Like many of you, I distinctly remember watching Bloomberg-TV on Monday 15 September 2008. It was unreal to see the bankers from Lehman Brothers carrying boxes with their personal belongings as they left the building for the last time. This image has since been engraved in our memory and has become emblematic for the 2008 financial crisis. I also remember having a conversation back in 2009 with the General Counsel of one of the world’s largest chemical companies. He told me that management had asked him to reorganize the legal department and reduce the headcount. In order to save costs, the in-house team was not even allowed their annual team-meeting, so he had decided to organize the meeting in his garden and pay for the expense by himself. Between 2007 and 2009 demand for legal services has dropped by about 7%. The ACC (Association of Corporate Counsel) launched the Value Challenge in 2008 heralding a decade of focus on the price of legal services. For law firms this was the start of an era of procurement, online auctions, and frustrating panel pitches. Ever since, we have heard General Counsel repeating prices should go down and lawyers complaining that all that seems to matter to clients was price before quality. This crisis is different from the financial crisis I guess that many of our readers were already a partner in 2008. Having gone through the aftermath of the financial crisis, one could be inclined to think that the current crisis might develop in a similar way. This however will be highly unlikely. The 2008 crisis was contained to the financial sector and most of the underlying economy was technically sound and in good shape. This time an almost universal global lockdown has crippled the economy, bringing it to a near standstill. Many companies have seen their markets, clients and supply chain evaporate within weeks. Without large scale government support many businesses would not survive. And even with rescue schemes the fall-out will be huge. This is potentially the biggest economic crisis in the history of mankind. Many companies will have to fight for their existence, and some will fail. Under such circumstances it is not hard to imagine that companies will be very conscious where they spend their cash. Even though legal cost is generally a negligible share of total cost for a company, some legal practices will likely be hit very hard by the effects of the economic crisis. Understanding the difference between Value and Price In order to understand where the pressure on price will be the most severe, you need to understand the TGO Value Martix©. Early 2019 we at TGO Consulting have developed a model based on extensive data analysis. We looked at the value perception of companies in relation to the absolute amount paid to outside counsel for a particular matter. Plotting the results on a graph, is looks like this: The vertical axis measures ‘return on investment’ for the client. In other words: to what extent are the legal costs part of the upfront investment for the company in order to make a profit or prevent a loss. The higher the value, the higher the return on the dollar. Down at the bottom of the y-axis, there is no return on the investment and any dollar spent only adds to the cost. Towards the top of the axis, there is an increasingly higher return on the investment: legal spend becomes relatively insignificant in relation to the gains (or loss prevented). On the horizontal axis, we measure ‘commoditisation’. Contrary to popular belief, commoditisation has no relationship to legal complexity. The level of commoditisation is a reflection of the number of lawyers qualified to handle a matter in a particular market. The more skilled lawyers around, the less ‘special’ the skill. The question is just how many lawyers are in a market, which are qualified, in the eye of the client, to do the job. It does not matter if the matter is legally complex and the outcome bespoke. Availability of many qualified experienced lawyers means a high level of commoditisation, just an handful of experienced lawyers: low level of commoditisation. Combining ROI (return on investment) and the level of commoditisation (in your market) in one model, the TGO Value Matrix© shows where companies perceive spending money on lawyers is good value. The higher the ROI and the lower the level of commoditisation, the less the price of legal services becomes an issue. The lower the ROI and the higher the number of qualified available lawyers in a market, the higher the sensitivity to price. In times of economic crisis understanding the TGO Value Matrix© will help you understand where price pressure will be the most severe. Pressure on price will be felt unevenly in the market. In the months or years to come, most companies will be fighting for their existence. Under such conditions, companies will mostly restrict their spending to those areas/matters that help them directly improve their bottom-line financial results. As a lawyer you need to understand where you are. It will make a huge difference if you are part of the opportunity or part of the costs. Being part of the opportunity, there will likely be little or no pressure on price, even in times of crisis. However, if what you do is -mostly- part of the cost, then prepare for a few rough years as there will be less work, huge competition and high pressure on price. So how do you figure out if you are part of the opportunity or part of the costs? From the perspective of the lawyer all matters are created equal. Lawyers only look at the complexity of a matter and the amount of resources (billable hours) needed. Lawyers also work under the (false) the assumption that there is a linear relationship between time and value. If a lawyer spends twice the number of hours, the matter will become twice as expensive to the client. This would suggest that the final product has twice the commercial value to the client. This is by no means the case. Spending twice the number of hours does not mean that the commercial value is twice as high. It might even be nearly the same. To avoid ending up in a situation where there is huge pressure on price, lawyers need to better understand how their clients makes money. Only if a lawyer has good understanding of their client’s business model, he/she will be able to understand how to contribute to the client’s bottom-line. Lawyers that focus on helping their clients grow their business will be largely unaffected by the effects of the economic crisis. Lawyers that are focusing on legal technicalities rather than on contributing to their clients’ bottom-line, will be considered part of the cost. This category should prepare for a ‘pricing winter’ and adapt their business model accordingly. More information on this topic can be found in our books Data & Dialogue which is available on Amazon A New Dawn which is still available for fee until 1 June 2020

Last weekend I had a little dental malfunction. Due to mysterious reasons a small piece of metal ended up in my food. As I obviously not anticipated this, it struck me by surprise. As normal chewing does not go well with pieces of metal, part of a tooth broke off. Fortunately, on Monday morning, I managed to get an emergency appointment with my dentist and all is well again now. I assume that you are not the least interested in my dental experience, but it turns out that there is a striking similarity between dentists and lawyers, so bear with me. Like many lawyers, a dentist has a very narrow specialization. They know everything about your mouth and the teeth that are in it, but little or nothing about any other part of the human body or psyche. Even if you have the best of relationships with your dentist, you would not go there to discuss general health issues. A dentist is a highly educated and experienced one-trick pony. Last week I published an article about lawyers being tone-deaf. This too has led to a remarkable observation. Each Monday I get the statistics on the article that was published on the Friday before. After having published close to one hundred weekly articles, we have reliable metrics on readership and this article appeared to be an outlier. Looking at the 3-day readership numbers, the article was part of the all time top-3. What made it even more remarkable, is that 80% of readership was from client side (law firm clients that is). As the TGO Consulting client base is 80% law firms, this usually is exactly the other way round. We also received some 25 messages from GCs over the weekend underwriting the observations by the GC quoted in the article. How come lawyers are not interested in this topic while their clients are hugely interested? In other words: why are lawyers not bothered by the GC of a global NYSE listed company saying in his opinion right now lawyers are a bit tone-deaf? I will look further into this as I do not have an explanation straight away. Maybe it is because many lawyers are like dentists: clients/patients only consult them with a very specific issue within a very narrow area of specialization. For a dentist it is very hard to solicit new business if people do not have dental issues or have bigger problems and their teeth are not a priority right now. If patients would complain that doctors are tone-deaf, would I feel that this applies to me as a dentist? Probably not. We need Swarm Intelligence to find better solutions Monday 4 May the renowned magazine Nature Communications published a peer reviewed article that scientists have created a monoclonal antibody that can defeat the new coronavirus in the lab. The antibody known as 47D11 targets the spike protein that gives the new coronavirus a crown-like shape and lets it enter human cells. This discovery could potentially mean a breakthrough in the fight against Covid-19. The research had been conducted by teams from 3 universities and lead by 10 leading scientists. Like most breakthrough inventions, this was not accomplished by one smart professor, working on his/her own. It is almost invariably Swarm Intelligence, which leads to big innovations. Even the prestigious Nobel price typically goes to more than one laureate. The current economic crisis caused by the Covid-19 virus, is unlike any other crisis any of us have seen before. It is more severe and more complex than 9/11 and the 2008 financial crises combined. Governments, the economy, businesses, and societies in general are trying to stay afloat in uncharted waters. In finding workable solutions to help businesses and the economy survive, we are in desperate need of new, creative, and innovative solutions. Last week Satya Nadella, the CEO of Microsoft, stated that he had seen two years' worth of digital transformation in just two months. Given the severity of the situation, businesses are pressed for time as it comes to finding new ways to operate in order to stay in business and weather this storm. When the GC I spoke with last week said he found law firms to be tone-deaf, it was exactly this what he meant. While he and everyone else in his team and throughout the company were fighting for survival, lawyers kept behaving like dentists who keep sending reminders for an annual