Knowledge Counsel Forum, Westin Times Square, March 23–24, 2006
Sponsored by Baker Robbins and West Legalworks
I attended this conference and want to report on it. I don’t plan to cover this as a court reporter or even as a conventional journalist on a story, but rather intend to highlight notable observations, insights, and trends.
Panel I: The Future of KM in Law Firms
Sally Gonzalez, Baker-Robbins; Kingsley Martin, Thomson-Elite, Risa Schwartz, Wilson-Sonsini
Moderator: Eugene Stein, White & Case
At WSG&R, the KM system "pushes" information out to partners and associates when a new matter is opened, a la McKinsey. Currently done manually; aspire to doing it automatically. For partners, they might get names of colleagues who’d recently worked on similar deals, as well as "comparable’s" in terms of fees, hours, etc. Meanwhile, associates get related documents.
Going forward:
- Bring the right people to the table (don’t forget secretaries)
- Identify pain points and business needs
- Design systems in conformity with existing processes
- Embed KM staffers in practice groups.
At White & Case, they decided to look outside the legal industry for ideas, and immediately realized the model of the publishing industry was analogous to a law firm: Paralegal’s are researchers, fact-checkers; junior lawyers are the writers and researchers; senior lawyers and junior partners are the editors; senior partners are editors-in-chief and relationship officers. This helped them with the "how."
As to the "what," W&C looked at medicine; in particular, when doctors write a prescription in an electronic-record-enabled environment, the system can automatically check for best practices, contra-indications, etc. One consequence was to reorganize so that everyone who touches a document—including KM, the library, paralegal’s, secretaries, and IT—work together.
Sally Gonzalez points out that one reason the medical profession can share knowledge is because there is a universal, well-recognized, taxonomy running into the tens of thousands of entries (all the checkboxes on the invoice when you leave). No such analogue in the legal community.
Sally would like to see an "insightful convergence" between the UK and the US approaches; not that the US should ape the UK, but the UK could learn some things from the US. US firms have "PSL envy," which stems from a fundamental misunderstanding of how the UK system works. First, UK does not remotely have the same commercial legal publishing industry the US has–so to the extent the UK PSL’s are just generating internal equivalents of what you can buy off the shelf in the US, it would be crazy to emulate them. Second, until very very recently, UK law students were not trained to do any research at all; they were presented with briefing books compiled by others. And finally, changes in UK regulations are typically shrouded in secrecy until they’re announced as a fait accompli.
Sally predicts the conference will spend 80% of its time talking about technology, but it should only be about 30% (despite technology’s sexiness and allure!). The non-technology issues are harder to talk about, but far more critical.
Another of Sally’s hobby horses is "Information Architecture:" What are the core business processes your firm as a whole needs to excel at to thrive in the market? Then: What information do the lawyers need to drive through those processes?
Kingsley Martin opens with KM mantras:
- KM is not about technology
- It is about people
- KM focuses on process
- KM works best by stealth
- KM works best by passive, invisible technology behind the scenes
- KM must organize external as well as internal information
Prediction: The challenges of KM will in large part be solved through technology.
Holy Grail: Connect the dots of (a) documents; (b) people and organizations; and (c) clients and industries.
Distinguish between matter-centric info: System data and bibliographic data come from the system, and are extremely reliable
Vs: Practice-centric info, using information extraction to capture procedural, subject matter, and jurisdictional information. Believe it or not, automated info extraction is far more precise than hiring domain experts to do it. Of course, while they can capture all the related doc’s, they can’t tell you which is best–that’s where PSL’s and other humans come in.
Panel II: The Evolving KM Organization in Law Firms and Corporate Law Departments
Robert Dinerstein, UBS Investment Bank; Christian Liipfert, BP America; Risa Schwartz, WSGR
Biggest challenge for UBS’ KM efforts is not technological but cultural: Old habits die hard, and people will change how they behave only if the new system is decisively perceived as easier and better, and not just the effort of a small group of people to advance an idea that is untested, untried, and unproved.
