Small, Midsize Firms Adapt to Increased Scrutiny

Like their larger counterparts, small and midsize law firms are facing escalating scrutiny from clients over their efficiency, project management and costs. But not all small and midsize firms are reacting in the same way.

While some firms still depend mostly on partner know-how when it comes to things like staffing and pricing, others have started to increasingly track their data and rely on management-focused professionals.

Buyer's Market

McNees Wallace & Nurick chairman David M. Kleppinger says it's a buyer's market for small and midsize firms, and client expectations regarding responsiveness, value and predictability have only grown. Tracking case data, Kleppinger says, has become increasingly important in creating predictability for clients. “You have to use the data,” he says. “You need to segment a particular project or case that comes in the door to be able to identify which steps to take, and how much investment needs to be made at each step.”

Kleppinger says his firm has started educating lawyers on legal project management and budgeting services. But, so far, the firm has not needed to turn to an exclusive professional, either inside the firm or outside, to address pricing.

When the 20-lawyer firm Fowler Hirtzel McNulty & Spaulding formed last year, John R. Sparks Jr., an attorney who hadn't practiced in several years, was brought in to lead the firm's quality programs, associate training and business development.

Sparks' role is to quickly figure out problems and the desired outcomes, whether that be going to trial or settling, and figure out how to get to that point as efficiently as possible. The clients' responses to that approach have been positive, Sparks says.

“I think our clients, to be fair, are happy to see that we're showing this kind of commitment to” quality and efficiency, he says.

Case Management and AFAs

Sparks agrees that focus from clients on case management has only grown, and says firms should try to measure everything that clients are paying attention to, such as total case cost and how long certain types of cases are generally in progress.

“Everybody's being compared, so you want to make sure you're running things efficiently, and coming to resolutions as thoughtfully and promptly as possible,” Sparks says. “We can talk anecdotally, but the tools are out there now to measure it objectively.”

Along with the rise of project management and pricing metrics, many firms reported an increased use of alternative fee arrangements.

Barley Snyder managing partner Jeffrey D. Lobach agrees that clients are “more carefully scrutinizing the invoices they're receiving,” and increasingly expressing interest in alternative pricing models.

Alternative fee arrangement and retention agreements are on the rise, Lobach says, citing examples such as bringing lawyers on site with clients, providing annual retainer services for a client, or charging result-oriented fees.

Lobach says that, while the firm has not hired a specific pricing officer, it is utilizing its marketing department and research functions to help hammer out fee arrangements with clients. According to Lobach, the changes have helped the firm to be more creative in responding to requests for proposals. “I think that will increase. Firms will be offering much more of a potpourri of alternative arrangements.”

S. David Fineman, president of Fineman Krekstein & Harris, says that, from time-to-time, his firm uses non-lawyer business professionals to help with aspects of business management. And that is likely to increase across the small and midsize market, he says.

“Everybody has to become acclimated to that,” Fineman says. “It very well could be that we're going to have non-lawyer partners.”

But while some firm leaders report direct changes from the ever-evolving pressures of the legal market, many say that future success for small and midsize firms may still come down to the basics.

According to Spector Gadon & Rosen's Paul R. Rosen, pressure from the clients has always focused on pricing, efficiency and results. But clients are increasingly monitoring cases on a step-by-step basis.

“The clients are very sophisticated,” Rosen says. “Every court date that determines the direction of the case, they are conscious of that.”

However, tracking data is not a major priority for the firm, according to Rosen. He says the cases the firm handles are very unique and do not fit a pre-determined formula. While this may make a client skittish, Rosen says that frequent communication with clients regarding the strategy and progress of a case is key to maintaining a client's confidence.

For example, Rosen says that, when it comes to staffing cases, clients largely rely on the firm's know-how. “It's a lot of communication.”

Louis J. Rizzo Jr., managing partner of Reger Rizzo & Darnall, agrees that the pressures from tightening legal budgets are being felt at the small and midsize level. But, he says, these pressures are nothing new.

“Those pressures that we're facing are in many ways similar to what we've always faced,” Rizzo says. “You need to achieve success for that client. It's still that same core obligation.”

Rizzo says that, because of the size of most of his firm's clients, Reger Rizzo typically deals with high-level general counsel and company shareholders who have always been highly attuned to the legal budget.

Small and midsize firms have “been dealing with those issues long before the last seven years,” Rizzo says.

Rizzo reports that his firm has also increasingly relied on alternative fee arrangements, and while data and a firm understanding of how a case is likely to unfold is important, Rizzo reiterates Rosen's sentiments that communication is key.

“Ultimately, to work, you really need that good relationship of trust with the client and the law firm, so that those outliers that sometimes are going to come up, you can work through,” Rizzo says.

Conclusion

Although not all attorneys agree, several firm leaders also say small and midsize firms will likely find success in increased specialization, both in practice focus and geographical location.

“You really have to figure out what your niche is and where you want to play, and to stay extremely focused,” Fineman says. “If you can do that, you can stay in business, and do well as a small and midsize firm.”

Jeff Coburn, managing director of Coburn Consulting in Boston, says specializing in industry-based practices is also a growing trend at the small and midsize level. But the work doesn't have to stay local.

“The more specialized you become, the more broadly, geographically, you'll be attractive,” Coburn says. “Then you can charge big firm rates.”

Max Mitchell writes for The Legal Intelligencer, an ALM sibling of this newsletter. He can be contacted at 215-557-2354 or [email protected]. Follow him on Twitter @MMitchellTLI.