check-up while their patient is in hospital fighting for his life. What should lawyers do? So, to those of our readership that are practicing lawyers, you that did not read last week’s article, I would say: “don’t be dentists”. For the next two years or so (and probably beyond), you will only be relevant to clients if you can really help them to survive the crisis. Dental care will not be a priority unless, like in my case last weekend, there is some unfortunate one-off incident. Many of our readers are partners at some of the most prestigious law firms across the world. This league of firms has some of the smartest people in the industry. But like the scientists doing research on Covid-19 remedies, you don’t get far working on your own. Come to think of it, it is inexcusable for law firms not to tap into Swarm Intelligence to provide better and more relevant solutions to clients. You will be surprised what partners can achieve if they join forces to find new, relevant, creative, and innovative legal solutions for their business clients. What is needed in today's market goes way beyond what any individual partner can achieve. So, break down those walls, stop only focusing on your own practice, stop worrying about origination-credits and start putting your client’s interests first. Unleash the power of the firm and tap into other partners, exchange information & insights and cooperate to find new solutions for businesses that are the clients of your firm. TGO training program At TGO Consulting we are working with our clients to execute (training) programs that focus on educating partners on the impact Covid-19 will have on the economy. The programs stimulate partners to engage in meaningful conversations on business with their clients and foster sharing of market intelligence between partners. The better partners understand the impact on the economy and the more they know about their clients’ business model, the better they can engage in strategic conversations and the more relevant the advice they will be able to offer. As stated before: clients do not have legal issues, they have a business to run. Under the present conditions companies will likely only spend money on lawyers who help them protect their bottom line. The programs we have developed are conducted through video conferencing and no in-person meetings between lawyers are required. We have been running them for four weeks now and they have proven to be highly effective. If you would like to know more about these programs or are considering running them at your firm, please send an email to hakanson@tgo-consulting.com and Lisa will answer all your questions. IBA Webinar For those of you interested, I will be doing a webinar for the IBA on Monday 18 May from 14:00 – 15:00 CET. Registration is free, also for non-members (but you are all members anyway). You can register here: https://www.ibanet.org/Avoiding-juristic-park.aspx We are here to help TGO Consulting is there to help you navigate the crisis. We have just finished writing a book on this topic, that we are now starting to edit. The book will be launched on May 18 at the IBA webinar. This book will be made available for free to all our clients during the month of May and will be available on Amazon thereafter. We will also continue to publish weekly articles on topics that are most relevant to you right now. Our experience with law firms in China gives us a two-month head start in knowing what best to do. There will however remain many important unknowns and things can change really fast. This is where our unparalleled creativity has proven to be extremely valuable. We have a proven track-record to find effective solutions faster and better than anyone else. In the meantime, our TGO Consulting Research Team keeps monitoring the state of the economy literally 24/7 to ensure that our approach always remains fact-based. Please do not hesitate to contact us to find out how we could help your firm navigate these challenging times.

Last week I had a conversation with the general counsel of a large global company that is listed at the New York Stock Exchange. This company is in the business of designing, marketing and producing consumer goods, through an extensive network of resellers and a number of owned stores. Their brands are among the most recognizable and celebrated in the world. In other words: this is a true blue-chip company. Business was bad, the GC acknowledged. This was obviously no surprise. With most of the world in lockdown and stores closed, it was unavoidable for their sales to take a massive hit. The legal department was now mostly occupied with shareholder communications, refinancing existing debt, renegotiating commitments with suppliers and with clients. This certainly was not business as usual and the large team that would normally look after the trademarks, licenses and copyrights had now been redeployed to other areas. What really had surprised this GC was just how tone deaf most of their panel firms seemed to be. The legal department had been inundated as of mid-March with countless Covid-19 newsletters, which this GC and his team had found mostly useless and to some extent a bit insulting. “You know Jaap, I have a stellar legal team here, some of the best lawyers in the industry. We have years of experience between us; we know our business and we can read. We don’t need law firms to tell us what ‘Force Majeure’ is and what the latest government measures are”. The GC also shared his frustration that the majority of the panel firms kept acting as if it were business as usual. “My company is facing an existential crisis and we have totally different priorities right now. It seems that the lawyers fail to recognize this. It all seems a bit tone-deaf to me” Is it true that lawyers are tone-deaf? Most of us have been in lockdown for more than six weeks now and all of us are desperate for something pleasant to look forward to. For a lawyer, what could be nicer than the prospect of meeting friends from all over the world at a conference? The IBA annual conference is scheduled from 1 – 6 November in Miami USA. AIJA has scheduled their 58th International Young Lawyers’ Congress from 24-28 August 2020 in Rio de Janeiro Brazil. Many other international lawyer networks have scheduled similar events. So, how realistic do you think it is gathering hundreds or even thousands of lawyers in a conference room and at social and networking events any time soon? It seems that lawyers are somewhat slow in recognizing that the world has changed. April 27 Norwegian Airlines (Norwegian Air Shuttle ASA) announced to its investors that, in order to survive, most of its debt needs to be converted into equity and that it intends to keep almost its entire fleet grounded for the next 12 months only to start gradually ramp-up its flights as of summer season 2021, hoping to resume ‘normal’ operations as of 2022. Bear in mind that Norwegian Airlines is one of the most successful and profitable airlines in the world. Norwegian does not see the return of flying as we knew it anytime soon, if at all. Much-lauded Airbnb, whose business is currently at an all time low, announced that it will publish a stringent Cleaning Protocol for its hosts by end of May. Under the cleaning protocol program, hosts must clean every room in a rental following strict Airbnb enhanced guidance and procedures, and there will be a certification process. There is a 24-hour between stays requirement even with the rigorous cleaning protocol program, and currently the booking buffer default is set at 72 hours. That is a mandatory 3 days vacancy between two bookings to keep guests safe. Hotel chains like Hilton and Marriott are implementing similar measures. How come lawyers still expect to meet in Miami or Rio any time soon? Can’t they see how much the world has changed? How much do you actually know about your clients’ business? Going by the example of the conferences and the comments of the GC, maybe lawyers have gone a bit out of touch. About a year ago, I published an article ‘Clients don’t have legal issues, they have a business to run’ and an other article raising the question whether a lawyer should be considered ‘part of the opportunity or part of the costs’? And if you are interested here and here are further articles on the same topic. As it is even in non-crisis times extremely important for lawyers to understand how exactly their client is making money, it is even more important right now. When the whole economy unravels like it is now and everything is shifting, companies will have completely new agendas. Lawyers should know what these agendas are in order to remain relevant. At TGO Consulting we are working with our clients to execute (training) programs that focus on educating partners on the impact Covid-19 will have on the economy. The programs stimulate partners to engage in meaningful conversations on business with their clients and foster sharing of market intelligence between partners. The better partners understand the impact on the economy and the more they know about their clients’ business model, the better they can engage in strategic conversations and the more relevant the advice they will be able to offer. As stated before: clients do not have legal issues, they have a business to run. Under the present conditions companies will likely only spend money on lawyers who help them protect their bottom line. The programs we have developed are conducted through video conferencing and no in-person meetings between lawyers are required. We have been running them for four weeks now and they have proven to be highly effective. If you would like to know more about these programs or are considering running them at your firm, please send an email to hakanson@tgo-consulting.com and Lisa will answer all your questions. IBA Webinar For those of you interested, I will be doing a webinar for the IBA on Monday 18 May from 14:00 – 15:00 CET. Registration is free, also for non-members (but you are all members anyway). You can register here: https://www.ibanet.org/Avoiding-juristic-park.aspx We are here to help TGO Consulting is there to help you navigate the crisis. We have just finished writing a book on this topic, that we are now starting to edit. The book will be launched on May 18 at the IBA webinar. This book will be made available for free to all our clients during the month of May and will be available on Amazon thereafter. We will also continue to publish weekly articles on topics that are most relevant to you right now. Our experience with law firms in China gives us a two-month head start in knowing what best to do. There will however remain many important unknowns and things can change really fast. This is where our unparalleled creativity has proven to be extremely valuable. We have a proven track-record to find effective solutions faster and better than anyone else. In the meantime, our TGO Consulting Research Team keeps monitoring the state of the economy literally 24/7 to ensure that our approach always remains fact-based. Please do not hesitate to contact us to find out how we could help your firm navigate these challenging times.