Other anecdotal observations about KM in the corporate law department environment:
- Dinerstein was struck by the extent of resources devoted to KM by Magic Circle UK firms.
- He believes a new form of partnering between clients and law firms lies in using this resource, as it’s simply infeasible to expect a corporate law department to investment similar resources.
- The business case for KM in the corporate legal department is simple: Cost savings. Dinerstein believes the investment in KM will be repaid multiple times in outside counsel savings.
March 24
KM as A Profit-Maximizing Tool
Rodney Satterwhite, McGuire-Woods; Browning Marean, DLA Piper
The critical flaw in using KM as a profit-maximizing tool is the billable hour; simply put, the more efficient a law firm is, the less revenue per matter.
Can more responsive client service (through KM) make a difference in marketing and business retention? Yes, but it’s not measurable; there is no ROI calculation possible. So are there other justifications available? Do you ask for ROI from the library?
One benefit mentioned was associate morale-boosting, which was almost hooted down. "You mean your firm has associate morale?" "I wasn’t saying it was good."
What about cutting write offs? According to both Rod and Browning, this was the single most demonstrable benefit of KM. Kingsley Martin raised the point that to the extent firms change the partner compensation system to reward profitability rather than simple hours billed, this would provide an indirect support for KM. The objection was raised that lawyers aren’t familiar with accounting and financial analysis and would find the metric of profitability opaque.
Rod posits that:
- KM will always make lawyers more efficient
- You cannot change that reality
- So the answer is…?
- change the pricing model
- which will happen only given incessant client pressure
- "Alternative Fee Arrangements" will continue to erode the billable hour slowly based on corporate America’s preference for certitude
- taking on a significant enough basket of cases (e.g., all of Wal-Mart’s employment discrimination cases in the Southeast for 3 years) should enable astute firms to make reasonable actuarial predictions and offer (more or less, subject to amendment for the out-of-control, runaway cases) a fixed fee to handle that work.
Browning posits that while you cannot handle an entire litigation matter under a fixed fee, you may be able to offer a fixed fee for certain components of litigation–e.g., drafting a motion, taking a deposition. Rod also offers the example of an unnamed McGuire-Woods client that has nationwide arbitrations with disgruntled employees, and says they can predict what 95% of those cases will cost; but admits it took over a year to develop enough statistics to determine the right price point.
Rod also recommends the simplicity of "blended rates," using the example of: Associate @ $200/hour, Partner @ $450/hour, and blended rate of $300–obviously, the more hours of associate time that can be sold @ $300 instead of @ $200, the better. On the other hand, GC’s and corporate counsel know this game, and some in the room said they’d fired firms who abused it. Rod points out further that the more robust your KM system, the more you can get actual high-quality work out of associates and avoid client blow-back.
Several in the audience noted that strong KM systems could help associate retention and morale and even help attack the under-representation of women in senior ranks—to the extent they reduce pressure to generate maximum billable hours above all else.
Pure fixed fees are still inordinately hard to do, was the consensus.
Rod next suggests a "performance holdback" scenario, whereby the client receives a discounted rate and also holds back a portion of payments due, but then is invited in its discretion to offer a performance bonus at the end of the engagement.
Conclusion: To the extent alternative fee arrangements are going to grow their "market share" (on which there seemed to be consensus, albeit no real consensus over the speed of their adoption), firms need to be prepared and to have strong KM processes in place—or else they won’t be able to respond to RFP’s, etc., requiring alternative fees.
Finally, one audience member said he saw a "potential train wreck" between the inexorable pressure to keep PPP increasing and nearly exclusive reliance on the billable hour methodology. He posited that you can only increase (a) annual billable hours; (b) rates; and (c) associate leverage for so long, and when those revenue-drivers run out of running room, alternative fee arrangements would look attractive to law firms themselves—not just clients—and that would at last accelerate the erosion of the billable hour model.
