I’ve attended my fair share of live theater and more than my fair share of opera (the Met is within walking distance of where I live and work, a miracle for which I’m woefully unappreciative), and I hope you have as well. But how different would your experience of such live performances be if you weren’t seated in the audience but an actual character on stage?
That recently happened to me.
Well, not exactly.
I chair the Finance Committee of St. Michael’s Episcopal Church at West 99th Street and Amsterdam Avenue. As it happens, the church owns a vacant corner lot abutting the rear of the sanctuary. Vacant lots in Manhattan, and particularly on the Upper West Side these days, are destined not to remain vacant forever. And so the church is now exploring how to realize some of the value of this unusual asset, the initial question being the blisteringly obvious one: Under applicable zoning laws, how many buildable square feet could a developer erect as of right? There are corollary and subsidiary questions, but that’s the starting point.
You may have already predicted the next step. We are interviewing law firms to select one to engage to provide us an answer, and yours truly has been sitting in on the interviews. We are meeting with a handful of firms with real or purported expertise in such New York City Wonderland arcana as ZELDA’s, massing, “open space” (not exactly what the plain English would imply), “74-711” exemptions, and the marvelous-to-behold pachyderm dance between Community Board input and ULURP provisions.
One more prefatory note: These questions are complex on one level, but they have been asked and answered countless times on another, which I believe is the more fundamental level. St. Michael’s doesn’t own the first or the last vacant lot on the Upper West Side, in the borough of Manhattan, or in New York City. This is scarcely the Verizon/Vodafone transaction.
So where is our protagonist, St. Michael’s, in this at the moment? We have already ruled out getting what we need either “fast” or “cheap,” and I have my moments of deep pessimism about even getting it right—”right” as in netting a material economic benefit to St. Michael’s after all the brokers, consultants, lobbyists, expediters, uninvited interlopers, and, yes, lawyers, have staked their claims.
But let’s talk about the lawyers.
What follows is a somewhat subjective collage of my impressions and reactions to our law firm interviews, assembled with broad editorial discretion, but hopefully portraying the process as one potential client has been experiencing it. For the record, we are meeting with firms representing a cross-section of the industry, from NYC-centric real estate boutiques to AmLaw 100 firms.
[Cast: Myself and the two wardens of the vestry of St. Michael’s; two partners from the firm we’re meeting.] [Conference room pleasantries.]
We: Our question is quite simple: How many buildable square feet could a developer erect on our lot as of right?
They: Actually, it’s not that simple at all. There are any number of intersecting factors in play here that all need to be analyzed and resolved to get us to an answer. But don’t worry; we have the deepest team of people versed in this area that you’re going to find. We can bring to bear all the expertise you’ll need.
We: Another firm we spoke with recommended that we actually hire independent consultants to advise us in these areas:
- and landmarks/historic preservation.
What do you think of that advice?
They: Actually, it makes a great deal of sense and we would recommend the same. But again, our team has unprecedented depth and you’ll really find everything you need here.
We: OK. Who would actually be working on our matter?
They: That’ll be tough to predict until we get into the engagement. We’re sure you understand. But rest assured that I and my colleague here will have direct, hands-on involvement every step of the way. We supervise everything.
We: That’s good to know. Let us ask you: Have you personally ever handled, say, a 74-711 exemption?
They: Well, not exactly. But we did something very similar in a different neighborhood for an organization that’s also a non-profit.
While we’re on the topic, I’m sure you’ve already begun to think about negotiating the terms of a ground lease for the site once you actually get a developer to the table. I don’t want to peddle my own wares, but I’ve had tremendous experience in that area and I can’t overstate the benefits of having the same law firm handle the zoning, the environmental, the landmarks and community issues, and the all-important deal itself.[Note: This advice is 180° contrary to what one of our other committee members, not present, but a real estate specialist at an AmLaw 40, told us: According to her, it’s customary in NYC real estate land for separate counsel to represent each of those interests and for altogether separate counsel yet again to represent (in this case) St. Michael’s in negotiating the ultimate ground lease.]
