lack of knowledge and then fear of the unknown.
I tend to agree with you, I mean, from a purely economic standpoint, it’s the transfer of risk to a third party, but there’s sort of the “going out on a limb” risk. In my experience, once a litigator hears about litigation finance and understands how it works and how the budget dynamics change, they all seem to get it. But it seems like prior to sitting down and having that conversation, there’s a lot of reluctance to learning about it.
Of course, I am biased, but it does seem to me that any litigator would want to know about litigation financing just to have that extra arrow in their quiver. I’m curious why you think the level of any real substantive knowledge among litigators is so low.
Well, a couple of layers there. The first one is litigators love to litigate. That is their passion. You always hear the stories about how the first chair litigator is a dying breed. These people love the fight and love the strategy, so they love practicing law and especially being able to get into a courtroom. That’s what they like, so everything else around that is a bit extraneous; it’s context, not core to what they are and do.
They can be extremely curious about, for example, learning how a blow-out preventer valve works in the context of specific litigation, but if you said, “litigation funding could be a tool to help you engage in more of those types of cases,” they’d say, “well, that’s not really practicing law.” On one layer, it’s not litigating, so that makes it a challenge.
I think the other challenge, which may be a bigger challenge, is that the personality of a litigator isn’t well-suited for sales. If you’re going to go talk to a client, this is a sales pitch, and lawyers struggle with that term, sales. But what sales is, is going to someone and showing them a solution to a problem they have.
Back to my paradigm of precedence, 10 years ago, clients came to you with litigation, you didn’t have to go ask for it. With litigation funding as an option, now you’re not only telling me I have to go ask for it, you’re going to add a layer of difficulty and say, “I’m going to suggest they pursue litigation they haven’t thought about and finance it in this unique way.”
It’s being able to sell things and being able to sell things in a consultative way, and that’s just not something lawyers have done. Their personalities and their way of thinking aren’t always conducive to that.
Well, you’re privy to a lot of high-level, litigator-client conversations, especially early on in the engagement, when they’re talking about the parameters and what the fee arrangement’s going to be, timing where third party funding might be thrown out as an option. What level of knowledge or expertise do you think is desirable for litigators to have about litigation funding in order to really be able to make effective use of it in their practices?
Well, I do this with other sorts of topics, obviously profitability being one of them. Although it’s not that complicated, it’s your classic marketing. What are the three tenets of marketing? It’s repetition, repetition, repetition. You’ve always got to be in front of them so that, even though it’s not a complex story, you keep it closer to the front of their mind so that when they’re in a client situation that would benefit from this.
They’re like, “oh yeah, litigation finance, that’s a tool I could bring up with the client here.” It’s more persistence than anything else in terms of trying to raise awareness. Although at times I’m still surprised, though I shouldn’t be, when people are completely unaware of it. But, that is part of my job, is making them aware of it.
I have to say, I don’t come across many these days who have never heard of the concept. Usually it’s just sort of superficial awareness but they—most sophisticated litigators—are at least aware of it. Do you think there are other professionals inside a law firm whose awareness of litigation finance could really augment the litigators and who could maybe serve as that sort of higher frequency repetition, making sure that the litigators are reminded of their awareness?
Absolutely, and obviously pricing people are.
One challenge there is the range of skill level and expertise in that role in firms, because sometimes they don’t really have a dedicated pricing person, but rather somebody in finance where pricing is part of their job. Maybe it’s not even their full-time job, but those people are the ones who generally are involved in the conversation at the right time.
Obviously the CFO and the CMO should know, so that they can filter down to their business development team. And, of course the COO. But definitely there should be other people besides the litigators.
The obvious one I’m leaving out here for my firm would be my practice management team, and I have been working with them so they’re very aware of this option. I want them to say, “Look,” when these issues come up because I see them as my front-line people. They’re the ones day in and day out interacting with the practice and with the lawyers in the practice so that they can be watching for the opportunities.
But my practice management team is not your traditional practice management team. And I would sum up by saying absolutely, there are people like that, but the challenge is it’s unique in each firm, so I don’t know how you reach them all in a more blanket approach.
