The Flaws In The Traditional Approach To Hiring A Law Firm

This article was co-authored by Trevor Faure. Trevor is the president of Global General Counsel Academy and the creator and author of Smarter Law, the methodology which serves as the foundation of our Transform Advisory Services.

Right now, two of society's most important reckonings involve understanding and constructively addressing unconscious instincts and behaviors.

The development of COVID-19 vaccines required systematic double-blind testing — where neither patient nor doctor knew whether the "treatment" was a placebo or the genuine test drug — in order to identify false positives the placebo group might have simply willed into being through hope, optimism or expectations given to them implicitly by the doctors themselves.

The movement toward racial equity, diversity and inclusion sparked by the death of George Floyd has made consideration of implicit bias a staple element of any collaborative path forward by resetting the historical pattern of accusations, guilt or denial.

Naturally in the microcosm of society that is the legal profession, unconscious instincts, willful optimism and implicit biases are equally prevalent and will remain so until the end of lawyers, to borrow a phrase from author Richard Susskind.

How would the legal profession's hallowed, hard-fought hierarchy perform without these fundamental human factors? Society has sought to improve itself by addressing and minimizing false conclusions that subjective biases lead to in the fields of vaccines, diversity and inclusion; what conclusions would arise if such biases were also minimized in the client-law firm relationship, most crucially when, why and how a client selects a particular law firm instead of another?

To provide some answers, we offer an inside look at a recent undertaking by Teva Pharmaceuticals Industries Ltd., which put all its existing law firm relationships under review and, in collaboration with our firms, launched an exhaustive and objective request for proposal to qualify law firms based on real-world quality and cost rankings, without initial knowledge of the identities, brands, reputations or even the fees behind each item of legal work product submitted.

Over 100 of the world's top law firms competed in the 18-month RFP process that ended in fall 2020, the findings of which Teva applied to its law firm engagement process over the past year, providing a picture of how the quality of law firms' services relate to the cost charged for these services.

Spoiler alert: It doesn't.

The Traditional Approach to Business Development: Reputation + Relationships = Reassurance

 "I know them, trust them and they have a stellar reputation."

This is a common justification for potential clients hiring a particular law firm, practice or lawyer. The traditional decision-making equation is complete: reputation + relationship = reassurance.

Reputation refers to the preeminence of the law firm, specialist practice or individual lawyer as evidenced by their track record, case history, citations, brand, third-party rating (e.g., by Chambers and Partners, The Legal 500, etc.), awards, speeches, publications, press coverage and/or client commendation.

Relationship refers to the fact that potential clients are positively disposed toward a law firm, practice or individual because of personal, and sometimes subjective, factors that are distinct from the aforementioned technical preeminence factors.

Relationship factors include personal friendship, professional friendship, networked friendship (e.g., membership in a club or society), shared sociocultural background, shared worldview, family ties, important or regular social interactions (e.g., shared schooling, religious attendance), and people who just get along with one another with ease and affinity — any way in which the ties that bind are formed.

This highly subjective selection process inevitably carries with it potential for implicit bias, inefficiencies and inequities.

In addition, legal work today is increasingly disaggregated, i.e., separated into value tiers based on its relative risk, contribution to financial performance, technical complexity, consistency of facts, legal approach in each instance, and frequency or volume of occurrence.

This increasing disaggregation has meant that while traditional business development is and will remain effective among legal work's cream of the crop — i.e., high-end, bet-the-farm advocacy, negotiation, drafting and advice that is bespoke, relatively low in occurrence and fundamentally decisive — it is not always the case and is simply becoming less effective throughout the lower tiers of the legal work value chain.

Applying Systematic Improvement Processes to Law Firm Selection

Like so many major clients, Teva Pharmaceuticals' engagement of law firms was based on a degree of the reputation and relationship equation with constant, if subjective, management of law firm selection and performance; the company regarded itself as happy with the resulting levels of service, while relatively unaware of its cost-effectiveness.

When the company put all of its existing law firm relationships under review, all applicant firms were asked to answer three to six legal scenarios that were derived directly from the inboxes of members of the Teva legal management team.

The legal situations were chosen such that pharmaceutical companies like Teva did not have ready, cookie-cutter answers to them, and with the use of a little artistic license, some the fact patterns were muddied to make recognizable, highly-relevant problems more intractable. In order to prequalify for the full RFP, firms were asked:

to review these scenarios as though they have been communicated to you "as is" in the normal course of business. Your Firm should aim to respond in the same manner and within the period that Teva would normally expect a response to such questions, namely seven to eight (7-8) days. ...

In order to appreciate the skill and inventiveness of invited law firms, we have avoided providing undue prescription about the form or substance of the responses we expect. Teva will assess the minimum threshold response standard to qualify law firms for the full RFP and in doing so Teva will apply the following criteria:

• Quality of legal approach – insightful and relevant use of the appropriate laws and precedents, forensic reasoning and clinical judgement, user-friendly and concise;
• Effectiveness of the solution – the real-life usability of the advice for lay, business clients within Teva, recognition of commercial realities, brand, customer and partner relations;
• Staffing – the seniority, expertise and number of your Firm's staff applied to the advice provided;
• Fee structure for the advice provided and
• Overall cost of said advice.[1]

The judging and qualification of the responses were initially split into two discrete processes — the grading of the legal quality of the responses to the scenarios and the cost. The senior lawyers on the Teva legal management team, together with the chief legal officer, graded the answers to the scenarios that they themselves had posed and wrestled with on a regular basis in their jobs, thus representing the ultimate expert judge and eventual client.