Less than two months ago, we experienced an end to life as we knew it. Many businesses had to close and some of our fundamental civil rights were suspended. It is not the Corona virus that is the main problem, it is the lockdown. Never before almost the entire world population got placed under ‘house arrest’. We have witnessed outbreaks of deadly viruses before. In 1981 HIV emerged as a deadly virus. At the time we had little understanding of the virus and there was no vaccine or cure. Since the beginning of the AIDS epidemic, 75 million people have been infected with the HIV virus and about 32 million people have died of AIDS. The point is we have had deadly viruses before (HIV, Ebola, SARS, Marburg, Hantavirus, MERS, Influenza, ea.), but never before have entire populations been placed in lockdown. "It is not the Corona virus that is the main problem, it is the lockdown" So, how did we get here? The answer is surprisingly simple and straightforward: insufficient healthcare capacity. We are by now all familiar with the phrase ‘flattening the curve’. If we all get ill at the same time, our hospitals will be overwhelmed and unable to cope. People will be dying in the streets. No-one likes the prospect of dying, so flattening the curve makes perfect sense. We all accepted that in order to protect ourselves and our healthcare system, we had to stay at home. There was no viable alternative. Businesses had to close and civil rights got suspended. Almost invariably the popularity and approval rates of our leaders spiked. We all believed that they did what they had to do to fight the virus and save us from a deadly threat. After a few weeks the battle would be over, and things would go back to normal. As we are now in week six of being confined to home, patience is running out. People are increasingly desperate to get their lives back. "Lockdown is not a solution; it is just a way of buying time" The inconvenient truth is however that nothing has changed. Lockdown is not a solution; it is just a way of buying time. Time that should have been used to structurally ramp up medical capacity. Most countries didn’t. Unless we continue to flatten the curve, hospitals will still be overwhelmed, and many people will die. Governments are caught naked: there is no exit strategy. There is no cure, there is no vaccine, there are not enough ventilators, not enough tests, not enough hospital beds, not enough trained nurses and not even enough protective equipment to keep them safe. Increasingly governments are under pressure to lift the restrictions. Some countries have already set some baby steps, others have set provisional end-dates. Governments are aware that they cannot keep populations locked up forever. It would be so much easier if there would be a cure or a vaccine. There is a global race to develop a remedy. The US government alone is spending over a billion to help speed things up. Normally it can take five or more years to develop a drug and move it into human trials. No one wants to wait that long. AstraZeneca, Vir Biotechnology, and Eli Lilly and its biotech partner, AbCellera Biologics, as well as several academic labs, are hoping to start human trials by the end of summer. Developing drugs are one of several strategies scientists are pursuing against Covid-19. The long-term goal is a vaccine that would teach the immune system to make antibodies against the virus. But testing a vaccine takes time—likely 12 to 18 months or longer—and it might not work, or, like the flu shot, be only partly protective. Even when at some point an effective medicine or vaccine has been developed, it still needs to be produced in huge quantities. Do you have any idea how many Olympic swimming pools of vaccine are needed for the entire world population? What would you say is easier to manufacture: face masks or vaccine? Right, now think about how we are doing with the face masks. The future does not look too bright as it comes to a cure or a vaccine for Covid-19. Not to mention the logistical nightmare of administering the vaccine to more than 7 billion people across the globe. No, dear readers, there is no reason to believe that things will go back to normal any time soon. Unfortunately. Adjusting to a 1.5-meter society So, there we are stuck with a virus and our economies shattered. For as long as there is no structural solution to the Covid-19 virus, we have no choice but to keep flattening the curve. This will mean that social distancing will be the new normal and people will have to continue keeping 1.5-meters apart. It will be immediately apparent that this will have serious consequences. Let’s take public transport for instance. The very nature of public transport is trying to get many people from A to B at the same time. Observing the 1.5-meter norm will reduce the capacity of trains, buses, trams and airplanes to around 20%*. Not only is this not a viable business model, it also creates major logistical issues in transporting people between home and work. Even if we are allowed to get back to work, most of us will not be able to get there. Once you start thinking about it, it becomes clear how much of our economy is based on mass gatherings or huge numbers of people. Tourism, sports, events, amusement parks, air travel, cinemas, restaurants, just to name a few. In some countries these sectors count for 25%* of the economy. It will be hard or impossible for these businesses to survive if occupancy rated drop below let’s say 75%*, and yet that is what is likely to happen. The 2020 Olympics have now been postponed to 2021, but experts have already warned that even that is unlikely to happen. As long as there is no viable solution, we will have no choice but to keep flattening the curve. For as long as there is no permanent answer to the Corona virus, we will likely go back and forth between periods that are more relaxed and more restricted. If the number of hospital beds gets near maximum capacity, we will have to abide to very strict social distancing. Once the number drops to 75%*, it will be a bit more relaxed. This pattern will then continue. The trillion-dollar question is what this will mean for our economies. Any investor might want to look at what companies can still return a profit in such scenario. I’m not even sure if most of brick-and-mortar non-food retail could survive. It might just not be sustainable to run let’s say a fashion store when only 1 customer per 3* square meter is allowed in, you have to disinfect the fitting rooms after each customer and even might have to disinfect the returned items before you hang them back. On top of that the store may have to close for several weeks, each time the hospitals reach max. capacity. It might very well just not work. What about law firms? The economic crisis caused by the lockdowns will on the short term bring many economies to their knees. As always, on the medium term, things will be all right and probably even better than before. For the legal industry the outlook remains more positive. I will write about this topic in detail in a separate article in which will explain where the opportunities are and what should be done today to emerge from the crisis with little or no damage. Within the framework of this article I will limit myself to what measures law firms should take to resume working from the office after the government restrictions will be lifted. The starting point of all preparation should be 1.5-meter social distancing between everyone in the office, and to limit the spread of any contamination by taking additional measures. Implementing 1.5-meter social distancing will be much easier for law firms that still have traditional office space than for law firms that have more modern open-plan offices. Depending on the size of your firm and the layout of your office space you might want to introduce one-way traffic in the corridors and restrict traffic between floors. The capacity of meeting rooms has to be reduced in order to respect the 1.5-meter social distancing. An area of special concern will be the elevators. If your offices are in a high-rise building, taking the elevator will be the only way of access. In accordance with the distancing the capacity per elevator will probably be reduced to 2 -3 persons at the same time. You will need to coordinate with the operator of the building to make regulations on how elevators can be used in a safe manner. For high-rise buildings this will create a logistical nightmare that will severely limit the amount of people that can realistically use the building. Besides social distancing, law firms also need to put in place a methodical and rigorous cleaning regime. Elevators and door handles must be disinfected all the time, as must toilets, taps, light switches and printer areas. You might want to restrict the use of the coffee corners and close the canteen/restaurant as freshly prepared unpacked food could be a source of contamination, potentially infecting everyone in the office at once. Just remember the bartender of Kitzloch, a popular restaurant and bar in the Austrian ski resort town of Ischgl, who single handedly contaminated over 100 guests with the