We: You talked about how complicated the interplay is between the actual zoning requirements, landmarks, the Community Board, the City’s Department of Housing staff, ULURP, and the City Council itself, and said it could take 18 months to two years overall. Can you give us your best estimate of our actually getting what we want at the end?
They: Very tough. It’s complicated. It’s unpredictable. You never know what might happen.
We: Odds, at least? Based on your experience.
They: It’s just hard to say.
We: Let’s talk about fees. What do you think we’re looking at?
They: A few hundred thousand.
They: More: $300,000, $400,000.
We: Well, could you give us any kind of more specific estimate? We are a church and we’re frankly always strapped.
They: I can try to estimate the number of hours for each activity.
We: That would be helpful.
We’d also like you to talk about alternative fee arrangements.
They: [Visibly blanching and recoiling from the table—I exaggerate not. —Bruce] Uuuuh, what did you have in mind?
We: Well, you’re the ones with experience here. So whatever you think would suit this type of engagement best. A cap? A flat total price? A success kicker and failure discount? It’s really up to you.
They: We’ll get back to you on that.[Conference room pleasantries.]
You will note a few themes here, which I strongly suspect I do not have to elaborate upon for you, but here for you speed-readers and Cliff’s Notes fans in the crowd are my distilled highlights:
- There’s a fundamental asymmetry in the conversation:
- One asymmetry is that of consequences. If the client chooses a firm that delivers a wonderful result, everyone wins; but if the chosen firm delivers a disappointing or even deleterious outcome for the client, the firm still gets paid. Pretty much in full.
- The other asymmetry is one of disclosure and, to be pointed about it, candor: The client needs to tell the firm as much as honestly possible about the engagement and what the client knows, while the lawyers’ instinct and practice is to guard information, hedge predictions, and avoid definitive statements. This is true even when the firm is posed direct questions about simple business arrangements and not ultimate outcomes, such as “Who will be working on my matter?”
- Most commercial transactions in B2B land involve meaningful risk-sharing. (B2C is quite, but not utterly, different; while there might not be personalized or bespoke “risk sharing,” retailers accept returns and any self-respecting service provider will provide discounts or accommodations for disappointment–think of the totemic free drink at the bar while you’re waiting for your tardy reserved restaurant table.)
Not to reprise an old joke, but the lawyer/client relationship is like the pig and the chicken’s involvement in your breakfast of bacon and eggs: The firm is involved, but the client is all-in. “Risk sharing” has no seat at the conventional lawyer/client table.
- Finally, there’s an asymmetry, or more precisely a connection so indirect it strains common usage to call it “tenuous,” between the firm’s fees (please feel free to call it the price, since that’s what it is), and the value delivered to the client. When clients talk about receiving “value” from their law firms, they’re not speaking in metaphysical terms or trying to be difficult or oblique: They mean what is the benefit they derive from your services compared to the price they pay? (The topic of “value” is, in and of itself, worthy of another column, or more than one other column, but suffice for now to say that value can be delivered at all price points and quality levels from the top of the food chain to the bottom. Ferrari’s provide value, but so do Honda Fit’s.)
A final point.
Let me invite you to surmise how this left me all feeling about the state of our industry, viewed from the client’s seat. No, you don’t have to wait for the answer.
My impulse on leaving the more unsatisfactory of these meetings was straightforward: The arrival of truly useful solutions to this type of sophisticated but not profound question cannot come soon enough.
When, oh when, will Axiom, IBM Watson, or Google’s hypothetical embedding within what Thomson Reuters “knows,” be ready to address this kind of problem? Fast. Cheap. And most important, Right.
If you wonder why clients are pushing back on fees and what that objectionable word “value” really means, all I can say is: You should try this for yourself some time. Move from the audience to the stage, just for once.
Your wish is granted. Premonition has a system to measure Attorneys and their actual success(as opposed to peer recognition perception).
I think you’ll like this article:
Great article, Bruce. I really like your description of the asymmetries. The foundations of the house of cards shake more by the day.
I’ve seen this article/blog post shared widely in the UK (legal circles of course), but, so far, I ‘ve seen no lawyer push back against any of the points — perhaps silence connotes acceptance!
I’m bound to ask, though, why the lack of transparency about the firm/s name who made the pitch, who clearly don’t get it! Tell us who they are, and perhaps that way they might improve.
