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‘Business as usual’ is over, says speaker

The economy may return to health and resemble the one preceding the 2008-09 recession, but don’t be fooled, Association of Corporate Counsel’s Susan Hackett says.

For big business, corporate counsels and the law firms that serve them, there will be no return to “business as usual.”

That was the message Hackett delivered Friday at the fourth-annual State of Litigation seminar hosted by Lathrop & Gage at the Intercontinental Hotel in Kansas City.

“We all know that if the economy comes back and it looks the same as it did, we’re still not going back because clients have made a paradigm shift in how they do business,” said Hackett, who heads up the ACC Value Challenge, a program that seeks to bring big business and corporate lawyers together on fees, the value of services and sharing business objectives and models.

Hackett opens with a catchy slogan adapted to her message: “A Good Crisis is a Terrible Thing to Waste.” For law firms and their corporate clients, the crisis is an opportunity for “reconnecting cost with value.”

“This economic crisis is something that’s driven us to think more about this than just talk in the hallway,” she said.

In the wake of economic turmoil, Hackett said there’s an opportunity for law firms and corporate legal departments to redefine how they do business. The topic isn’t reducing legal fees – at least not in the Midwest – but restructuring how the two sides do business together.

The shift to a more value-based delivery of legal services follows what Hackett calls “The Golden Age of Law Firm Profitability.” The revenue-side good times started in 1991, she says, but hit the brakes in 2008.

“The 2008 AmLaw 200 report was a watershed moment for me because it was the first year after unprecedented profits among the large firms that we had a decline,” she said.

Worsening conditions fueled a trend that started even before the economy hit the wall in late 2008 and early 2009. Companies, Hackett said, began to spend cautiously and looked to tighten budgets. Their legal departments – and fee arrangements with outside counsel – found themselves under closer scrutiny.

“What’s happened is that companies have finally realized that you [in-house counsel] hold the purse strings,” she told the audience.

In a series of ACC-organized regional events held in 2008-09, Hackett said that representatives of big business and large law firms met to discuss their priorities, the shortcomings of the pre-Recession model, fee structures and how the two sides might move closer to each other’s business models. The ultimate goal, Hackett said, is to become partners in working toward  mutual goals.

“In these sessions in 2008 and so far in 2009, I’ve heard no one say that the cost of legal services should come down,” she said. “What I did hear is that these services should be related to value.”

If anything, market conditions have created an advantage for Midwest law firms, said Rick Bien, a Lathrop & Gage partner.

“I think it provides a unique opportunity for Midwest firms to be considered for business with big companies that they might not have had before,” said Bien.

Legal fees at even the largest Midwest firms are considerably lower than on either coast, Bien said, and that may explain why Lathrop & Gage hasn’t felt pressure to reduce its fees.

“I think most of our clients, to our knowledge, aren’t doing anything draconian,” Bien said. “The only thing I’ve heard is ‘no fee increase in ’09, keep your rates at their 2008 level.’ ”

In selling the ACC’s Value Challenge, Hackett said the process of transforming how firms do business was created with a 10-year timeline, and the expectation of incremental improvements each year.

“We’re not expecting the whole bar to roll over and accept this,” she said. “Lawyers are risk-adverse people. They rather look back for direction on where to go rather than pull ideas from out here, in the future, and try them out.”

But with economic forces having shifted power to corporate budget managers, Hackett believes that firms that don’t adjust are more likely to lose business, without explanation.

“Those things don’t come until the bills go out and there’s a disconnect,” she said. “Large firms are never fired. People just stop sending business there. You never know what’s broken and how you can fix it.”