Intro Music  

Tyler Finn    

What lessons does a former law firm CMO have to share about the business of law? How is the law firm business model going to evolve in the AI era, and how can you get better rates and outcomes from the firms that you work with. Today, we are joined on the Abstract by Ken Callender, managing principal at value strategies, where he works with corporate legal departments to help them get more value and predictability from their outside counsel relationships. He's got a bunch of lessons about negotiating rates that he's going to be sharing today. Ken has been in the legal space for more than a decade, including as head of legal operations and Chief of Staff at Uber and as I referenced as the Chief Marketing Officer at Davis Wright and Tremaine, which is a big, notable law firm based out of the Seattle area, if I remember correctly. Ken spent the first couple decades of his career not in legal as a marketer, but at large companies like Agilent and HP. Ken, thanks so much for joining me today for this episode of the Abstract.

Ken Callander

Yeah, Tyler, great to be here.

Tyler Finn    

Well, you're a pretty candid guy, I think. And so I'm not going to start with a light topic. No, no, like softball right off the bat. We're going to be talking a lot about law firms today. Obviously, law firms, big law is been in the news recently as many of the largest firms, there's a few who aren't. There are a few who are fighting this, but a lot of them are cutting deals with the Trump administration, offering pro bono work that they say they would be offering otherwise, or they'd be doing otherwise, in exchange for the administration not targeting them with executive orders around access to security clearances, government contracts. What do you think about this, but also in the context of the conversation we're going to be having today, how is this in some ways derivative of the law firm business model that they would feel a need to cut these deals? Yeah,

Ken Callander  

Yeah, It's totally derivative of the law firm business model, right? This is a huge topic in the legal circles right now. Obviously, everyone is talking about this. And, you know, obviously from the side. And it was interesting. I was just in a meeting last week, a long meeting in person with a whole group of lawyers. And, you know, in the in sort of the downtime, this was the topic that people talked about. And the interesting thing that they said is, you know, and I said, Well, how many of you have signed on to this petition, you know? And they all said, Oh, we totally agree that, you know, this was the wrong thing to do, but I'm not signing the petition,

Tyler Finn

Right.

Ken Callander  

You know, and it sort of is a gateway into just how, you know, people think about this, right, in the sense that they're totally against, you know, being coerced and pressured by the administration. But on this, other hand, none of them want to fall prey to, you know. And the big thing that came up was, you know, security clearances, you know, that really only covers certain types of work. Government contracts is a much bigger deal, right? Because so much work flows through the government one way or the other. But what each of these attorneys, and they're all litigators, brought up was, Hey, I can't be kept out of a federal courthouse, right, right? Being access to federal buildings, he says it would destroy my practice, you know? And so I'm not signing on, on, on to anything, because I don't want to be targeted. And, you know, being kept out of a federal courthouse, that would end my practice. So it's the fear piece of it, I think, more than anything, from a law firm, business model. You know, obviously every firm, just every firm out there, does litigation, being kept out of a federal courthouse would stop their practice, right? They wouldn't be able to operate. And I think you know, and obviously government contracts, and also, you know, if you've got clients that are government, clients are related to the government, you know that could hinder your ability to work for your clients, and so I think a lot of the big firms, so I see both sides of this from a business standpoint. I you know, the firms say we wouldn't be able to operate, you know, and we would lose clients, and wouldn't be able to operate. We wouldn't be able to go into federal buildings, including courthouses, and we would basically cease to operate and, and the other side of it says, Hey, these firms that you're talking about that they've targeted have, you know, PPP, which is, you know, profits per equity partner in the range $6 To $8 million partner range, right?

Tyler Finn

Right

Ken Callander   

You know, really, you guys haven't made enough money so far that you know that you know you just stand up for what you believe in, right? So I understand it. I understand where law firms coming from. Law firms are businesses, right? And they but on the other hand, you know, a lot of people look at that and say, You guys make so much money as it is, you know, really, you know. And that's where your focus is, is to continue to make that kind of money. And you know. And you see these revolts by associates, you know, and and the branding, I think going, there was just an article this morning about what is this going to do to the branding and being able to recruit new talent for these firms? Yeah, saying, you know, I'm not going to go, you know, I'll go to another there's a lot of, you know, top firms like that out there. I'm not gonna, I'm just gonna go a different firm. I'm gonna leave you and, you know, as a top associate, and go to one of these firms that didn't kick right? The firm's the Wilmer and Perkins and and Jenner and the ones like that that are fighting this. You know, they're getting a lot of props out of that, right? And sure. And I think you're going to see a lot of top talent say, hey, I want to work with you guys, right? So, you know, like I said, I see both sides of it. I understand why they're doing it, but I it's, you know, there's a it's going to cause, it could cause them brand issues and things down the road that we'll see, right? You know, people's minds. You know, memories get pretty short, and, you're, you know, people will probably forget about it, but that's just, you know. So I understand, and I understand where people are coming from.

Tyler Finn    

I feel like there's a calculus that they're making as well, which is that, to your point, the memories of GCS or other folks who are making decisions about who they work with, even if they don't like what's happening right now, when push comes to shove, maybe they still go to Latham for their IPO or their big debt rate.