Covid-19 virus. As there are strong indications that the virus is airborne, you will also have to take a close look at the office’s ventilation systems. Given all limitations it seems unlikely that all lawyers and staff will return to work from the office anytime soon. More realistic would be that on each given day 50% of the workforce will remain working from home, while the others work from the office. Colleagues who have a higher risk profile (age and/or health condition) might not be allowed to return at all (employer liability?). Do not expect to have normal meetings with clients or seminars any time soon. We are here to help TGO Consulting is there to help you navigate the crisis. We are currently writing a book on this topic that will be finished by end April. This book will be made available for free to all our clients. We will also continue to publish weekly articles on topics that are most relevant to you right now. Our experience with law firms in China gives us a two-month head start in knowing what best to do. There will however remain many important unknowns and things can change really fast. This is where our unparalleled creativity has proven to be extremely valuable. We have a proven track-record to find effective solutions faster and better than anyone else. In the meantime, our TGO Consulting Research Team keeps to monitor the state of the economy literally 24/7 to ensure that our approach always remains fact-based. Please do not hesitate to contact us to find out how we could help your firm navigate these challenging times. *estimates

Most of us have been working from home for five weeks now. While some EU countries contemplate to take the first cautious steps out of corona-virus lock-down, most of us will still be confined to working from home for weeks to come. As the lock-downs started law firms spent most of their energy in making the transition from working at the office to working from home. From an IT perspective this fundamental change has mostly been an incredible success. You might want to officially thank your IT team for that. In the second and third week, we adapted to working from home and spirits were still high. The now ubiquitous video calls were kind of fun and often offered a sneaky insight in your teammates' and colleagues' private lives. We could see how their interior looks, their pets and sometimes witnessed their family lives. Some teams have organized virtual after-work drinks. Many were still convinced that all this would not last long and that we would all be back to the office pretty soon. From week four onward, that attitude has started to change. Over Easter, the Financial Times reported that “lawyers’ mental health is taking a hit as a result of the corona-virus pandemic, with studies finding partners and associates feeling stressed and isolated.” Sadly, to most partners this has gone largely unnoticed. Feeling stressed or depressed is hardly the thing you would share as a young lawyer/partner during the regular team calls with your partner. The legal world is still a ‘macho’ world with little or no room for the ‘weak’. The big social experiment of forced working from home in isolation, could go terribly wrong for some. How much do you actually know about your associates and staff? Under normal conditions we all live our two separate lives: we each have a professional life and a private life. Typically, the two are almost entirely separated and we know very little about the private situation of most of our colleagues. As this holds largely true on the immediate team level, it certainly holds true on the firm level. Under normal conditions, this is how things are supposed to be and it works just fine. When today, due to permanently working from home, the two have merged, it may become an issue. On the most basic level, law firm leadership and the partners should be aware of who the associates/staff are that have young children. These colleagues will now be forced to spend time on home schooling and providing some distraction for their kids. As a manager you have to take this into account, and it could be unreasonable to still expect the same level of availability and output. So, question number one is: do you know exactly (on a firm level) who has young children to attend to (or an elderly relative with fragile health for that matter)? Second thing you might want to know is whether or not both parents are working from home, as this might lead to having them to share resources. Can both do a video call at the same time? Maybe, as a law firm, you might like to know what is the occupation of your associate’s or staff-member’s life partner? Working from home it might be difficult to keep telephone conversations, video calls or computer screens entirely private and confidential. Other members of the same household could overhear conversations or see documents on screen. All this would under normal conditions be an absolute no-go. Why would law firms be more lax now? I am by no means suggestion a surveillance state where big brother in the form of firm is watching all the time. I am just suggesting that there are good arguments for leadership and partners to have more situational awareness regarding associates and staff. MP must communicate with your associates and staff! Two weeks ago, when we were in the third week of the crisis, We published an article on ‘partners panicking’. Today we are two more weeks down the line and many law firm leaders have set-up structured and data supported communication with the partner group. Having fact- based briefings on cash-flow, current production and projected production, will give the partners a feeling of a certain amount of control. Communication between the leadership and the partners is now reasonably up and running. But the flow of information is not equally distributed within the firm. Many associates and staff are totally in the dark on how their firm (employer) is really doing an what the future might look like? For assistants and secretaries, working from home has turned out to be a problem from day one and many are sitting almost idle. Some firms have already furloughed some of their assistants. No wonder assistants (and catering, receptionists, cleaners, mailroom, library, etc.) are worrying if they will still have a job tomorrow. Staff that is able to work from home such as finance, HR, BD and marketing, may worry slightly less about their job, but may worry about the future of the firm. Also associates have reasons to be worried. They have always had billable hour targets that they are expected to meet. Do they still have to meet these targets while working from home? We see associates are working less efficient and taking more time for the same task than under normal office work conditions. This could be because they are more often disturbed or distracted while working from home. It could also be spreading the work thin in order to avoid being the first in the team having to admit that maybe there is not enough work. What if their practice group or the partner they work for sees a downturn in work? Will some associates get fired? Associates are afraid and uncertain about their future. Legal headhunters report a significant decline in spontaneous candidates. Like rabbits caught in the lights, when struck with fear lawyers do not move. In times of crisis it is more important than ever that law firm leadership communicates openly and frequently with everyone in the firm and not only with the partner group. Do not use a ‘cascade’ communications strategy in today’s situation, where the leadership communicates with the partner and the partners are expected to communicate with their team. Partners are not known for being great communicators and you will end up with as many messages as there are partners. In times of crisis we all like our country’s leaders to be visible and communicate. It is no different at law firms: managing partners should be visible (and audible) and communicate once a week with the whole firm. Communication should be unambiguous and concise. Do not use formal language, show empathy and be honest. Handled right, this crisis a great opportunity to create strong bonds and lasting loyalty. Handled wrong… We are here to help TGO Consulting is there to help you navigate the crisis. We are currently writing a book on this topic that will be finished by end April. This book will be made available for free to all our clients. We will also continue to publish weekly articles on topics that are most relevant to you right now. Our experience with law firms in China gives us a two-month head start in knowing what best to do. There will however remain many important unknowns and things can change really fast. This is where our unparalleled creativity has proven to be extremely valuable. We have a proven track-record to find effective solutions faster and better than anyone else. In the meantime, our TGO Consulting Research Team keeps to monitor the state of the economy literally 24/7 to ensure that our approach always remains fact-based. Please do not hesitate to contact us to find out how we could help your firm navigate these challenging times.