However, these responses were comprehensively redacted, so they were entirely anonymous, and all associated costs were removed from the substantive legal responses altogether, so that the judges were oblivious to both the origins and price of the legal advice.

Shorn of price, branding, firm reputation, expensive lunches or personal relationships, the judging of legal quality was focused solely on the following:

Checklists of the technical legal issues that a qualifying law firm should be able to identify in each scenario — irrespective of the substantive conclusion drawn — were drafted in advance and agreed between the judges. They then graded each scenario from 1 (worst) to 5 (best), with reasoning and debate where necessary. In parallel, one of our firms, Smarter Law Solutions, ranked the cost of each scenario response.

Only after the completion of technical quality judging were the associated law firm identity and cost then revealed to the judges. Separately, it should be noted that as a matter of ranking to prequalify the law firms, Teva placed the greatest emphasis on firms' legal technical quality, hence the final ranking was mathematically weighted predominantly toward the judges' quality grading but with substantial weight attached to the commensurate cost of the advice provided.

The True Disarray Between Law Firm Cost and Quality

The conventional wisdom, and certainly the proudest boast on which so much of the legal profession relies, is that cost follows quality and vice versa; you get what you pay for and one pays more for one to secure more of the other. Hence, the relationship between the two should be correlative and look something like this:

The blue dots in this hypothetical chart represent how individual law firms would score if cost and quality were directly related such that the higher the price, the better the work quality. The green line would represent a linear relationship between quality and cost that the most prestigious law firms would argue is causative.

However, the results of Teva's RFP reveal a most concerning pattern in the real-life relationship between the expertly graded quality of law firm advice and the competitive costs of that advice: the absence of any pattern.

The array of dots is the average quality grade (between 1 and 4 out of 5 as it turned out) and average cost (between $0 and $60,000) of the scenarios' legal advice per firm; thus every dot represents the total quality and cost performance of an individual law firm, competing for a single big prize.

The stark absence of a green line correlation between the quality of legal advice and its cost when every subjective factor has been minimized can reveal its own alternative findings. Like a Rorschach ink-blot test, you are welcome to stare at the above chart and draw your own analytical conclusions, such as:

• The most expensive answers are not necessarily of the best quality.
• The best-quality answers are among the cheapest.
• There is no ostensible link between low cost and low quality as the lower-cost answers are evenly distributed throughout the quality range.
• Answers of the same quality can be obtained from anywhere between $100 and $58,000. Look at the vertical lines of law firm answers that are equally rated at 2 and 3 for quality to see how they range dramatically in cost, despite being of the same utility to the client.
• Law firms in the bottom right-hand corner are the winners.

Takeaways

Reflecting back on the prevalence of the traditional law firm business development of reputation + relationship = reassurance, these results indicate that law firms who retail advice of variable technical quality above the red line are successfully importing a host of other positive but subjective, right-brain factors to remain in business, because when stripped of, say, branding, reputation, relationships or the old-fashioned reassurance that "no one ever got fired buying IBM," the client would choose to obtain the same core legal product anywhere else for a lot less.

Despite the inequities that these findings suggest, realigning the typical law firm-client relationship need not involve a zero-sum game — i.e., of fault on one side and vindication by another. This "for me to win, you have to lose" mindset is an equally long-standing and insidious dysfunction that plays itself out to a standstill by merely mirroring a fault-vindication pattern.[2]

Instead, consider the following principles that Teva adopted to replace the zero-sum game approach to law firm relationships:

The bet-the-house legal work is worth paying for and profiting from, so high are the stakes and so particular are the skills required;

Commoditized, high-volume legal work is a fact of life and here, efficiency counts; therefore the delivery model, quality management, pricing and fee structure for this work will be different from the cream of the crop — even if the same law firm is doing the work; and

Quality should correlate with cost and so a degree of objective, data-driven performance incentive and penalty is necessary.

Conclusion

As we have seen, those endeavoring to eliminate a pandemic or promote social equity have also applied the real-world pragmatism of recognizing society as it is, with its primal instincts, hopes and biases. Nonetheless, merely revealing the flawed premise on which certain law firms fare well or falter will not bring about an epiphany to change buying patterns or client service.

Potential law firm clients can begin to change this dynamic, however, by leaning on systematic performance evaluation to achieve normally irreconcilable improvements in service quality and client costs. To do so, they can apply two truths proven by Teva's process: If you can't measure it you can't manage it, and innovation doesn't have to be particularly innovative.

Trevor Faure is CEO at Smarter Law Solutions.

Disclosure: Smarter Law Solutions and Major Lindsey collaborated with Teva on the RFP process discussed here.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] Teva Legal Services Prequalification Questionnaire.