Ken Callander  

I know a lot of GCS have spoken out and said, well, wish you know you should, you know, I mean, Paul Gray wall just the other day, right? you know, as you well, know, you came out and said, You guys had asked me about this before you started doing that, right? So they've come out and said, You know, I'm maybe I'm not going to work with you guys anymore. But as you said, you know, memories are short, and you know, if you get to a point where you want to use K and E, right? Because one of the top M and A firms out there, and you're going to do a deal, you know, it's like, okay, you know, they're still the best, or one of the best, or we've used them in the past, we want to use them again. So, you know, when it comes to business, you know, it's like, okay, who's the best that we want, or who we've used before that knows us and understands us and do it again. And, you know, so I it may just blow over, you know, over time, and I think that's what they're kind of counting on.

Tyler Finn    

Yeah. That's unfortunate, but I but, but it makes sense in the context the business of law firms, which is one of the things that we're going to be talking about. To be talking about today. Okay, so you spent a bit of time both doing BD work, leading marketing, almost operating as sort of a COO at Davis Wright and Tremaine. I mean, that must have been a really great education in how law firms work, from the inside, and getting to see all aspects of it. What was it that led you there and away from sort of the more traditional corporate marketing that you've been doing for a lot of your career.

Ken Callander  

Yeah, you know, at HP, and, you know, especially at HP, I was doing, I started off in operations and manufacturing and ended up, you know, in the professional services area. I was doing marketing and business development and pricing of professional services. And then I went over to Agilent. We split the company with HP and agile and I went over to Agilent in corporate marketing, helping run and their corporate marketing organization. And but that professional services piece, when I left Agilent, I started doing consulting around professional services, because that's what I knew, Christine and business development and the like. And I did work for some accounting firms and architectural firms and stuff. And I started some law firms. I'm not a lawyer, I'm a business guy, but law is, you know, legal services are professional services, right? And so, and it was interesting, because when I started trying to talk with firms, you know, they said, Oh, well, you know, legal is different, right? And, you know, and I try to say, you know, it really isn't. It's still professional services, whether you're talking about consulting services or engineering services or accounting services or architectural services, you're doing the same thing. You're selling. You know, the services of a professional right and and legal services is the same thing. And of course, lawyers think they're different. And you know, so it took a little while to convince them, but do some work for some firms, of law firms, and that's when Davis, right, asked me to come in and build out their business development team. And that's how I started full time at Davis, right? So it was, it was an interesting change, because, you know, I've always worked in the corporate space, there's a very hierarchical structure, you know, you've got, you know, the board and the CEO, and then it falls down. Whereas, you know, a law firm is a partnership, you know, right? The thing at Davis, right, or at any big firm, is, you know, I had 300 owners, yeah, right, and I, and that is a challenge, right? Because you don't, yeah, you're not reporting. And some, you know, every firm is a little bit different. Some firms truly are hierarchical, where you've got a managing partner or a chairman that leads the firm, and they lead it with sort of an iron fist, and you know, and what they say goes, but then you have other firms where it's truly a partnership and that. And even in the in the more hierarchical firms, you've got what I call power partners, right? And these are partners with large books of business, and they sort of have veto power over, right, that, you know, the firm wants to do, or the strong say, because firms are afraid that they're gonna, you know, if they're not happy, they're gonna leave and go to somewhere else and take all their clients with them, right? Yeah, it's revenue, and it hits the confidence that, you know, firms are built on confidence, right? They don't own anything. They lease their space. They lease everything. They lease equipment. You know, it's not like a regular corporation where, you know, if you liquidate, you've got assets, you know, all sorts of assets and equipment and right, and everything else. Law firms don't have anything except, really, you know their AR, right? And you know they would say, well, our our contact list, yeah, okay, you know you're but those are all belong to individual partners, right? Yeah, partners keep contacts and a lot of cases to themselves. They don't really, they're not really the firm's clients. They're the partners clients, or the attorneys clients. So, you know. And that's why, when you see, when you've seen in the past, some of these firms that blow up like Heller, or how are you or feeling, or whoever you know, there's, you know, it's like, there's nothing left, except maybe they are right, yeah, and that's sort of what. But so the firms know that, and they're definitely afraid of power partners, you know, or any large numbers of partners leaving, because everyone starts to panic and say, something's wrong here. What's going on? Maybe I should be looking, you know. And so they do everything they can, which is why we get into the whole thing around pricing. And you know what I do in value-based pricing and the like. Because, you know, moving to fixed fee type arrangements, you know, based on value doesn't mesh well with most of the firm's comp models that are based on hourly billings, right? And, and, and because of that, you know, you end up with sort of a conflict there between how you're pricing something and how you're compensating. You know, the people that are providing those services and so that, you know, causes an issue, but for them to change their comp models, because law firms are basically a zero based dollar business where, you know, at the end of the year, you zero basically everything out, and you pay out the total revenues to you know, after your all your expenses and salaries, everything else You know, the partners share the equity of the firm, and they get paid, you know, the profits of that. You know that zeros out at the end of the year. And so if you change a comp model, because it says, you know, it's a zero-based structure, you know, some attorneys are going to get paid more and some are going to get paid less in a new market, and the ones that get paid less aren't gonna be happy, and they're gonna leave, you know, and take their clients with them, and nobody you know. And so sort of the third rail of law firm compensation, yeah, because it's such a fraught area. And so it's really interesting, you know. And again, is that partnership model. And again, the fact that, you know, they have, they're based on confidence, you know, that I sometimes say they're sort of like a house of cards, right? And you pull out one card, and the whole thing can become unstable, right, you know? And so they, they really worry about that. And so you going back to our first topic, you know, you know, you start, you know, hampering people being able to do their work because they can't go to important houses, or they can't, you know, they lose contracts with clients because they have government work, whatever, you know. And people will start leaving, right? And then the whole thing falls apart, you know. So, you know, last one out, turn off the lights.