Let’s say you have a law firm that actually does successfully incorporate it. The litigators who need to be briefed on it are fully up to speed and they really have it as a tool in the toolbox. What do you think are the advantages available to those law firms that are really early adopters of proactively talking to clients about litigation financing options, alongside other budget management alternatives?
Well, if you look at the various industry stats and trends, the people who gather the data and release it out in the market, of note is that litigation is flat or down this year. So, the most obvious advantage is, this is a segment of the market that is untapped, so if you understand this and you get this, you can grow a business around it quite easily because at this point you’re a first mover of sorts where you’re the one going to the client presenting options for what we can do in this scenario.
And then for those people looking back at the firm, and I will tell you I’m obviously involved in our contingency fee efforts, I will be repeatedly saying I think this is better suited for litigation finance. We can still take this work, but imagine if we’re the ones going to the client saying we have a different idea that still, you know, greatly reduces your risk, but it involves a new twist, and a new twist that you might want to apply in other ways.
To me, it’s taking solutions to clients. One of the things, if you flip it over to the client’s side, in-house counsel are cost centers, pure and simple, until they start thinking like this and say hey, wait a minute, we could devote a portion of our resources to this side of the house. In fact, I know of a peer like me who’s at a manufacturing company and they took a proactive approach—actually didn’t really require litigation finance—but they had a bunch of supplier contracts where they realized they weren’t exercising their rights on a number of them and a lot of the clauses in them that would increase the amount of revenue that came in on their supplier contracts, so they went to the business units and said, “we can do this and it’s going to increase revenue”, and all of a sudden, the perspective of the in-house legal department changed dramatically at that company.
They stopped looking at the legal department as just a cost center. People avoid the legal department because they know what they’re going to get, they’re going to get a “no, you can’t do that”, whereas this legal department’s coming to them going, “we can increase the revenue for your business unit.”
So, there are so many business opportunities for litigators to grow their business at firms, but also for in-house legal departments to show value to their clients. I think there’s opportunity all over litigation finance, and it’s just a matter of waking up to it and finding ways to get it in front of clients.
I think you’re right, it’s a bigger challenge than one would think. Not you, of course, because you’ve been dealing with challenges like that for a long time.
But it is because to me—this goes back to one of my first phrases I told you—you know I always have to reset my speed meter to slower. When I first saw litigation finance, I wrote a blog post on it like two or three years ago, saying basically, “this is a no-brainer, we should be doing this everywhere”. And I’m still waiting. I’m still pushing the boulder up the hill. Actually, I wouldn’t even call it pushing the boulder up the hill. I’m pushing a rope up a hill, but I’m not stopping. I’m continuing to push.
But you’re right, to me litigation funding is just a no-brainer. We should be doing a lot more of it.
For more information on Toby Brown, visit Akin Gump and read his blog posts at 3 Geeks and a Law Blog. Also be sure to follow him on Twitter to keep your finger on the pulse of legal marketing and pricing strategies. Curious how litigation finance can help your law firms’ client relationships? Increase your knowledge with the following resources:
- Download: Guide to Litigation Finance
- Benefits of Litigation Finance
- How Litigation Finance Works
- Litigation Finance & Alternative Fees
- Legal & Ethical Considerations
BONUS: WHAT ARE THE KEY FACTORS A FINANCING PROVIDER CONSIDERS?
Knowing what a financier is looking for in a litigation finance deal will better prepare your law firm and clients for successfully establishing financing arrangements. The following excerpt is from our Guide to Litigation Finance, which was written by Westfleet Advisors to better educate law firms and business clients about this innovative financing strategy.
- strength and novelty of legal theory
- amount and demonstrability of damages claimed
- credibility of key fact and expert witnesses
- financial wherewithal of defendants to pay claim
- financial motivations of the parties (including legal counsel)
- adequacy and reasonability of legal budget
- jurisdictional factors such as the judge, jury pool, and appellate courts
- reasonability of the parties
- likelihood the parties will behave rationally
- “skin in the game” of both the company and its outside legal counsel
Want to learn more? Download our FREE Guide to Litigation Finance!