Last week we published an article on ‘partners panicking’. Based on the amount of feedback, it seems that this topic has struck a nerve. Across the legal industry law firm partners have started to panic. So, what should law firm leaders do to calm down their partners? The answer lies in adopting a data driven crisis management communication strategy. What makes the present situation unique is that for the first time in history we have to navigate a crisis while all being confined to our own home. The absence of being in a communal office absolutely adds to the anxiety. People sitting at home are permanently exposed to unsettling news about the pandemic and the fast deteriorating state of the national and global economy. Given the severity of both crises there is hardly any other topics in the news these days. On top of that the news updates seem to only get grimmer by the day: more people dying from the virus, lock-downs extended, businesses in distress and the economy entering the most severe recession in our lifetimes. Working in isolation from home we check the news more frequently that we would do when working from the office (information overload). If at the same time we see the number of billable hours at our own practice and firm-wide starting to drop, it is hardly a surprise that partners will experience a sense of panic. It is the task of law firms’ wartime leadership to calm partners down and prevent anxiety from getting out of control. In order to do that, war-time leadership should restore the balance of information by implementing a data-driven approach. Today the information balance between what is happening in the outside world and what is happening in the firm is distorted: there is a tsunami of information on the outside and only droplets of information on how the firm is doing. Starting with the basics: the notion of fixed costs We at TGO Consulting work with some of the best law firms in the world. One might assume that this type of highly profitable, high quality, high reputation institutions must have an in-depth understanding of the key metrics for running a law firm. We know from experience that this is often not the case and that even those with a professional CFO have blind spots in their reporting. For any partner in a law firm it is paramount to understand the notion of fixed costs. Unlike many other forms of businesses, for a law firm cost are fixed and not influenced by production. As is shown in the diagram above, any drop in revenue will have a leveraged effect on profitability (PEP). The impact of this leverage depends on the profit margin. At a profit margin of 50% there will be a 1-2 impact and a 10% drop in revenue will lead to a 20% drop in PEP. At a profit margin of 25% the ratio is 1-4 and a 10% drop in profit will lead to a 40% drop in PEP. This means that the effect of a decline in revenue will depend on the profit margin of your firm. The most successful law firms will typically have a high profit margin of 50% or above. This makes them more resistant to the crisis. So, your partners need to fully understand the notion of fixed cost and the leverage effect of the profit margin. It is also important for management to make revenue projections for the entire fiscal year 2020. Profit will effectively only be calculated after the whole year has ended. For most law firms 2020-Q1 has been strong and above target. Q2 will likely be weak. Traditionally Q3 is a bit slow due to the effect of summer holidays. If the economy starts to re-open in Q3 (this is what we at TGO Consulting expect) and people will not go on holiday en masse (we do not expect summer holiday as usual due to restrictions), production in Q3 might in the end be close to target. We do not know what will happen in Q4 as some businesses will be strapped for cash and cut on external spending. When we take all this into account, it seems unlikely that 2020 will be an Annus Horribilis for the business of law. Law firm leaders should communicate this wider perspective with the partners. Let’s assume Q1 has been 10% above target, Q2 will be minus 30% and Q3+Q4 will be minus 10%. Then the cumulative effect would just be a 10% drop in revenue over the whole year: 110 + 70 + 90 + 90 = 360 (= 90% of 400). This is without any corrections for seasonal differences. The end of Q2 and the whole of Q3 in any normal year tend to be weaker and this will further dampen the effect of the lower production. So, unless your firm has a very low profit margin, there is no reason to panic just now. Making adequate projections If there is no reason to panic just now, that does not mean that the situation could not turn for the worse in the future. Therefor it is imperative that law firms implement a solid data driven monitoring system. Even though partners are not always aware of this: revenue is created by the associates and not by the partners. In any law firm there will be more associates than there will be partners. The utilization (billable hours/day) of associates is one of the key indicators to monitor. This monitoring should be done on a daily basis. Associates (and partners for that matter) should therefor be obliged to enter their time-sheet accurately at the end of each day. This should be communicated, checked and enforced. With penalties for those who do not oblige. In order to make reliable production projections we will need accurate data. It is not unlike the Corona pandemic: if the authorities do not have accurate numbers, hospitals can not accurately predict what to expect next. So, make sure every fee-earner closes the time-sheet at the end of the day. Secondly, you need to estimate how much future billable hours are still to be expected on the running mandates. For firms that have professional project management in place, this will fairly easy to accomplish. For those firms who do not have firm-wide project management, estimates should be made by each responsible partner. This should be done on a weekly basis and be adjusted as things develop. Looking at similar matters in the past might be helpful. We will need these data to make accurate workload projections. Thirdly, you will need to look at the pipeline. As this is looking at the future, the data will not be that reliable. Still an educated guess, based on conversations with clients, will be better than having no data at all. Combining step 1, 2 and 3 in a dynamic model will provide management and the partners with a pretty good picture of how production and revenue will develop over the next few weeks. Having these data supported insights, will help prevent partners from panicking. Things become less scary if you are not stumbling around in the dark. Index your clients It goes without saying that revenue does not materialize out of thin air. You need clients that trust you with mandates that will create billable hours. That is why, besides focusing on production, we need to look at the client base. Analyzing your client base will provide a valuable insight in where revenue has been originated so far. Different industries and businesses will be affected by the crisis in different ways. If Microsoft, Facebook, Google or Zoom are your client, the workflow will not be affected in the same way as when Marriot hotels or Lufthansa are your client. Some industry sectors are still doing well whereas others are in an existential crisis. Some companies have lots of cash, little debt and a good opex to revenue ratio, others are strapped for cash, heavily indebted and have a poor opex to leverage ratio. What we are saying here is that you should map your clients and attach a risk and opportunity profile to most of them. This will help you tremendously in making projections on how business might develop. The more data you have, the less your partners will panic. TGO Consulting has developed models and templates that are ready to use to help you get better grip on your production data and pipeline. If you have any question or would like to have access to these models, please inquire. We are here to help TGO Consulting is there to help you navigate the crisis. We are currently writing a book on this topic that will be finished by end April. This book will be made available for free to all our clients. We will also continue to publish weekly articles on topics that are most relevant to you right now. Our experience with law firms in China gives us a two-month head start in knowing what best to do. There will however remain many important unknowns and things can change really fast. This is where our unparalleled creativity has proven to be extremely valuable. We have a proven track-record to find effective solutions faster and better than anyone else. In the meantime, our TGO Consulting Research Team keeps to monitor the state of the economy literally 24/7 to ensure that our approach always remains fact-based. Please do not hesitate to contact us to find out how we could help your firm navigate these challenging times.