Tyler Finn    

Yeah, it's not lost on I think myself and others who were reading about like the Paul Weiss negotiations, which were covered in much more depth, because they were the first one. And of course, their top corporate partner, who they pay 20, 20+ million dollars a year to, has huge book of business around M&A and, right? I mean, he's personally involved in all the negotiations, because they're looking at that and they're like, if this guy leaves, that's a material hole in, like, annual revenue, and what profits for her partner looks on

Ken Callander  

your revenue drops revenue drops like that, right? People go, Oh, geez. Well, I'm gonna get paid less because, you know, that's, yeah, that revenue goes to me. And Jesus, who else is gonna leave, right? And then, you know, maybe I should be looking, and they've just, it's become a snowball effect. Yeah, that's what I mean. It's all based on the confidence of the firm, that they are a solid firm, right? And if that starts to erode, you know, people start bailing, and once you know that starts to snowball, it's a hard thing to stop.

Tyler Finn    

Are there? Okay, well, we'll talk about sort of value-based pricing in a minute. And I think that it's, it's a great topic for all the inhouse folks who are listening to learn more about and think more about, are there good things about this sort of partnership model or this comp model, I mean, you know, I mean it, I suppose it evolved over time, but it also probably didn't evolve entirely in a bat in a vacuum. Like, do you, do you have thoughts on whether or not there are good things about this approach, or does it just really need to be blown up?

Ken Callander 

Well, you know, it's obviously done well, right? Yeah, it is. And so, in the sense that, you know, it operates well and, you know, and it's served as clients well, you know? And, yeah, good value, you know. And they feel, I mean, they're paying it, you know, there aren't a lot of other options, you know. But still. But if you look at other professional services industries. So, take accounting or take consultancy, right? Corporate consultancy like, you know, the Baines or the McKinsey type organizations, or you're, you're like, I said, your your big four firms, they sort of got off hourly rates decades ago. You know, when you go to McKinsey, you know, and you say, Hey, we're going to do an M and A integration. We just bought this, buying this company. I want to integrate them in. We want you to help us do this whole integration. You know, they come in and say, Well, it's, you know, it's eight and a half million dollars, right? You know, I, I had a long conversation with the head of that used to be the president of kg, and he's the one that sort of took them in the 90s off of hourly rates and over to a salary model, right? He said it took about three to four years. It was a very painful experience, because you had the same thing where people, you know, didn't get paid the same way, and some made more or some made less, you know, when people left. But he realized that this is where they had to go. They had to move to a salary model. And what they did is, you know, for their consultancy group, for example, is they had us healthcare, you know, group, you know, and they moved to each of those people got a salary based on experience and everything else. And then the group as a whole, based on the profitability of that group, was creating a bonus at the end of the year based on how they did against their profitability targets, right?

Tyler Finn    

Interesting.

Ken Callander 

And the interesting thing about that, which very, which is very different than law firms, is that in law firms, you know, there's the whole eat what you kill, sort of, you know, program that they go with, whereas, and and so the partners and lawyers in a law firm tend to be, you know, soloists that all sort of have their own practices, and they're under one sort of, one sort of roof, you know, of an organization you know, as their for, you know, their overhead and everything else that, yeah, which is it, but they still tend to, you know, be individual lawyers. And they all you know. And a lot of firms you know, it's tough to get lawyers to share their contacts, you know. And they want, you know, when they bring in a new client, you know, they want to be the relationship partner, even if it's you know that they're good with, you know, because they, it's their contact and and they, they get very protective of their contacts, and that's because, you know, again, that structure that you've got, where you get, you know, your compensation is based on, you know, these formulas that include, you know, billing hours, you know, so when you Move, when KPMG moved to this model, all of a sudden, now this group of for example, like, why is that they will make more money as a individually, with their bonuses, if the whole team work together and gets as much work as possible, done as fast as possible, and and good quality and everything else. And they'll back each other up because they all know, and they also will call people out that aren't pulling their own weight, you know, right? Very different than a law firm, right? Because law firms tend to be a lot more siloed, right? And they'll, you know, even though firms work with they call client teams, you know, they try and bring, you know, all the different partners that are working for a particular client and different practice areas together to talk about how we basically work together. There's still this sort of tension about, well, you know, this is my practice area and my work and my clients and my relationships and people I work with, whereas if you move to that salaried model, you change that dynamic where everyone will actually does want to work together, because, you know, the end goal is the same for everybody, where everyone's Going to get compensated based on the group, right? In the law firm model, the comp is a different structure, right? So you're you get origination, credit, everything else that goes into it, not based on the profitability of that client as a whole, right? It's your matter that you're doing is going to base your compensation, not how the client does. So, it changes that and makes everybody work together, much more like an inhouse team, right? And it works. They all get paid. You know, I had this conversation Well, well, you know, that's how people get paid by our lawyers get paid by hourly. That's it's always been that way. And said, you realize that half the attorneys out there work on a salary basis by the hour, and they all work much more collaboratively in house, because they all have a goal in mind, you know, for their corporation to do well, back each other up much more. You know, they're working together, and they get paid a salary, and they don't, you know, they don't get tracked, in most cases, by how many hours they spend and I and they don't, you know, if they have to get a deal done over the weekend, they work over the weekend, and they're still getting paid the same, right? So, it's a very it's a completely different model, and it changes the dynamics of how people work together, right? So, you know, obviously. So I think, you know, that's why the Big Four, and you know, the big consulting companies, management consulting companies, moved off of hourly rates. They saw the benefit. I think, of that to get the law firms, if it's so a lot of the newer firms that are starting up are in this model. They realize this is but to take an old chief law firm with the old model and convert it is very fraught with it not being successful, right? Because, right, you know, you'd have to go through that process where people say, this doesn't work for me. And there's so many other firms that still use that old model. There are they just going to go, I'm just going to go across the street. They're going to pay me, you know, on this model. And the other thing about firms, and when I tell this to younger partners. They always agree with me. Law firms are run by the senior partners, sure, and the senior partners have no incentive to change anything while they're there, right? That's it worked for them. That's how they are getting, you know, got to where they are and how they're, you know, they're doing well under the model that they've got. And they all will sell you, you know, and I ran into this with a lot of firms, they'll just say, hey, when I'm gone, you can do whatever you want, right? And it's frustrating, I think, to a lot of the junior partners, it's like, we need to change, make changes. But the senior partners run the firm, and they're the ones that are going to make those decisions right so you know when I'm gone, you can do what you want, you know, and that sort of what I hear you know a lot of them say and it’s like hey I’m not changing it it’s you know because it works for ma and that’s again partnership model creates that sort of dynamic