Like their larger counterparts, small and midsize law firms are facing escalating scrutiny from clients over their efficiency, project management and costs. But not all small and midsize firms are reacting in the same way.

While some firms still depend mostly on partner know-how when it comes to things like staffing and pricing, others have started to increasingly track their data and rely on management-focused professionals.

Buyer's Market

McNees Wallace & Nurick chairman David M. Kleppinger says it's a buyer's market for small and midsize firms, and client expectations regarding responsiveness, value and predictability have only grown. Tracking case data, Kleppinger says, has become increasingly important in creating predictability for clients. “You have to use the data,” he says. “You need to segment a particular project or case that comes in the door to be able to identify which steps to take, and how much investment needs to be made at each step.”

Kleppinger says his firm has started educating lawyers on legal project management and budgeting services. But, so far, the firm has not needed to turn to an exclusive professional, either inside the firm or outside, to address pricing.

When the 20-lawyer firm Fowler Hirtzel McNulty & Spaulding formed last year, John R. Sparks Jr., an attorney who hadn't practiced in several years, was brought in to lead the firm's quality programs, associate training and business development.

Sparks' role is to quickly figure out problems and the desired outcomes, whether that be going to trial or settling, and figure out how to get to that point as efficiently as possible. The clients' responses to that approach have been positive, Sparks says.

“I think our clients, to be fair, are happy to see that we're showing this kind of commitment to” quality and efficiency, he says.

Case Management and AFAs

Sparks agrees that focus from clients on case management has only grown, and says firms should try to measure everything that clients are paying attention to, such as total case cost and how long certain types of cases are generally in progress.

“Everybody's being compared, so you want to make sure you're running things efficiently, and coming to resolutions as thoughtfully and promptly as possible,” Sparks says. “We can talk anecdotally, but the tools are out there now to measure it objectively.”

Along with the rise of project management and pricing metrics, many firms reported an increased use of alternative fee arrangements.

Barley Snyder managing partner Jeffrey D. Lobach agrees that clients are “more carefully scrutinizing the invoices they're receiving,” and increasingly expressing interest in alternative pricing models.

Alternative fee arrangement and retention agreements are on the rise, Lobach says, citing examples such as bringing lawyers on site with clients, providing annual retainer services for a client, or charging result-oriented fees.

Lobach says that, while the firm has not hired a specific pricing officer, it is utilizing its marketing department and research functions to help hammer out fee arrangements with clients. According to Lobach, the changes have helped the firm to be more creative in responding to requests for proposals. “I think that will increase. Firms will be offering much more of a potpourri of alternative arrangements.”

S. David Fineman, president of Fineman Krekstein & Harris, says that, from time-to-time, his firm uses non-lawyer business professionals to help with aspects of business management. And that is likely to increase across the small and midsize market, he says.

“Everybody has to become acclimated to that,” Fineman says. “It very well could be that we're going to have non-lawyer partners.”

But while some firm leaders report direct changes from the ever-evolving pressures of the legal market, many say that future success for small and midsize firms may still come down to the basics.

According to Spector Gadon & Rosen's Paul R. Rosen, pressure from the clients has always focused on pricing, efficiency and results. But clients are increasingly monitoring cases on a step-by-step basis.

“The clients are very sophisticated,” Rosen says. “Every court date that determines the direction of the case, they are conscious of that.”

However, tracking data is not a major priority for the firm, according to Rosen. He says the cases the firm handles are very unique and do not fit a pre-determined formula. While this may make a client skittish, Rosen says that frequent communication with clients regarding the strategy and progress of a case is key to maintaining a client's confidence.

For example, Rosen says that, when it comes to staffing cases, clients largely rely on the firm's know-how. “It's a lot of communication.”

Louis J. Rizzo Jr., managing partner of Reger Rizzo & Darnall, agrees that the pressures from tightening legal budgets are being felt at the small and midsize level. But, he says, these pressures are nothing new.

“Those pressures that we're facing are in many ways similar to what we've always faced,” Rizzo says. “You need to achieve success for that client. It's still that same core obligation.”

Rizzo says that, because of the size of most of his firm's clients, Reger Rizzo typically deals with high-level general counsel and company shareholders who have always been highly attuned to the legal budget.

Small and midsize firms have “been dealing with those issues long before the last seven years,” Rizzo says.

Rizzo reports that his firm has also increasingly relied on alternative fee arrangements, and while data and a firm understanding of how a case is likely to unfold is important, Rizzo reiterates Rosen's sentiments that communication is key.

“Ultimately, to work, you really need that good relationship of trust with the client and the law firm, so that those outliers that sometimes are going to come up, you can work through,” Rizzo says.

Conclusion

Although not all attorneys agree, several firm leaders also say small and midsize firms will likely find success in increased specialization, both in practice focus and geographical location.

“You really have to figure out what your niche is and where you want to play, and to stay extremely focused,” Fineman says. “If you can do that, you can stay in business, and do well as a small and midsize firm.”

Jeff Coburn, managing director of Coburn Consulting in Boston, says specializing in industry-based practices is also a growing trend at the small and midsize level. But the work doesn't have to stay local.

“The more specialized you become, the more broadly, geographically, you'll be attractive,” Coburn says. “Then you can charge big firm rates.”

Max Mitchell writes for The Legal Intelligencer, an ALM sibling of this newsletter. He can be contacted at 215-557-2354 or [email protected]. Follow him on Twitter @MMitchellTLI.