An Overview of The ACC Value Challenge Reconnecting

An Overview of The ACC Value Challenge Reconnecting Cost with Value Susan Hackett, Senior Vice President and General Counsel, ACC (for more info on the ACC Value Challenge or a copy of this slide deck: www. acc. com/valuechallenge)

Association of Corporate Counsel (ACC) • Largest bar association exclusively serving in-house counsel in the world • More than 25, 000 members, representing more than 10, 000 corporate entity employers • Members in more than 75 countries, and growing! • Full service bar: chapters, committees, educational programming, legal resources and benchmarking, etc. • Unique value in open collaboration between members: the most powerful network in the legal profession.

The ACC Value Challenge • With such diversity in our membership, what is shared by every in-house counsel? The imperative to: – work within a defined budget • control costs while delivering value – provide excellent client service • Both keep the company out of trouble and make it stronger – decide how to get work done • Address challenges/opportunities of using outside counsel

All three imperatives under stress: - The legal department as a cost center: doing more with less, unpredictable/unmanageable legal spend - Companies under close scrutiny: new challenges to compliance / enterprise risk management - Outside counsel who don’t get it: inefficient business models that don’t align with corporate priorities

ACC creates The ACC Value Challenge to help: - in-house counsel to drive better value and management of the legal function - outside counsel to redesign their business / service models to offer value - collaboration between the two to reconnect the cost of legal services to their value

How did we get here? If this has been a problem firms and clients have struggled with for decades, why is a solution possible now?

Over the past ten years, costs to U. S. companies went up 20%. . . except legal costs, which went up 75%.

Do clients really mean it this time? • Decades of escalating legal costs w/o improved efficiency – corporate management won’t take it anymore • Changing economic pressures for both clients and firms – now emphasized by the downturn: The Tipping Point. • Is the focus really on value and making institutional changes or on surviving a short-term crisis? • Many clients still don’t reward value, but revert to a shortterm focus on discounts – not re-addressing the model. • Not a matter of blame; both sides need to change and have different responsibilities when driving value

What does alignment entail? What does controlled cost mean? • Lower/predictable costs for clients ≠ lower profitability for firms, unless the firm is inefficient or indistinguishable. • Clients aren’t looking for “cheap, ” they want “value, ” but we are all ill-equipped to implement sustainable/radical change. • If the value focus is here to stay – then how will we prepare now for longer-term, sustainable practices? • If value is subjective, what practices drive business models toward the alignment required for each matter/client?

If we are jumping out of the frying pan … … What are we jumping toward? Common themes emerge in ACC VC sessions …

Defining what clients want Themes from the regional sessions (2008 -9) 1. Better management; lean efficiency (two-way) 2. Certainty / Predictability (up-front budgets/scopes that stick) 3. Focus on outcomes and results, not just on process and analysis: driven by metrics 4. Costs that equate with value received 5. Outside counsel and firms whose motivations and business model are aligned with the client’s Common Theme: Communication/Trust/Alignment are Key

This suggests that firms might consider… • Value-based alternative billing and relationship structures • Fixed fees: for entire matters or stages as a starting point – TRANSPARENCY will be key to establishing trust and success • Bid for whole portfolios of services–old fashioned retainers • Setting budgets and goals, then managing to them • Leaner staffing with greater continuity • Better training and mentoring of junior lawyers • Don’t reinvent the wheel; KM the firm’s legal expertise Common Theme: Get a handle on costs/lean efficiency

This suggests that clients might consider … • Better articulation of expectations and scope of appropriate budget up-front • A return to long-term trust and continuity (versus default reliance on RFPs, audits, etc. ) TRANSPARENCY - again is crucial to trust and success • Reward firms that demonstrate value/innovate/align • Support firms by re-considering the in-house mantra: “Hire the lawyer and not the firm. ” In order for firms to institutionalize change, they need client loyalty that extends beyond an individual. Common Theme: Dating stinks; let’s get married.

Just for a moment … Stop thinking like a lawyer, and start thinking like a businessperson.

Moving from theory to process: Value/Success Practices • There are hundreds of ways to drive value: find more success practices at www. acc. com/valuechallenge. • There is no one silver bullet “value” or success practice, and no “one size fits all. ” Value is in the eye of the beholder and must be shaped by each client/matter. • Consider what will help you take concrete first steps to drive value. Choose pieces and focus on them: make change manageable and sustainable.

Large departments may take a lead or get more attention … • … But value practices are just as important (maybe more important) for smaller departments & the firms serving them. • Small department ≠ small company or small client. • Small law departments tend to be “better” clients – longer term/personal relationships, less bidding, more stability. • Many larger department and firm techniques are scalable for smaller/mid-tier department and firm use.

“Yes, you can!” • ACC offers samples of many practices to consider – there’s little in these practices that you don’t recognize/understand – no rocket science: just plain common sense combined with a decision to get value done. Take small steps first. • What is it that you need to move from intellectual agreement with theory to practical applications you can implement? And will sustain? • Transformational change can be both radical and incremental – it can be planned and non-disruptive. • But you will be unprepared to compete if you do nothing.

Practices focusing on value… - Alternative or Value-based fees - Success, Contingency, Incentive fees - Staffing – which horses for which courses? - outsourcing, in-sourcing, team deployment - Talent development: associates/partners/staff - Performance Metrics: evaluation and comp - Knowledge Management: business and legal

Unique Opportunities… … For firms that are early adapters – demonstrating their savvy in managing their own business. (Helping clients who don’t have the time/capacity to re-invent the firm for them. ) … For firms with a clearly defined value proposition and transparency with clients – facilitates risk sharing. … For regional, mid-tier, value-firms, as well as boutiques: reasonable rates, lower fixed costs, greater flexibility, nimbleness … For clients that previously did not have the leverage of the Fortune 50 in driving innovative terms with firms … For in-house counsel who want to drive better mgmt.

In the end, it’s all about value. Contact me at: hackett@acc. com