Tyler Finn    

So, you develop this understanding of how firms work for Davis Wright and Tumine for a number of years but then you decided to go we we’ll call it in-house. and and go to Uber and lead legal Ops there. Tell us a little bit about why you wanted to make that shift and also I’m curious about you know how do you apply this knowledge then or apply this understanding of how firms work to to help Uber and their legal team run better.

Ken Callander  

Yeah, you know, I was about, you know, seven years. I think that Davis is right, and law firms, you know, I loved it great people. Really enjoyed people I worked with there and all. But, you know, some of the other dynamics I mentioned, like the fact that you have, you know, 280 300 you know, you're dealing with all different personalities, but you get that anywhere. You get different personalities, but because you're not a quote, unquote, owner or a partner, even though you're a C level executive, you're still considered staff, right? So right, it's, you know, and I decided I wanted to go back to the corporate world, because, you know, again, that ownership structure is difficult to manage, and so going back to the corporate world, where you have that more of that hierarchical structure works better, I think, at least for me. And so going in house at Uber in the legal department as head of legal operations, having especially when dealing with outside counsel, knowing how law firms think, how they work, and how law firm economics works, was hugely advantageous for me when dealing with negotiating with law firms, because, you know, sort of where you know the hot buttons are, right, you know, yeah, on how to manage that. I don't want to use the word manipulative, but it's, it's, you do get to understand, you know, how they think, right, what's important to them so, and I'm, you know, and it's not just all compensation, you know, lawyers in house, lawyers really care about their clients, right? And they want successful, right? So it's not like it's just all about the money. That's not true, right? Yeah, well, they do care about their clients, but, you know, there are hindrances that get in the way, you know, in terms of making that work. You know, because the hourly rate doesn't incentivize firms to be efficient, and a lot of people would argue that it incentivizes firms to be inefficient, you know, so, and you can't really argue with that, right? You know, even though people will try to argue with that, it's, you know, it doesn't incentivize efficiency, right? Clients, you know, it drives clients crazy that it took you, you know, this much, you know, and I'm paying for the number of hours it took, and you're paying for input instead of output, right? You're paying right orders instead of results, you know, and output. And that's where we get into the whole thing around value-based pricing, right, paying for task activities and deliverables and results and not. How many hours did it take you to it? Because it could take one attorney five hours do something. Another attorney 10 hours do the same thing.

Tyler Finn    

So how did you go about both sort of implementing more of a value-based pricing approach when you were at Uber and then, how do you do this today for clients, because I would imagine also convincing in house teams to shift the way that they think about their relationships with firms is not always an easy part of the puzzle to make fit. I'm sure sometimes it's very simple, and the attorney, right says, I absolutely want to do this, and this makes sense, and I'm sure sometimes, you know, you might have someone raise their hand and say, Yeah, okay, maybe we're wasting 20% on this firm, but having that partner pick up the phone at nine o'clock on a Saturday night is really important to me. So, is that really what we care about? I'm curious how you go about doing this, both practically at Uber and today with with clients. Yeah,

Ken Callander  

yeah, you know,the way it started was you know, about six months in at Uber, I went to our general counsel, and I just said, you know, we're spending way too much. And this was back, you know, when I started at Uber I think we had 14 lawyers. Right now, they have hundreds of

Tyler Finn    

Wow,

Ken Callander 

and so, and we were litigation coming out of our ears, right, sure. And so, basically, the in house team really didn't have the ability or the time to really do legal work. They were just managing outside counsel.

Tyler Finn    

Yeah, right.