I’m not sure the legal market is hugely different apropos any other professional services market (or medicine), meaning the client/customer will always be at a disadvantage in being imbued with the necessary knowledge to make a fully informed decision.
One wonders if perhaps a better form of ‘selection’ might not have been adopted that pre-screened those firms that clearly were less interested in the client than serving their bottom line but, whatever the position, I wouldn’t necessarily conclude from this that all firms are the same, in fact I know they’re not (I’ve worked for enough in my time). In my case, I was very happy to share the risk with a charity client who wanted to sue its previous accountants. In fact, from memory I was the first lawyer in my firm (a large commercial practice) to offer and undertake the work on a full conditional fee. (This was as long ago as 2004.) The bigger point to my mind is that lawyers still have a long way to go to really understand their clients’ interests beyond the transaction. In this case, I can’t comment on separate representation but I would want to have nailed the various aspects of the job well before I did the pitch meeting.
Julian: First of all, thanks for contributing to the conversation. A few quick observations:
Bruce, thanks for another great article. The irony is that the truths that you speak are so utterly self evident (“put yourself in the other guy’s shoes for a minute”) that it’s hard to understand how so many of us in the profession don’t get it. The funny thing is that you would think that those white shoe guys who were coming to the interviews would have read a few of your blog posts before coming! All the best from Toronto.
Paul Bannon, B.A., LL.B., LL.M.
Barrister & Solicitor
#360-33 City Centre Drive
Mississauga, Ontario L5B 2N5
(905) 272-0142 fax
Welcome to the world of real estate speculation/development. Maybe I am missing something here, but the question of value here seems pretty straightforward to me, assuming baseline levels of competence and client service. At the end of the day, most developers approach legal fees as just another vendor line item on the financial pro forma to be tweaked to get the projected returns warranted by the developer’s specific risks in the transaction. This is true whether you bundle or unbundle the various services that would be required here. And most developers will usually pay some kind of premium for timeliness of delivery and certainty of amount. Admittedly knowing very little, those seem to be the value drivers here as well.
It is a little scary the firm reacted like that. Not to be a Monday morning quarterback, but anyone working in this world regularly should know those kinds of questions are coming because bottom line costs drive the very feasibility of the entire project.
The representatives of the composite firm whose responses you summarized said:
1. We don’t know what services you need.
2. We don’t know what we will charge you for providing them.
3. We don’t know how we will charge you for providing them.
4. We don’t know who on our staff will provide them.
5. We ourselves have never handled a 74-711 exemption and we don’t know if anyone else in our firm has done one either.
6. We ourselves don’t have the experience in land use to even guess how likely you are to get your permit, and it didn’t occur to us to bring someone along who does.
7. We are, however, very smart, and we work with other very smart people, and can answer any other questions you have.
Contrast your legal representation bidding experience to that of a competent contractor’s bidding experience:
– Let’s go through what you need.
– I’ll make gentle suggestions along the way during the walk through to improve the project. (Free of Charge!)
– I can get you an itemized bid for labor and material cost, along with a projected due date. I’ll have it for you within 48 hours. (Aside: The experienced contractor already has a back-of-the napkin estimate of the business costs to do the work. Contrast this to the partner in your example who will need to poll his office colleagues when he gets back — and probably not all the necessary ones.)
– Upon request, I can provide receipt copies for materials. Or you can purchase that materials you want for the job. I can handle the labor.
– Yes, there are unforeseen problems, but I will inform you if it is material to the job and mutually adjust the bid proposal accordingly. (Unlike the “surprise monthly legal bill” followed by the client “I’m asking for discounts on this bill” communication.)
– Yes, I will handle any of the necessary permits to do the work. Typically, those are permits A and B. If I encounter X situation, I may need permit C too. I can itemize those costs.
– We can agree to clauses for missed performance. (e.g. Discount by 10% if past due date or start date, absent any material changes.)
– You can view photos of prior work or visit other ongoing site work similar to yours.
– I will return for minor touch-ups as part of the bid. (Again if it is not a material change to the original job.)
– If you are happy with the work, can I use you as a future reference?