Category: Legal Operations

Leaning heavily on Bodhala data that exposed trends around law firm rates and accelerating shifts in law firm partnership models, a WSJ analysis highlighted the rapid weakening of partnership at Big Law firms. It’s been replaced by a culture where, in the WSJ’s words, “data and money rule” above everything else.

In this “new normal”, Big Law partners are constantly pushed toward revenue maximization as the predominant driver of the attorney-client relationship, like a doctor being judged on how many patients she can see in a day.

With its one-of-a-kind platform, Bodhala’s insights help arm clients with their own data and tools to combat this new dynamic in the legal service market.

The team had a good moment at HQ last week when WSJ reporter Sara Randazzo pinged us.

She was writing me to let me know that Saturday, almost a year since my fellow co-founder Raj Goyle and I engaged with her on a story idea, The Wall Street Journal would publish her deep-dive look at how elite law firms – “Big Law” – have in recent years begun to restructure their payment and equity plans to drive profit margins and attract and retain top talent.

It really is a fascinating read, made all the more interesting to us here in the office by knowledge that our insight and Bodhala’s data set helped drive the story from start to finish.

Let’s talk about how.

The thesis of the story is based on a trend we’ve seen play out not only anecdotally, but borne out by data measured in our one-of-a-kind Rate Index and our monitoring of firm partnership structures.

After hearing stories about changes in elite law firm partnership practices, we pitched this tip to Sara last year, who took time to develop a fascinating look at rate structures and the changing face of Big Law partners.

By combing through the billions of data points on counsel behavior and billing that Bodhala tracks, we were able to accurately assess and confirm the suspicions of the Journal in its analysis.

I worked at one of these firms, New York-based Simpson, Thacher & Bartlett, and many of the firms that I engaged with on my matters are some of those top-tier targets mentioned in the story.

WSJ frames the shift in an interesting way: trying to transition to build a business in the model of an investment bank-style approach rather than a traditional, and as many say, outmoded, law firm.

While this shift has certainly increased firm’s bottom line and tightened up processes, it changed the nature of the interaction.

A result of this? Our clients would be quick to tell you it’s made interactions less transparent, more frustrating, and certainly more expensive.

Just how expensive?

As you can see in the chart above, our data going back to 2000 demonstrates that top hourly firm rates are tracking at almost 4 times the rate of inflation, falling in line with health care cost hikes and outpacing education and housing.

Per our data, top-15-by-revenue firm street rates went from under $700 in 2000 to charging more than $1,650 per hour. Yikes. While one can argue the merits of the shifting focus toward industry profits, no one could argue this is a market-based response.

Now, we’re not suggesting lawyers shouldn’t be profitable, nor do we tell our clients that their firm’s services cannot command a premium. The premise of Bodhala is to use the power of data to make the partnership between a company and their outside firm more transparent, more equitable, and more accountable.

We’ve heard about these issues since the beginning of our company, and so when WSJ called us, we were happy to share our insights and data. We’re glad to be a resource for the Journal, if for no other reason than we hope we can help drive positive change in the industry.

The best result of our findings and investments in data science? This positive change can save a company millions. If you’re interested in learning more about how we came to our findings, or how we can help create more accountability and transparency with your outside firm, shoot us an email so we can get the conversation started.

To learn how Bodhala can help you manage your outside legal spend, request a custom demo here, or email us at [email protected].

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An acknowledgment of Bodhala’s status as an industry leader driving change in the Legal Spend category for the Fortune 500.  

NEW YORK (November 19, 2018) – Bodhala, a groundbreaking legal technology platform created by lawyers to transform the half-a-trillion dollar global legal industry, has been recognized as a Financial Times ‘One to Watch’ in Legal Technology for 2019.  This was presented by the Financial Times and RSG Consulting at the 2018 FT/RSG Intelligent Business Forum. It honors Bodhala’s recent achievements and future opportunity in revolutionizing how companies analyze, interpret, and optimize legal spend using AI and machine learning. The award also recognizes the increasing number of companies who see Bodhala as the center of their entire legal technology stack.

Bodhala’s mission is to deliver groundbreaking legal solutions to empower teams to analyze, interpret and optimize outside counsel spend, trailblazing a new era of legal market intelligence with real transparency, real accountability, and real control. Its technology platform analyzes over $12 billion in invoices covering over 30 million billed line-items across 5,000 law firms. These analytics provide companies with a comprehensive understanding of market targets on rates, staffing, and billing precision for the client’s matters, so clients are not just price-takers of firm decisions.  Bodhala empowers its clients with the tools and insights necessary to take the ambiguity out of their legal spend decisions.

Bodhala’s CEO, Raj Goyle, attended the event and remarked: “It is a great honor for the entire Bodhala team. Being FT’s “One To Watch” is a recognition of our hard work developing an innovative platform that provides a comprehensive understanding of companies’ legal spend, enabling them to justify their costs with objective data.  With legal departments being asked to do more with less, Bodhala provides transparency around legal spend and empowers business leaders to make strategic decisions and justify those decisions with confidence.”