Ken Callander  

And so I just said to our General Counsel, I said, you know, we're spending way too much on outside counsel if you really want to be innovative and creative, you know, let's think about getting off hourly rates onto value based fee arrangements, right? And she said, Okay, what's that, you know? And I said, Well, we were using it at HP back in the 1990s for professional services. And I tried to get the law firm to go there, yeah, some cases, but we just couldn't move the needle. And that's all another story. But by being on the, you know, on the buy side here, I think we might be able to, you know, make some traction. So she said, Okay, let's try it. We started with corporate, you know, an M and a sort of space, and over the next year and a half, we moved almost everything off of hourly rates across Uber, okay, saving our millions of dollars again, because you and the savings come from the fact that you're forcing the firm's become more efficient, paying for that value and not the hours anymore. And so you gain that efficiency. What I what I find with most of my clients, all my clients, the savings are between 20 and 50% in really that high, yeah, oh, yeah. So, because, you know, and that's that efficiency gain, you know. And there's some other pieces to it too, but, and, and, you know, you just think about it, you know, again, firms don't have that incentive. And when you change that incentive, and the whole thing around value-based pricing is trying to align the incentives between the client and the firm. So, but, yeah, so that, you know, at, at Uber, you know, we started to do that. This was back in, you know, 2013 2014 when value-based pricing hadn't really been seen by a lot of these firms. And because Uber was using some of the biggest firms out there, you know, this was a little bit of a, you know, shock to them, yeah, pushing this now, you know, 10 years later, I all these, all the big firms have seen this, and this is, you know, and we'll get into this discussion when we talk about, AI, yeah, this is where I think it's going to sort of go anyway. So we won't ever get completely rid of the hour, the billable hour, I don't think, but I think a lot of it is going to change.

Tyler Finn    

Does this work for I guess, the question, or the way I put it to you, is, is there a minimum sort of threshold of spend where, like beneath this it doesn't work because, you know, we've got listeners, probably, who are at companies that spend 10s, if not hundreds of millions on outside counsel every year. We've also got folks who have an outside counsel budget of 650k right for the year and are working as a solo GC or so. How do you how do you counsel folks? Or how should you think about value-based pricing, like, are the gains really for the sort of, like, top end companies, or could this work across a whole spectrum? Startup?

Ken Callander  

Well, the answer is, it can work across everything and everything, right? So you can do it, you know, across the board, yes. You know, if you're spending hundreds of millions having a savings of even 20 or 30% right? Big number, right? And so that, you know, obviously, can drive a lot more of it than if you're spending, you know, half a million a year, you know, the effort to make this happen. You know, is it really worth the savings? That's up to you to decide, right? I still have, you know, some very small clients that just they the big piece of it, besides the savings, is the predictability, right? And so there's a lot of value in that predictability. So I think for the smaller clients you know, that are on tight budgets and are being held to a budget. The difference today versus 10 years ago was, you know, a lot of general counsels and CLOs, you know, 10 years ago, they kind of got a pass when it came to their budgets, right? Given a budget, but they could always say, Oh, well, we had this big deal, or this big litigation matter, or we had this big thing come up, you know, so we've gone over budget, yeah? And the CFO would kind of give them a pass in a lot of companies nowadays, you know, they're like every other manager in the company, they've got a budget. They've got to stick to it, yeah, and when I was at HP, it's like, this is your budget, and if you can't manage it, we can find somebody else who can. So and so there's a lot more pressure, I think, now, on most GCS and Clos to maintain their budget. So predictability. And I have clients that will pay more to have a predictable budget then, and they might have paid on an hourly basis, because now they know that what they're going to be paying, and they don't have to worry about, you know, having an open PO, they can go way over them.

Tyler Finn    

That's interesting.

Ken Callander

Yeah, so there's a, there's value in that. So for the smaller clients. It's may not always be about the savings as much as it's going to be about that predictability and the savings, the soft savings you're going to get in terms of administrative costs.

Tyler Finn    

Let's, let's talk a little bit about the AI piece. And, you know, I think, I think, well, one question is, it doesn't seem like many, although maybe smaller firms are making these sorts of shifts proactively, but people seem to think that the rise of AI, the ability to use AI for legal research, initial drafts, et cetera. I mean, this is going to deeply sort of affect the pyramid model. You've got a lot of associates, and the associates bill a lot of hours, right? So I guess you know a question is, is the pressure still going to come from the client side? For how long is the pressure going to come from the client side, or is AI going to really force a rethinking of the way that law firms operate and their and their business models, and then how they price their services, ultimately, right?

