Value in commercial legal services is much more complex than fees

I see value in supply chain terms. This ‘supply chain of value’ means that there are many different and key steps that build and create value in legal services. Just as in any other supply chain, value can be and is created at any one of these steps.

This supply chain concept is central to being able to articulate value in legal services. Both the general counsel and law firm should insist on the whole organic structure of the supply chain being reviewed and being made more effective and efficient at each stage.

You cannot de-link value and fees as, invariably, the final bill will influence perception of value. However, it is important to recognise that value is much more complex than fees.

My experience is that fees tend to be an issue where there is an underlying relationship issue. But just because the fee is ‘right’ does not mean that value can be taken for granted.

When thinking about fees, the two words that keep repeating are certainty and predictability. For value, the two words that immediately spring to my mind are create and articulate.

In expressing value, there is no one-size-fits-all approach. Value has to be customised to the specific organisation, set of relationships and matter being addressed. With that in mind, I think a major challenge is that, when a business talks about value, it tends to see it in numerical terms and it is hard to quantify the numerical value which legal creates.

For example, we all accept that there is tremendous value in de-risking, whether it be through compliance programmes, training, use of risk tools or specific risk mitigation advice during a transaction or other matters. But how do lawyers quantify the value that de-risking creates?

The mindset change which is needed can be a gradual one, but for me small changes can deliver significant results. For example, if a law firm decided that it would not deliver narratives based on time spent but rather on value contributed, this would force fee earners to deliver their advice wearing a value hat. It’s uncomfortable thinking for some.

Value is also inextricably linked to business understanding and longevity in relationships, particularly relationships where the people and dynamics are freshened up and not allowed to grow stale.

I believe that more weight should be given to the benefits of long-term relationships between companies and law firms, and that value creation should be used as a central reason for promoting this. Relationships are moving in the opposite direction and becoming more short term, yet this is counterintuitive to value creation. By definition, quick fixes or short-termism does not yield long-term value.

One area which I believe should be much more common practice is value-based billing, i.e. charging based on the value created rather than the time spent. This is important because there is a disconnect between conventional billing practices and what business wants. GCs buy outcomes (whether a transaction closing or a solution to a specific issue). Conventional billing such as the hourly rate is not an outcome, it is process. So the issue becomes reconciling these. Billing on value terms is different because it is billing according to and based on delivering the agreed outcome.

The way forward is to agree value principles between the GC and client partner. These principles should be customised to the needs of the business, and operate in the overall strategic and financial context of the business.

We all have our own sense of what something is worth – such as a car or a house – so why not of legal services? The reality is that many law firms are already providing some form of value-based billing. What is needed are the tools and behaviours to embed this into relationships.