In the banking world, every loan is different. Or is it?
Two years ago, Philip Kirkpatrick, then the senior deputy general counsel of St. Louis-based Rabo AgriFinance, launched an ambitious program to make better use of the wealth of data lurking beneath every transaction.
“There’s predictability,” said Kirkpatrick, who is now regional general counsel of the agricultural lender’s corporate parent, Rabobank. “There’s so much predictability if you know the right variables to measure.”
Kirkpatrick pioneered an unusual relationship between Rabo and the St. Louis law firm Thompson Coburn. Although Thompson Coburn serves as outside counsel, it has a small team that works out of the lender’s headquarters and is “fully ingrained” into its business.
“One of the key business elements of that was to ensure that we had a partner who was willing to be flexible with us, to leverage tech, to measure the relationship and also, quite candidly, that we trusted,” Kirkpatrick said.
To get the most out of the arrangement, Kirkpatrick’s team analyzed how many hours of legal work a loan should take to review. Loans are of varying complexity, involving factors that range from the amount of money at stake to the water rights associated with the property. Still, patterns quickly emerged: A typical loan ought to take no more than 15 hours of review. Above that threshold, it’s time to take a closer look at what’s going on.
“We’ll never be right on every individual loan, but if we look at it from a portfolio perspective we can be pretty darn close on the average,” Kirkpatrick said.
Rather than rely on the standard method of billing by the hour, Rabobank pays its counsel a flat fee — an arrangement that gives the law firm an incentive not to draw out the review process. Of course, flat fees come with their own potential for abuse as well. To combat that, Rabo cross-charges the legal fees to its individual territories and regions so that branches are accountable for their greater consumption of legal resources.
Kirkpatrick is always looking for ways to wring greater efficiencies from the system, from streamlining conflict waivers to making special fee arrangements for monster loans that wind up taking 50 hours or more to review. While the company could always just bring that legal work in-house, having the backing of a large law firm makes it easier to cope with vacations, illnesses and unusually heavy workloads.
Rabo reports that it has seen a 10 percent savings in legal costs and a 167 percent reduction in turn-around time for legal reviews. Kirkpatrick said the goal is to make sure the arrangement works not just for Rabo but also for Thompson Coburn, where Kirkpatrick began his legal career.
“This isn’t a one- to two-year relationship,” he said. “We look at this as very long-term.”
Kirkpatrick said Rabo looked at three firms to take on the project, though Thompson Coburn was hardly an unknown. After getting his law degree from Syracuse University, Kirkpatrick was an associate there from 2002 to 2005. That led to in-house positions at several other St. Louis-area companies, as well as a master’s of business administration degree from the University of Missouri-St. Louis in 2008.
“That’s when I really started to pay more attention to numbers and the finance side of legal,” he said.
Data analytics, he added, remains an area where law firms could move beyond their slow and steady approach to business.
“We have all kinds of data, and the law firms do too, through their billing practices,” he said. “I’m just amazed they haven’t leveraged them yet.”