Today I want to discuss what, I imagine, many readers will thing is a hare-brained idea; and then I want to explain why, if you adopted this idea, your own behavior would change such that it might not end up being hare-brained in the least. Both dimensions of this discussion, I believe, have value, although the second can of course be transposed to an almost infinite variety of contexts. So if the first part (the proposal itself) leaves you cold, focus on the second.
First: The Proposal
The idea is a “Client Value Guarantee,” meaning simply that you would offer some clients a guarantee from your firm that if they feel they haven’t received value from you over the course of a representation, they don’t need to pay your bill as submitted.
Take a breath while I unpack this a bit.
- “Some clients:” Yes, close readers will have detected a bit of calculated fuzziness in this formulation. Not, by any means, all clients. Not, probably and for example, new clients or episodic clients or clients who have otherwise demonstrated a tangential familiarity with scrupulously fair business practices.Which clients, then? Pretty simply, the opposite of those above: Steady clients of long standing, who have shown appreciation, above and beyond, for what your firm does for them. Clients in your firm’s inner circle, as it were. You know who they are, and who they aren’t.And for extra credit, you could further distill the opportunity set into those clients you plausibly believe might give your firm more work.
- “A guarantee:” This means one thing but does not mean another thing. It does mean that the judgment whether “value” was received is the client’s and the client’s alone. Don’t argue. (This is an opportunity to invoke the timeless wisdom of Henry Ford 2d, who when arrested for drunk driving, said, “Never complain, never explain;” this even made his NY Times obit.) “Value” is solely in the eyes of the client because that’s what a guarantee means.What the guarantee does not mean is that the client gets their money back in full; here’s your opportunity to have a candid conversation
with the client about what “value” would have been, why they were disappointed, what you could have done differently: And your opportunity, critically, to ask them how much they are willing to pay given the actual work performed.In other words: If your bill over-stated the “value” of the work in the client’s eyes, what would have been a reasonable and fair bill. $0.00 cannot be the answer (or you know what to do with that client; see bullet #1 above.)
The Chicago firm of Ungaretti & Harris (merged earlier this year into Nixon Peabody) actually offered just such a thing. Here’s how their guarantee read, in haec verba:
We guarantee that as a client of Ungaretti & Harris you will receive cost-effective legal services delivered in a timely manner. We promise to involve you and communicate with you regularly. We cannot guarantee outcomes, but we do guarantee your satisfaction with our service. If Ungaretti & Harris does not perform to your satisfaction, inform us promptly. We will resolve the issue to your satisfaction, even if it means reducing your legal fees.
This has a lot going for it: Plain-spoken, direct, the opposite of legalistic. And also realistic (“we cannot guarantee outcomes”).
Let’s pause at this point, before we proceed to the dynamic implications this has, to consider the bidding among proponents and detractors.
Con: Are you kidding? How much is this going to cost us?
Pro: Actually, the data shows that firms offering this see clients taking back around 1% of their total fees: Which is not going to kill us, in the larger scheme of things, and which we might decide is an amount worth our investing in for what we’ll learn about ‘value.’
The available data comes from businesses as diverse as industrial strapping to IT consulting, but has its center of gravity in the range of 0.0025 to 0.0175, or 0.25% to 1.75%. This hardly rises to the level of life-threatening, especially when put in the context of write-offs and write-downs. According to Dr. Christopher Hart, a former professor at Cornell and Harvard Business School, “companies notoriously overestimate payouts by a factor of 10x to 20x.”
Here’s an example from Christopher Marston, CEO of Exemplar Law, which has had such a guarantee place since its founding:
As far as payouts, Marston says “I’ve had two clients in ten years invoke our guarantee. One was a client that we shouldn’t have taken on in the first place – the fit wasn’t there. The second was a new client we were working with for the first time. We ended up issuing them a partial refund – and they stayed a client.”
Con: We can’t just leave it up to clients to say what they think; it’s in their self-interest to get a break on our fees any way they can.
Pro: A ‘guarantee’ worth its name has to be the client’s to invoke or not; if we start debating with them, we might as well not do it.
Con: If word gets out, our other clients are going to start demanding it.
Pro: Every one of our clients has their own preferred customers; it’s standard operating procedure. We can tell them it’s not available to everyone, plain and simple. But more important, what are you afraid of? Aren’t you confident our firm provides ‘value’ to clients of all kinds all the time?
Con: Why would we ever knowingly assume vulnerability and risk? Besides, who’s done this? Maybe two or three firms? I don’t think so.