This recognition comes on the heels of rapid growth and successful company performance for Bodhala. After a seed round drawn from alumni of Microsoft, Facebook, Google, and Amazon, the company is on track to grow over 3X this year and again next year.  Working with industry-leading companies across the Fortune 500, the platform has saved clients billions of dollars in three short years.

Bodhala is among good company for Legal Technologies One To Watch including IBM Watson Legal, LawGeex, DataNovo and Nivaura.  Organized by the Financial Times, the event was hosted at DocuSign headquarters in San Francisco on Wednesday, November 14, 2018. Speakers included senior representatives from AB InBev, Nestle, PayPal, Shell, VMware, GlaxoSmithKline, as well as Kira, Exigent, Apttus, KPMG and iManage.

About Financial Times

The Financial Times is one of the world’s leading business news organizations, recognized internationally for its authority, integrity, and accuracy. In 2016 the FT passed a significant milestone in its digital transformation as digital and services revenues overtook print revenues for the first time. The FT has a combined paid print and digital circulation of more than 910,000 and makes 60% of revenues from its journalism.  For more information visit FT.com

About RSG Consulting

RSG Consulting is a research and strategy consultancy, founded in 2001. It specializes in working for professional service firms, with a special focus on ranking and assessing lawyers that dates back to the early 90s. RSG carries out commissioned and independent research on topics that include innovation, the development and future of the profession and emerging legal markets. It helps law firms and legal departments differentiate themselves, through innovation, brand or strategy projects.  For more information visit rsgconsulting.com

Admit it — GCs have few friends when the company budget is being discussed. Everyone thinks the GC is giving money away to his or her former law firm.

When the legal department is seen as a cost center, even GCs who are lawyer’s lawyers spend too much of their time playing defense on costs. This reputation as a cost center is an impediment to the GC’s ability to perform her job and a blow to her status in the C-Suite.

Legal is not recognized as a full business partner. Legal spends its time defending costs diluting its message on the value it brings and how its substantive advice supports the business goals.

As the industry rapidly moves away from the misconception that higher and higher legal costs are unavoidable and unquestioned, the risk to the GC’s job is rapidly rising.

GCs need to play offense and show that they are running their department in a business-savvy way by gaining control of the data.

Top GCs have introduced accountability and competition to their management of the legal budget by commanding a full 360 degree view of data on outside counsel spend, giving them the data to defend choice and management of counsel.

Through that control, GCs can demonstrate:

• That legal has the data and business tools to drive improvement;
• How certain costs may be driven by choices of the business rather than legal;
• That legal has the data to pursue business cases for success and improvement.

A legal department that is seen as a full business partner receives less blowback. According to former Sabre Corporation General Counsel, Sterling Miller,

“Being able to demonstrate that you are paying close attention to costs and that you are thoughtful in what you are spending and why, will make conversations with Finance (and the CEO) go much easier. In-house lawyers who run their matters, teams, or department like a business have more credibility at budget time –-and during those really tough times when the business is looking for more difficult cost cutting measures.”

The changing business model of law has focused attention on certain key metrics that capture the economic pressures that legal providers face. Now, we turn our attention to a metric — discounts on law firm rates — that is misleading as a signal of legal department efficiency.

Prior to the rise of legal spend analytics, corporate clients often relied on “discounts” from their law firms to prove to business leaders that they were getting “value” from their firms. Today, however, non-legal business units are relying extensively on analytics to show value. Consequently, legal departments are under increasing pressure to show real value with data analytics, rather than merely stating that their law firm gave them a “discount.”

Indeed, savvy in-house counsel and legal operations professionals know all too well that all law firms give corporate clients “discounts.” For example, The Wall Street Journal reported that large firms typically discount their rates by 17%, with “sophisticated” law firms using annual rate increases to make up for such discounts. As the WSJ reported, the aggregate discount increased from 8% a decade ago. Similarly, the ubiquity of law firm discounts was covered by the Economist, which noted that law firm discounts are now common even among the most prestigious of law firms. Many law firms have stayed ahead of this discounting by raising their general rate card at a higher rate than the discounts.

Thus, savvy in-house counsel and legal operations professionals are asking: if everyone is getting a “discount,” isn’t my discount illusory?

Additionally, savvy in-house counsel and legal operations professionals have realized that law firms who provide “discounts” often make up the lost profits in other ways. For example, many law firms who discount their rates will staff additional timekeepers on a matter to the point that the additional hours have erased any “discount” that the client negotiated.

Likewise, many law firms who provide discounts may work less efficiently to the point that the same work may be handled less cost-effectively. Indeed, clients who use data analytics often find that there are systematic differences in how law firms and individual partners handle legal matters.

As a result, many savvy legal departments and CFOs have concluded that while discounts are helpful, they are hardly an indication that a law firm is truly providing value.