Ken Callander  

Obviously, this, you know, and I get asked this question a lot, right? Yeah. I mean, this is obviously the big topic these days. I it's interesting. If you think about law firms and the way they work, you know, let's take let's take litigation, and you're doing a motion to dismiss, right? Currently, you know, or in the past, the model has been, okay, we're going to put four or five associates on this to do the research, you know, look at case law, look at, you know, previous similar cases, you know, and the like. They're going to put together an initial draft. It's gonna, you know, they could spend 10s or hundreds of hours, you know, doing this. We get a first draft of this motion dismiss. It goes to the partner, who then reviews it. It goes to another partner, goes back and forth, and finally, go to the client and revise, you know, etc, etc. Then it gets filed with the court. You do the hearing, you know. So now, and we're not quite there yet, but we will be there, I'm, I think, where you're going to have an AI, a closed AI system that's got, you know, and most of the court records are public, right, in terms of filings and everything else that goes in there, you know, every complaint, every motion dismissed, for every matter out there, in every jurisdiction, against with every plaintiff attorney and every judge you know that knows any the outcomes you know and how they all of that's in there where you can Just say, here's the complaint we have in this jurisdiction with this judge, and even against this point of attorney. What is the best argument we can make? You know, for this motion to dismiss, give us a first draft, right? And it can, you know, almost instantly, give you that first draft. Okay, in the past, you charged a client maybe 10s or hundreds of hours of associate time to get that research and the first draft done. Now you've got it done in minutes, right, right? What are you going to charge for that? Right? Yeah, what's the law firm going to charge for that? Now, there's some ABA Ethics ruling around the fact that you can't charge, you know, more than the hours it took you to do that, right? I you know, I saw something I think was out of Texas that ABA that was talking about this. And so this is a big topic. So, you know, the idea, then is, well, that's going to really hit our revenue numbers, because we used to get X number of dollars for this type of research. Now we can't charge for this. And you know, of course, you're going to, is still going to is still going to go to the partner to review, etc, etc. So that piece is the same, but that whole research piece up front, the idea then, is the firms have to start thinking about, well, what's the value of this research to the client, right? And to charge for that initial draft for the value that we're delivering to them, right? And then we, all of a sudden, now are moving away from hours, because that's how we got like, if those hours, if you're getting super more efficient as you're using AI, that efficiency is going to dig into your hours model, you're going to be able to bill as many hours, so your revenue is going to go down considerably because you are, AI is fortunate to be more efficient. So in order to maintain your same level of revenue that you're having the past, you're going to have to come up with a different model to charge for that, right, right? And you're gonna have to say, well, the value of this is very difficult case, you know what? We've got our professionals, and we have this initial draft, you know, but we're back and modify it, etc, etc. So that value is x, and we're going to charge you x for this motion. I think that AI, you know. And that's just an example in that, you know, think also about advice and counsel, right? You have, and I like to use the example, because I know of a law firm that's doing this building out basically a chat bot for employment advice and counsel in all 50 states. Interesting, right now, you know, if you have a, if you're a large employer, and you've got employees and any or all of the 50 states you have, you have to go to an Oklahoma employment attorney to ask for employment Oklahoma Employment question, because employment law is mostly state specific. Right now, if you have a chat bot that you can go to to ask those questions that knows all those laws in all 50 states, and it's backed up by attorneys, but to make sure that, because there's always nuances and everything to it, but as those nuances get built into the training, you know, as you go through it, it'll get better and better, right? What would you charge for that, right? Right? There is one large firm out there that's figured out that this is a problem for them, and before some third party builds out this, you know, chat bot, right? Council, they're going to build it out and back it up with their employment attorneys, right, right? So, but then, and then be able to sell that as a service, right? That, right, just like they could sell their attorneys. But if you think about all of this, where does that leave associates, right, right, if you have a lot of this work you know, think about doc review. Think about contract review. You know, all the stuff that you know. That's how they learn how to be they don't learn law school. That's just book work, right? Textbook work, how to be lawyers, and if you don't need as many associates, because a lot of that work can be done with AI, where do the future partners come from? Yep, you know, it's a real, you know, question that's going through the legal community right now and and it's, it's a big one, and so, and I don't know the answer that now, I did sit in a panel several months ago where they had lawyers in both in house team and law firm lawyers in there, and there was a lawyer there from the big firm, And he said, Oh, that's not what's going to happen. To happen. What's going to happen is we're just going to get more efficient, and we can do 10 times more work for clients than we currently do, because AI is going to help us do that, and we'll still build by the hour and do and my question back to him was, so you're telling me that 90% of the work that comes in you turn down because you don't have the bandwidth do it.

Tyler Finn  

Or, or, I mean, yeah, or to like, maybe, or maybe the client can't afford to send the word to the firm potentially,

Ken Callander 

Yeah, the thing is that means you’ve got to do, you've got to get 10 times more work coming in. Yeah, then you currently are doing, and I don't know, really, hardly any firms that turn down work that is out, right? Yeah, do everything comes to them. So, you know, this gets back to the musical chairs model, where, you know, there's only a certain amount of work out there, you know, and at some point, you know you're not gonna care to sit down when the music stops. So you know you've got to, you know, if all the firms are going to take on 10 times more work than they currently have, that work going to come from, right? So that, you know, that's the fallacy in that train of thought, is that we'll just be able to do 10 times more work? Yeah, no, then you're have to take them from somebody else, you know, that's doing it right? Because there isn't an it's a finite amount of work out there, right? And yes, you're right, you know, at cheaper rates, you might get more work, you know, but those firms aren't going to be charging cheaper rates, right? Right?

Tyler Finn    

In fact, the hourly rates for top partners may go up, I think, potentially right,

Ken Callander  

but already, you know, they're hitting 25 $2,800 an hour, right? Some of your top firms, you know. And I already have clients to just say, Where does this get to be ridiculous, you know, 5000 an hour or $10,000 a seven, eight, 10% increase, yeah. And you're already at $2,500 an hour, that's a big increase versus, you know, someone at $200 an hour with a 10% increase, right? Becomes exponential, yeah, you know. And that curve, that exponential curve, there's a point at which, you know. And the other thing that law firms don't understand is the higher their rates get, and if this isn't true for all practice areas, but the higher their rates get, the easier it is for the in house teams to do business case models that can bring the work in house. Sure, you know, if you can say, for, you know, 250 300,000 fully loaded FTE attorney in house, we can pull in X number of dollars, 800 $900,000 for the outside counsel work, you know you can, and the higher those rates go, the easier it is to make that business case. So they sort of are putting themselves out of work by doing that. Now, you know there are certain practice areas where you can't do that right now you know certain litigation. Sure, you know, you need specialists in certain areas, but you don't need them all the time. Yep, there are other practice areas where that is very true that you know attorneys have to think about that.