Most countries in Europe are now in their third week of working from home. The first week most energy was devoted to shifting all operations from centralized to decentralized. For many law firms this has been an unprecedented technical and organizational operation. During this first week lawyers were still working on existing client work and scrambling to keep up with new legislation and government measures, converting this to Corona-newsletters and webinars. So, in week-1 everyone was very busy. In the second week partners started to notice that the first M&A transactions were put on halt or aborted. Some countries closed the courts, which had an impact on litigation. It also quickly became apparent that associates working structurally from home were less productive than usual. So, in week-2, production started to drop. Not by much, but still. Now we are in week-3 and we are seeing the first signs of partners getting nervous. The prospect of having an empty desk is unsettling for partners even in normal times. It becomes even more unsettling when it looks as if the ‘empty desk’ is becoming structural and widespread. Some law firms have decided to defer partner payments. Although this is a sensible thing to do, it also contributes to making partners nervous. Once partners openly start to panic, the state of the firm will quickly turn from bad to worse. It is important that partners keep their nerve! Typically, in any law firm there are partners, the rainmakers, who are performing solidly above the average. These heavy-weight partners will have a great deal of influence on the strategy of the firm. It is not likely that they are actively participating in the firm’s leadership, as they are way too busy with client work. They are however the ones who are the opinion leaders and who are the informal power within the firm. The formal leadership will have a large degree of freedom as long as it does not upset these heavy-weights. The moment their practice slows down, the heavy-weights, having time at hand, will start to meddle in the leadership. Even more so if they still feel the leadership is weak. (On 21 March we have strongly advised you to implement wartime leadership.) One might be inclined to think that this is a great idea. Wouldn’t it be better if these strong partners take the reins? Well, actually: no. There is a huge difference between being a five-star rainmaker and being an effective wartime law firm leader. The qualities that make a great lawyer become a huge hindrance as it comes to managing the firm. Any managing partner can confirm just how much time it takes to transform from being a full-time lawyer to become an effective managing partner. It easily takes between three and six months. Being absorbed by a demanding practice and expressing your views during partner meetings (and then return to your practice again) is absolutely not the same as having the real-world responsibility for day-to-day management and actually having to execute and implement in the real world. Just as it is different being the CEO of a company or one of the non-executive board members. You definitely do not want multiple captains on the ship (especially during a storm) What you definitively want to avoid is to have multiple captains on the bridge. In times of crisis, the firm needs strong wartime leadership. Where the normal modus operandi will allow for partners expressing their opinion and to have decision taking based on a workable compromise, this will turn disastrous in times of crisis. Wartime leadership must be lean, agile and fast. Under normal circumstances you can push most decisions forward to the next meeting without any harm. Doing this in a crisis will probably mean that you are already too late. Under normal conditions it might be best to water down proposals until the majority of the partners can live with it. In times of crisis this could be lethal for the firm. If the situation gets sour and dread, democracy and common decision making needs to be suspended* *Only for day to day management. For fundamental issues the normal governance structures should stay in place. Firms need leadership, not dictatorship. In times of crisis there can be no decision making based only on consensus. That is why a law firm needs to install a compact wartime leadership, authorized to take all necessary measures without first having to go to the partner meeting. We see that at many law firms, partners are already starting to put pressure on their firm’s leadership. Some partners put pressure that the weak partners will – finally – be kicked-out. Some partners may have delicate personal financial situation (e.g. just bought an expensive home) and, needing to preserve their income at all cost, put pressure to cut costs and dismiss some staff and/or associates. There will be many examples of partners each having their own opinions, their own agenda and priorities. It is the task of the wartime leadership to look after the interest of the firm as a whole and take all required decisions to secure the future of the firm. Wartime leadership should actively invest in the cohesion of the partner group! It will be most important to prevent partners from panicking. Whereas the wartime leadership needs to lead and act, they also need to actively spend a lot of time and energy to keep the partner group together and to keep partners confident that the firm will weather the storm without too much damage. So, at the same time as taking decisions, there must be permanent and open communication. The leadership should aim to be totally transparent. All information must be shared on a structured frequent basis (once a week preferably). Even though the partners do not get to vote on the decisions, the leadership should be in permanent dialogue with the partners and listen to their views, fears and ideas. There will be many great ideas and insights coming from the partners that could be used as input for the leadership, leading to better decisions. Especially in a situation like we are seeing today, where we are all working from home during the crisis. Law firm leaders will need to set up a structure to communicate with the partners. This should also be done in one-to-one conversations and conversations with small groups. The effectiveness of the communication between the leadership and the partners will be crucial in gaining and keeping the confidence of the partners and to prevent panic. If partners are getting nervous and anxious, there is a real risk that the cohesion in the partner group gets lost. Under normal conditions there will be partners who do not like each other, do not trust each other and who see some of their fellow partners as weak and/or useless. In times of heightened tensions this could easily escalate, causing the partner group to fracture. In times of crisis law firms need to double the effort to keep the partners together. It is important to downplay differences, actively increase trust and teamwork. TGO Consulting has developed special tools for this purpose. These tools have already been actively employed at some of our clients and the feedback has been tremendous. These ‘programs’ need to be repeated in order not to lose their effect. Your partners are your most valuable asset, you must keep the partner group strong, confident and united! We are here to help TGO Consulting is there to help you navigate the crisis. We are currently writing a book on this topic that will be finished by end April. This book will be made available for free to all our clients. We will also continue to publish weekly articles on topics that are most relevant to you right now. Our experience with law firms in China gives us a two month head start in knowing what best to do. There will however remain many important unknowns and things can change really fast. This is where our unparalleled creativity has proven to be extremely valuable. We have a proven track-record to find effective solutions faster and better than anyone else. In the meantime, our TGO Consulting Research Team keeps to monitor the state of the economy literally 24/7 to ensure that our approach always remains fact-based. Please do not hesitate to contact us to find out how we could help your firm navigate these challenging times.

With the Corona pandemic raging through the world, our healthcare systems are stressed beyond their limits. It is heartbreaking to see the reports from the doctors and nurses fighting at the front line. In an attempt to dampen the outbreak, our governments have halted most of public life. We are all ordered to stay at home and many businesses have been forced to close. As of yet, no one knows how long this will last. One day however we will be able to claim victory over the virus. The war against the Corona virus is a war we are guaranteed to win. We just do not know at what cost of human lives. While fighting the pandemic, another MUCH LARGER crisis has been brewing. We are descending into the worst and most severe economic crisis in the history of mankind. Our TGO Consulting Research Team has been monitoring economic indicators from around the world on a 24/7 basis for the past weeks. The outlook is getting darker by the hour. Here are two graphs to help you see what we are seeing: The graph above shows the PMI (Purchase Managers Index) between 2007 and today. It shows the impact of the 2008 credit crisis. The graph clearly shows by comparison what extreme and steep drop we are seeing right now. The graph below shows the effect on global trade. Exports from the US have dropped to the lowest level in history. No need to point out that for China the data are similar. The global economy is grinding to a halt. This has never ever happened before. No amount of rescue packages from governments and central banks will be enough to prevent the damage. The US rescue package is now already worth