In speaking to legal departments, a common theme is fear of falling behind as innovators in legal department management — from General Electric to Google to the legal operations innovators at CLOC — come up with creative approaches to demonstrate data-driven approaches to legal spend. 

Specifically, the features of the new legal landscape pressuring legal departments are:

1. Data is Redefining Legal Management: Leading legal departments are breaking old norms of managing legal work — where few constraints were imposed on outside counsel — with creative approaches using data and other tools to get the most for their money while also increasing the quality of the legal services provided
   to them.
2. As a Result, There is a Widening Gap in Performance Between Leaders and Laggards: A big gulf in results is beginning to separate these modern legal departments who use data and legal operations tools with those doing it the old way.

A forthcoming paper in the Fordham Law Review by Professor Morris Ratner discusses this widening gap in the litigation market.  

Data-Driven Management Example: Breaking Litigation Into Phases

Ratner highlights how data is allowing clients to break up single matters into manageable phases with tools including data and procurement principles.
Instead of looking at litigations as a whole, clients are attaching different fee structures to different phases –whether motion practice, discovery, trial preposition, or other elements of litigation.

This approach can save a legal department millions of dollars a year by removing unfettered discretion from counsel in smart strategic ways.
Professor Ratner says:

“Clients looking to control legal spend, supported by changes in information and project management technologies and competition among law firms, are unbundling legal work to assign tasks rather than cases to individual lawyers or firms, applying procurement principles to source legal projects to the most cost efficient providers.

These same forces have increased the prevalence and commitment to litigation budgets and have pushed flat and other “value-based” pricing into a variety of litigation settings.

Both mechanisms better align the financial interests of lawyers and clients and facilitate client input into the tasks undertaken to achieve litigation aims.”

By breaking up the matter, clients can successfully focus their counsel on tasks that create value by aligning economic incentives and move away from the traditional approach where the client handed over the keys on how a legal matter was handled and awaited a final bill.

Consequence: Legal Departments Falling Behind

Professor Ratner worries that many clients are falling behind and consequently achieving worse results in cost and quality from their legal providers.

He says that currently, only sophisticated clients have the tools, knowledge, and manpower to use such techniques currently. He notes that it is imperative that all clients benefit from such techniques:

What we need to cultivate is a shift in legal ethics that requires all lawyers to pay as much attention to value as sophisticated clients demand.

Indeed, we hear from GCs that they are increasingly being asked by their colleagues on how they are implementing “value-based” systems. Consequently, GCs are doing what they can to catch up.
In a forthcoming post, we will explain how the approach of breaking matters into phases extends well beyond litigation using examples from Bodhala’s work.

“It was a growth story in the 1990s, but since 2008, it’s a more competitive world where there is less growth,” Jeffrey Hammes, Kirkland & Ellis

“Law firms today must make a persuasive case for their retention. [The] new reality is marked by hypercompetition and bears little resemblance to the world even five to 10 years ago, and virtually no resemblance to the legal industry 20 years ago.”  Brad Karp, Paul Weiss

“For every mandate, you have to prove your talents.  Our clients have the right to kick the tires.”  William Voge, Latham & Watkins.

Last week, the New York Times published a revealing piece about the business model pressures faced today by even the most elite corporate law firms.

While it may be common knowledge that there is general softness in the market, Elizabeth Olson’s story demonstrates how the pressures affect even the small corner of the practice occupied by the elite of elite law firms — that where elite clients call on elite relationship firms for work that was once thought to be absolutely price-insensitive.

Two fundamental economic trends are clashing.  

Trend 1: There is more pressure on firms and their leadership to BOOST profits per partner every year. This is due to:

• Increased competition for rainmakers between the top law firms.
• Greater stratification of pay and status among partners within individual firms eroding firm loyalty.
• Consequently, rainmakers receive and will leave for better offers at higher rates than ever before.

Trend 2: There is a secular trend DEPRESSING profits per partner. This is due to:

• Increased willingness of the top clients to make relationships firms compete for work rather than reflexively going back to relationship firms.
• Less consistency within firms of lawyering as partners jump around further eroding loyalty to firms by clients.

In other words, at the same time that clients are demanding to pay less for their legal services, firms need to find ways to pay rainmakers more to keep or poach them through a combination of boosting overall profits per partner of the firm and increasing partner inequality.

We discuss these trends every day with our clients. Understanding the change in business pressures among law firms is essential to being a smart consumer of legal services as they affect how work is performed including through how staffing is managed.  

Indeed, the most telling part of the New York Times article is the striking commentary, quoted above, by the chairs of three of the top global law firms confirming the realities of this new world — one where the most sophisticated clients expect their legal providers to compete as never before.

To put it simply, GCs and legal departments that just assume costs and prices of legal services “work out” because of relationships in the absence of competitive pressure and analytics are quickly becoming the exception and are not getting value (in price and quality) out of their legal dollars.