Tyler Finn    

Maybe a last sort of substantive question for you before we get to a few closing ones that I like to ask all my guests, given this landscape, I guess, and think about your clients, right? How do you advise in house teams to evolve their outside counsel relationships to sort of take advantage of this moment or the moment that that is coming, like one of the things that that in house counsel should be doing to make sure that they're sort of leading and on the vanguard and pushing their firms to do better work, better outcomes, lower cost, right? Like, what? What Should folks be doing?

Ken Callander  

So one thing, so going back to AI a little bit, I recommend my clients for each new matter to ask the firm, how are you going to use AI in this matter, if at all you know if you're going to use it, how are you going to use it? And how is it going to benefit me, and how is it going, you know, to affect the price that I'm paying for this work? That's a new thing we've started now, recommending we ask the firms, because otherwise you don't know if they're using AI or not right, unless you ask right so, and in many cases, they may be right and so. And you want to know that, I think even outside of the pricing, everything else, I think you'd want to know, are using AI for this or not, okay? And we're starting to put that in outside counsel guidelines too, as well. So that's number one. I also think it's important to really have better communication with your firms, and so I, for your top firms, I always recommend that you at least do an annual review with your firms, where you have the firms come in and you talk about all the matters for the year. What went well? What didn't go well? What could we do better? Could you do better? You know? And so, two side conversation, right? It's not just, you know, the client asking the firm, but also the firm asking the client, hey, you know, here's where, how you could do better for us, how we could work better together. Hey, we'll do stuff. It goes into this black hole we don't hear of anything from, you know, wait, we don't know what's going on, you know, that sort of thing. I think that really helps relationships, and it really helps sides to understand each other better and work better together, right in partnership arrangement between the two, in some cases, on big matters, I think, is useful at the end of a big matter to have that conversation. Hey, that went well, right? Like, take a big transaction, you know, hey, we, you know, we'd like to maybe use you again. But here's the things that we had problem with, right? And again, a two-sided conversation, right? Those are things, I think, when you talk about quality, and you know, working together, and firms are typically happy to do that, but clients don't often ask for it, and everybody's busy and doesn't have time to think about it, right? So, but purposely doing that, either on an annual basis with your big firms, or after big matters close up to have those conversations, I think is really useful when it comes to, you know, reducing spend for in house teams working with lawyers. One of the first things that's pretty simple and even without even getting the value-based fee arrangements to think about, is to have a matter intake process whereby you really think about aligning the matter value, the value of the matter, both in economic and risk value and brand value, to the value price point of the firm. In other words, have a process whereby lower value matters go have a you know are funneled through specifically to regional or Super Regional firms or smaller firms with you know, lower hourly rate structures, instead of just giving you know, everything to the most expensive firms, right? By doing that, you save a lot of money, okay? And just having an intake process that filters them through, and then you're, you know, you're bigger, more expensive, strategic, high-cost matters. They go to your big firms, a smaller firm. Just doing that, you'll save a huge amount of money. The other thing that is really helpful is, and I was just talking to another client about this, yesterday or last week, is in house having part of the review, the personal review process, the performance evaluation process of the in-house attorneys to have outside spend management, or legal spend management as one of the factors they get graded on. A lot of companies don't do that, and so the in-house attorneys, because they're not being measured on savings, don't don't don't think about it, don't care about it. We'll just go back to that big firm because, you know, they get good results, and that's great, but you can get also good results from a smaller firm, especially on lower cost matters, so having that as part of your performance eval process for the in-house team, and it doesn't have to be anything, you know, hard, hard coded with 5% or 10% or anything like that. Just like, what are three things you did this year to reduce outside counsel, right? Just having that in there will make them start to think about it. Because if you don't measure it, people don't pay attention to it, right? So, and, but in a lot of companies don't do that ice, and majority don't do that, and so the in-house team doesn't, and this is gets into the whole change management thing, right? Of, how do you get the in-house team to do something different? Getting the law firms to do this differently is not a problem, okay? It's because, you know, they want to please the clients and the clients, you know, you know what the client says is, you know, is law, right? So, by getting the in-house team to do something different, and that they've always done is, you know, internal change management is the toughest thing I face, and just by and if they're not being measured on it, they're not going to think about it. So you measure it, all of a sudden people pay attention to it, right? So that's, you know, one thing, simple things you can do align, you know, matter, value to value, price point of the firms. And putting that in the in the eval process for the in-house team can make a big difference.

Tyler Finn    

Really great advice. Okay, I've got some closing questions for you that I like to ask all my guests that were the first one is, if you have a favorite part of your day to day, running the consultancy,

Ken Callander  

you know, what I love is I get to work with so many different companies. Yeah, every company is different. You know, they all have different structures, different cultures. You know, what they do in house versus what they send outside? You know, I've had and there are different industries, everything from a very large university, you know, to a high-tech company to an oil and gas company to a power company, I mean. And they all are really in different spaces and have different legal issues, yeah, a healthcare company, you know, HIPAA, and, you know, all the regulatory things they have to deal with and and the like, very different than, you know, a retail company that's selling apparel, right? Yeah, the types of issues they deal with, and a university that deals with First Amendment issues, right? You know, pepper spraying protesters, you know, or you know, or they have police departments. You know that. So they have police practices. I mean, things that you know, normal corporations don't even think about, you know, the tenure issues with professors and IP. You know, a lot of clients have IP, but when you have researchers that do IP, and they, you know, you know, and they have Nobel Prizes, and they want their patent, you know, to be, you know, prosecuted, even if you think it's not worth it, you got to do it anyway, because another university, right? So, I mean, these are all things that I make it really super interesting to work with, all different types of companies in different industries, and all the different people. They're all just great people. So then, you know, day to day, that's what I love, is just the variety you get versus when you listen, when you work in house, you know, in any one company, you're just immersed in that industry, in that technology, into that station. You don't see that where I get to work with all these different companies in different industries and different spaces and different cultures. You know, that makes it really

Tyler Finn    

do you have a professional pet peeve?