around 10% of GDP. The blow to output and to tax revenues could also be larger. At least a few economies are likely to find themselves with debt loads well in excess of 150% of GDP. Readers beware, we will be in the most severe economic recession ever. This is going to be really really bad. Fiddle while Rome burns When Rome burned, emperor Nero allegedly played his violin. While this obviously cannot be true, the attitude and mood in the legal industry somewhat reminds me of this image. Our researchers have contacted a number of elite law firms across jurisdictions and almost invariably managing partners claim that their firm is still doing great. Despite the crisis and working from home, they claim to see no substantial dip in billable hours. Observing legal media across multiple jurisdiction seems to support this image. Obviously there is some editorial content around the virus and having to work from home, but for the most part it remains business as usual: great M&A deals and successful lateral hires. On LinkedIn, law firms across Europe still celebrate their rankings in Chambers. While the economy burns, law firms keep playing the violin... It is time for a very loud wake-up call Last week I promised to help you prepare for the economic effects. Over the weekend I have urged you to put in place wartime leadership for your firm. It is high time for law firms to come to grips with reality and to prepare for a MASSIVE economic crisis unlike anything you have seen before. Therefor it is important to move beyond your daily Corona Virus Legal Updates and focus on what is to come. (By the way, do you have any idea how many -almost identical- Corona Updates the average client is receiving just from law firms?) First things first: cash-flow! Like any other business, law firms need cash to pay for their monthly costs. We call this Operating Expenditure (opex). Your opex consists of Direct Costs (the red rectangle), these are the salaries and bonuses of the fee-earners (partners not included) and the Indirect Cost (the yellow rectangle) as illustrated below. Characteristic for law firms is that opex are fixed, it does not vary according to production. Law firms need the roughly same amount of cash every month to meet their financial obligations. In order to meet these obligations, you need at least an equal amount of money coming in from clients paying their invoices. The first thing you need to do right now is to make a cash-flow analysis and projection. In order to do that you need to make an inventory of: a) Invoices that are still outstanding and likely to be paid. b) Billable hours produced, but not yet invoiced to the clients. c) Ongoing matters and the future billable hours still expected (realistically) d) Realistic pipeline of new mandates e) Your firm's financial obligations per month (projected) Based on this inventory you have a pretty clear picture on how much money might still be coming in. Now you have to factor in at what point in time this money realistically will be received, bearing in mind that clients will extend their payment term and some clients might not be able to pay at all. The cash-flow analysis might be your most important indicator to monitor. You need to keep on top of this and do a new analysis based on the most recent data every week. Second: your bottom line Profit is an opinion; cash is a fact. That is why we emphasize cash-flow before profit margin. However, for law firms profit margin equals partner compensation and this is always a super sensitive topic. We know the economic slump will depress demand and slow client payments, but don’t know when it will kick in, how bad it will get, or how long it will last. Once partners will start to realize, just how bad things might be, they will start to feel anxiety about their income. Within a matter of weeks/days from now law firm leaders will be under pressure from partners to take all necessary measures to protect the income of the partners. At the time of the 2008 financial crisis cutting costs was pretty easy and law firms turned to their usual playbook: they made some staff redundant, skipped planned investments, scaled down on marketing, tried to renegotiate occupancy and other costs, reduced recruitment and raised the quality bar for lawyers, firing those who did not meet the new threshold. Reducing the number of equity partners at the same time, most law firms managed to limit the damage to partner income. Some firms even ended up with higher PEP during the crisis than before. The problem now is that it following the same playbook once again will not have the same effect. We did it all a decade ago, today there is far less left to cut. There might be a big elephant in the room The average profit margin for law firms is around 35%, while some elite law firms are around 50%. This means that between 50 and 35% of all revenue is allocated as compensation for the partners. Reducing that number would have more impact on the available cash position than any other measure. Discussing the possibility of temporary reducing partner payments to help the firm through harsh times has until now been considered a taboo as it could open Pandora’s box. We have written an entire book on this topic: Death of a Law Firm (2015). Partner compensation is a complicated multi-faceted topic that goes way beyond what can be covered in this article. So for now it seems wise for law firms to remain on the side of caution and reduce monthly payments to partners. This would be preferable to a capital-call at a later stage. It seems only fair that also partners show that they are prepared to bear part of the burden. Just dismissing some associates and staff and negotiate a lower rent does not look good. When the whole economy is collapsing, we will all be better off if we share the impact. We should all behave like decent people and not put our individual interests before those of others. We are here to help TGO Consulting is there to help you navigate the crisis. We are currently writing a book on this topic that will be finished by end April. This book will be made available for free to all our clients. We will also continue to publish weekly articles on topics that are most relevant to you right now. Our experience with law firms in China gives us a two month head start in knowing what best to do. There will however remain many important unknowns and things can change really fast. This is where our unparalleled creativity has proven to be extremely valuable. We have a proven track-record to find effective solutions faster and better than anyone else. In the meantime, our TGO Consulting Research Team keeps to monitor the state of the economy literally 24/7 to ensure that our approach always remains fact-based. Please do not hesitate to contact us to find out how we could help your firm navigate these challenging times.

No need to highlight that we are experiencing unprecedented circumstances right now. Not only are we facing a potentially life-threatening virus that is sweeping across the world causing an ever-increasing number of people to die before their time. We are also drawn into a mammoth economic crisis. We have seen economic crisis before, but never in history did we have to restart the global economy after it had come to a complete standstill. Mankind is facing a historic challenge. Our societies, our economies, our businesses and all individual people around the world are facing an imminent existential threat. The primary focus is on the medical situation, trying to prevent as many unnecessary deaths as possible. Whole populations are locked-up and afraid. The optimism that this will soon be over, will at some point fade away. People will start to realize that they might lose loved ones, their jobs, their homes, their businesses. This is a wartime situation. So, it is clear that for the foreseeable future it will not be business as usual. It is worrying to see that a number of law firms assumes that once ‘working from home’ is properly organized the firm will find a new normal. It is also worrying to see that there are a number of law firms that see the Corona virus as a marketing opportunity. Clients literally get inundated by Corona information bulletins and with emails ensuring them that even working from home, their law firms will remain available. Some law firms are already contemplating laying off associates and staff and others are sobbing that M&A transactions are cancelled. All these actions are reflexes that can be associated with the urge to get back to ‘business as usual’ as soon as possible. This will not happen. As every law firm partner knows, the managing partner is often not the de facto leader of the firm. Earlier I have published an article outlining that there are ‘4 Types of Managing Partners’ (see graph). The inconvenient truth is that not every managing partner is a leader and that a ‘peace-time managing partner’ may not be suitable as a ‘war-time managing partner’. As we are entering into turbulent uncharted waters, law firms will need leadership that has the ability to lead and unite. Law firms need leadership that is capable to find new and creative solutions and reinvent the law firm at an unprecedented pace. Law firms need leadership that is capable of taking decisions in times of great uncertainty. Law firms need leadership that can keep the partnership together but is not a puppet or a figure of compromise. Law firms need wartime leadership. Being strategy consultants to the world’s elite law firms, we know law firm leaders pretty well. It is our estimate that about 50% of all present managing partners would not be suited as wartime managing partners. That number is not at all surprising. Why would you need a wartime leader if there is no war? But now the situation has changed, for some firms the leadership and governance structure need to change.