Pro: In reality, making us vulnerable to clients builds trust; and we won’t offer it to greedy, opportunistic clients. As for not-alot-of-firms having done it, how better to differentiate ourselves in today’s environment of a battle for market share? Given the choice between two highly comparable RFP submissions, ours with a value guarantee and Firm X’s without, which is the client likely to prefer?
This last point is worth emphasizing because it may be the emotional (vs. the business) fulcrum around which the internal debate revolves. Proponents can say, essentially, we have nothing to fear. Our firm proudly proclaims the desideratum, and lives the reality, of providing superior client value—does it not? Detractors, seeing themselves as realists or cynics, will argue that’s not exactly true 100% of the time—and that clients know it and will exploit it. This boils down to “We’re promising something we already deliver” vs. “We’re staking a claim to an impossible aspiration.”
Second: The Dynamics
This is where the real power of offering a value guarantee may come in; it can (it certainly should) change behavior. It’s a category error of the first order to think of it as a business development and marketing tool; rather it’s a catalyst to re-examine how your firm conceives and delivers value to clients to begin with—and to begin to re-mold your internal behavior to consistently deliver what you promise or aspire to.
I mentioned that you almost surely know where your firm falls short on “value.” Here’s the prod to get serious about closing those gaps.
If you step back to reflect on the astonishing improvements in manufacturing quality we’ve all experienced and benefited from over the past few decades (cars, appliances, smartphones, even IKEA furniture, for heaven’s sake), you know the mantra is “zero product defects.” Have you ever thought about how to apply that to what your firm delivers, namely legal services?
You only need think about end-to-end manufacturing for a moment to recognize that it’s complicated and rife with opportunities for defects to creep in: From suppliers, assemblers, distributors, retailers, service technicians, etc. Have you ever thought about how delivering high end legal services is equally rife with opportunities for defects?
Let’s focus on what a “defect” in legal service delivery means. Setting aside malpractice and subpar advice—not germane to the present audience, and not interesting to any audience—a “defect,” I submit, is a gap in trust between your firm and the client. Stated differently, exceptional client value is a product of zero gaps in trust.
The famous JD Power surveys have actually attempted to quantify the economic value of “trust,” and while you should consider this strictly qualitative and not quantitative in nature, higher score on trust consistently correlate with (a) greater willingness of clients to introduce their trusted firms to friends and colleagues; and (b) lower sensitivity to fees.
This is where the CVG delivers real internal change to your firm. If you think of your firm as designed to build trust with clients, it re-conceptualizes client interactions. And it elevates the CVG itself from a market/economic transaction (“satisfaction guaranteed or your money back”) to binding glue for the relationship. And that’s what clients want, after all: Clients don’t want payouts on your guarantee; they want the value the guarantee promises.
Now, getting from here to there is not for the faint of heart.
Among other things, you had best be sure beyond a shadow of a doubt that:
- Your firm is deadly serious about a client focus;
- Your platform is stable; do not under any circumstances attempt this in the midst of an internal fire drill;
- You can create productive and internally credible working groups to assess the actual feasibility of a CVG for your firm.
Then you get into the nitty-gritty of identifying gaps in your “production of value:” In the nice metaphor of Prof. Hart, think of them as exercises in “turning up the water pressure in the hose to expose the leaks.”
I noted at the start of this column that I thought both pieces of it—the substantive notion of a client value guarantee and the dynamics of behavior change it might set in motion—had value. I stand by that, but let me add a few closing words of elaboration and clarification.
First, even for those of us of the most optimistic stripe, this can be handing your client your sword—and your shield while you’re at it. If you want to try this, experiment with only with the most trusted and trustworthy of clients, and you might want to think twice about them.
But second and more important, focus on how embedded firm operating methods like this can dramatically affect behavior. A very high-profile example of this technique in action in BigLaw just appeared in an article by McKinsey, in their profile of Seyfarth, “A New Order for Law.” The article is broadly about Seyfarth’s move over the past decade or so to lean management principles, emphasizing predictability, transparency, and collaboration.
One of the specific techniques or operating methods underlying that is exposing cllients to the status of each of their engagements in real time: The underlying to-do lists, tasks, and status of each item against agreed-upon standards. This may sound like it’s merely process and not substance, but here is how Andrew Baker, Seyfarth’s director of legal products and technology, described the impact:
Knowing that a client can log in at any particular point in time and see what’s happening is a huge motivator. That transparency creates powerful incentives, which shape the right perspective and behavior.
Seyfarth’s experience is the twin separated at birth from the client value guarantee exercise I laid out here. New expectations elicit new behaviors. And new day to day operating methods embedded in how the firm works help support continued discipline and focus driving those new behaviors.