Ken Callander  

You know, I talked a minute ago about change management and getting in house teams to do things differently, probably the pet peeve, and I've had this ever since I've been in work, you know, even back at HP, is, you know, the answer being, but that's how we always do it, right? Sure, nuts, right? Because that's, you know, you're not thinking about doing something differently or being innovative. It's like, oh, but that's why do we do it that way? Well, that's how we always done you know, that sort of answer, you know, is probably drives me crazy, and because it's people get entrenched in the way they do things they don't want to change. And that's just human nature, you know, they're not wanting to change, but because it, you know, the way we've always done it is not a good answer. So and most tech you don't get that out of most tech company employees, because they tend to be pushed to be more innovative. But your old school companies, you know, which I do a lot of work with, you know, you get that answer. It's like, really, yeah, but it's, you know, that I just can't. And I've, you know, I've heard that for decades. It's not something new.

Tyler Finn    

Do you have a book that you would like to recommend to the audience? And this does not have to be a legal book or a business book, but it certainly can be. It can just be something that you've read recently, that you think would be fun for folks to read as well, too.

Ken Callander  

You know, there are so many books out there, I'll tell you the book, when I started getting into pricing, that sort of changed the way I thought about pricing. And it's a very wonky book. It's very because, you know, I do gonna ask. It's called the the strategy and tax tactics of pricing guide to probable profitable decision making, by Thomas Nagel Reid Holden, and it was written about 20 years ago, okay, 25 years ago. And when people ask me getting into pricing, and that's pricing of products or services or anything. It's sort of like what I always thought was the Bible of pricing. And so if they people get into pricing, I say, you know, I would grab a book, this book, and read it. It's a slow read, okay? It is very technical and detailed. It is not, you know, a light novel, so, but from a technical standpoint and really understanding what is price, you know, versus value, and understanding all of that, it's, it's super helpful.

Tyler Finn    

And my last question for you, Ken, it's my traditional closing question for my guests, if you look back on sort of the earlier days in your career, and I'll let you kind of pick, do you want to, like, start at the beginning of your career, or when you started to work more at a law firm, something that You know now that you wish that you'd known back then.

Ken Callander  

You know, something I sort of learned over the decades was, you know how, and this is kind of off, completely awful. But in every organization, you have to deal with politics, sure, and politics, you know, people try to escape it. You can't escape it. Whether you're in a law firm or corporation or any larger, even a nonprofit, you know, anything, there's always internal politics, and I have, it took me years to figure out how to sort of navigate that. And I finally decided I, you know, at HP, and even at in the law firm, I had a little Swiss flag I put on my desk, and I always said, don't take sides in political discussions. Okay, people will try and get you to, you know, go to their side on a particular political issue or internal issue. Now, there's some things you can't take. You have to take a side on. But in a lot of things where they, you know, there's sort of two factions out there, you know, and one more group wants to do this, the other group wants to do that, or and they try and get you to be on their side. I would just tell them, I don't take sides, yeah. And by doing that, they'll be pissed off at you that you didn't take the time. They're also not upset because you didn't take their you know, they're not upset that you took the other side because you didn't, and you tend to get you can end up being the mediator, the two sides and

 and they respect you for the fact that you didn't take the other side. Because once you take one side, the other side, you know they'll never forget, yeah, you know you are against them on this and that person being your boss by not taking sides and always take the high road. Is number rule number two number. Rule number three is, always maintain confidence. And somebody tells you something, Don't ever repeat what people tell you. And once people realize that you don't take sides and that you tell the road and that you don't repeat anything that someone tells you. People will tell you everything. They'll come to you and close your door in your office and tell you what's going on and vent you know this way and that way, and it actually will give you an advantage, because you'll know more about what's going on in the organization than anybody else, and people will come to you for advice, you know. And how do I deal with this person? And, you know, they're being a jerk and yada yada, you know. And you can sit there and, you know. And the idea is, and I sort of that very first topic, yeah, I see both sides of this, right? Sure, I understand, I understand your side and I understand the other side, right? I understand where you're both coming from, and you both have good points and bad points, you know? And, but I'm not going to take a side, right? And, and I found that in corporate politics and any sort of organizational politics, you will survive much better those three rules than anything else. That's probably different than any answer you've got.

Tyler Finn    

I have not gotten that before, and I love that that's great, great advice, and great advice all the way through this has been super interesting conversation for me, Ken, and I hope our audience thinks so as well. I think you know understanding how law firms and professional services are going to evolve when there's such a big part of training for a lot of folks, but moreover, the day to day that in house counsel deal with I think you got to understand the future and what's coming in order to to adapt to it. So thanks so much for joining me for this episode.

Ken Callander  

Well, thanks for having me. I This was a lot of fun.

Tyler Finn    

And to all of our listeners, thank you for tuning In, and we hope to see you next time.