The Spanish flu pandemic of 1918, the deadliest in history, infected an estimated 500 million people worldwide—about one-third of the planet’s population—and killed an estimated 20 million to 50 million people. It struck as World War 1 had just come to an end and it was followed by the post WW1 Recession (Aug 1918 –March 1919) and the Depression of 1920-21 (Jan 1920 –July 1921). This dark era was immediately followed by the ‘Roaring Twenties’, a period of great economic, technical and cultural prosperity. As the Corona virus rages through the world, we are forced to drastically change our lifestyle and the way we work. Social distancing is the new norm. No more handshakes and maintaining an interpersonal distance of 2 meters. Bars, restaurants, cinemas, museums and more have been closed. Airlines are grounded, borders are closed, and tourism is forbidden. Supply chains are disrupted, forcing factories to close. Financial markets are in turmoil as share prices continue to drop at unprecedented rates. On top of that we have Saudi Arabia and Russia engaged in a price war making oil drop below $30 a barrel. In an attempt to mitigate the devastating effects of the pandemic and the financial crisis, governments announce new measures, legislation and rescue packages on a daily and sometimes hourly basis. What should law firms do? The first thing to do is not to panic! Historic data shows that the impact of a recession on the business of law has always been very limited. After the 2008 financial crisis, revenue showed a little dip, but has steadily been growing ever since. There is a 99% certainty that all business law firms will survive. This cannot be said of any other industry. Even if the partners have to take a 10% pay cut, we will still be able to pay the mortgage for the second home. So, don’t panic over the business, focus on your health and the health of your associates and staff instead. In response, many law firms have turned to partial measures, including voluntary and rotating remote policies, to stem transmission and protect their talent. But simply reducing the number of attorneys and staff in an office isn’t enough according to infectious disease experts. So, work from home! Working from home. Most law firms already had an existing possibility for their lawyers to work remote. However occasional working from home or from a hotel room is very different from structurally working from home over a prolonged period of time. This time it is not only the lawyers, but also staff and secretaries that have to work remote. Where all lawyers will have an office laptop, most staff and secretaries will not. Also access to broadband internet might not be equally available for everyone. It goes without saying that everyone working from home introduces new substantial cyber security risks. Some of these are already actively being exploited. So be vigilant. After you have these basics covered it is time to focus on workflow and communication. It is important to understand that working remote incidentally, is very different from doing it structurally for a long period of time. An office provides workers with a structured workday, a social network, short and informal communication, the possibility to easily brainstorm or bounce ideas. Working from an office will make it easier to separate work from private life. Working from home could not be more different. Today many homes will be far from quiet as the whole family will be at home. Depending on their age, personality and number children will distract and demand attention. It could also be tempting to constantly check the news or do some domestic work. Being ‘locked up’ for a prolonged period of time with your family might create tensions. These will come on top of the anxiety and stress over the virus and the health of friends and relatives. In order to create a virtual law firm where everyone works from home, we suggest the leadership of the firm to create structure and create a sense of belonging. Our experience with Chinese law firms over the past two months has learned that it is important for the leadership to be visible. A tool that works particularly well is to record a short daily video message for everyone. For individual partners and their teams, we suggest to have 3 conference calls every day: one early in the morning, one at lunchtime and one at the end of the day. This creates structure and gives a sense of purpose and belonging. We would suggest to include the secretaries in the early morning call to give them an idea of what will be expected. Creating structure and a good workflow have proven to be very important. Some staff like facilities and catering will not be able to work at all and might be sent home. Please don’t forget these colleagues. If you need help and advice how to create structure and create a sense of belonging, please let us know. We will help you - also if you are not our client - at no charge. Please do not hesitate to reach out. Consider stop putting your clients’ interests first. There probably is not a single business law firm on the planet that has not released by now an avalanche of Corona Bulletins. It is the same knee-jerk reaction as with Brexit and GDPR. The thing is that Corona is not a marketing opportunity. It is not even a legal issue. We are facing a major existential crisis. People and companies and even economies are fighting for their lives. There will be no outcome where one party wins, and the other party loses. What we need right now are creative solutions that will spread the burden and the pain. Lawyers are primed to look after the best interests of one party: the client. A lawyer is not supposed to take the interest of other parties into account. If we only keep focusing on our clients’ interests, we might accidentally help destroy the economy along the way. This is the time for law firms to rise. In the economy everything is interconnected and interdependent. Never in history has there been a situation where the entire global economy has come to a (near) standstill. This is not the time to litigate on the execution of a contract. This is not the time to terminate a lease if payments are not made in time. This is not the time to hold someone responsible for the damage caused by the effect of the virus. (in the US already, lawsuits have been filed against cruise companies and even against the state of China) This the time to put the common interest before the interest of the individual. This will require a different mindset from lawyers. We will have to start cooperating with other disciplines and experts and to find new, creative and fair solutions that will create the best possible conditions for as many companies as possible to navigate through these harsh times. We need Swarm Intelligence to get through the darkness or the night and find our way from dusk to dawn. If we do not act selfish but care for each other (also in a business sense) we might get a new ‘Roaring Twenties’ once all this will be behind us. The coming weeks Your Friday Insight will be focusing on topics that will help law firms navigate the crisis. Next week we will look into how to prepare for the economic effects

Oscar Wilde, the famous Irish poet and playwright (1854-1900), is credited with the quote “The cynic knows the price of everything and the value of nothing.” This article is not about Oscar Wilde, nor is it about cynics. It is to bust the myth that buying is a rational process. It is a common misconception that given a choice, people and companies will go for the cheapest option. Typically not. When talking with law firms, we frequently can feel the frustration that the only thing clients seem to care about is price. Countless are the experiences of partners having to jump through many hoops of procurement, having to provide all sorts of information with no clear purpose, only to be told at the end of the process that some other law firms had a cheaper offer. The process of panel selection can be extremely disheartening and frustrating. For a company only 1% of all costs is legal costs We have many conversations with CEOs, CFO’s and GCs. Do you know what percentage of the total cost of a big international company would be legal costs? Obviously, it varies between sectors and companies, but typically it would hover around 1% of total costs. How happy do you think the board would be if the GC could reduce this 1% to 0,95%? In all honesty, they wouldn’t care. Nor would the shareholders. In reality it would be very unusual for a GC to be under pressure from the board to negotiate lower rates with the law firms. GCs however are constantly under pressure to reduce headcount, as this is a metric that CFOs and shareholders monitor. As is shown in the TGO Value Matrix© there is a direct relationship between the value perception and the return on investment. Companies do not mind spending money on lawyers as long as it helps them make a profit or prevent a loss. That is why companies are prepared to pay 10 million to the lawyers that help them to close the deal. In a 40 billion takeover, 10 million is not a big deal. The client would not be more happy if the legal cost was 9 million or unhappy if it was 11 million. It is simply part of the investment to get the M&A done and increase shareholder value. However, as we all know, the same GC who did not care about one million more or less during the M&A could be on the phone for 15 minutes complaining about a €5000 invoice for a simple employment matter. It is about the lawyer’s contribution to the bottom-line. Not about the absolute price. People hardly ever go for the cheapest alternative When at school you were probably taught that capitalism encourages competition and that competition will lead to lower prices. Governments rely on this doctrine when they decide to privatize energy companies, health care, railways and so on. History has learned that competition on the long run does not lead to lower prices. Also, in the legal market, competition between law firms does not lead to lower prices. There are no ‘undersellers’ among business law firms. Ever since the 2008 financial crisis, GCs have tried to get the prices down. Statistics clearly show that despite these efforts, they ended up paying more as there is no real competition on price between firms. In part it is the clients who are to blame. It is deeply rooted in human nature to make irrational decisions as it comes to the things we buy. Have a look at the picture above. As you can see, it shows 6 hammers that vary in price between €4,98 and €31,90. The shape, weight and functionality of all hammers are exactly the same. They will all do the job equally well with no difference whatsoever. Even buying something as basic and simple as a hammer is not a rational process. If it was, there would only be one hammer: the one that costs €4,98, because no one would buy any of the others. This example illustrates on the one hand that competition does not lead to lower prices and on the other hand that most people do not go for the cheapest alternative. This holds true for almost any product or service you could think of. The vast majority does not buy the cheapest car, shirt, pasta and so on. People pay irrationally for brands There is a great example involving a humble cookie. Oreo cookies are popular, cheap and readily available worldwide in supermarkets. The typical price of a package of 14 Oreo cookies is around €1,25. On 18 February 2020 a fashion brand named Supreme launched its own version of the Oreo cookie at a price of €8,00 for a package of 3. That is 3000% more expensive than the normal Oreo. Despite the red color the taste and composition is exactly the same. It is literally the same cookie in a different color. Further to my argument: these Supreme Oreo cookies have since been offered on eBay for prices as high as $4000. Who will now still insist that prices are a rational thing? It is not about price, it’s about value So, what is the big picture? For companies in general the legal costs are insignificant, and it makes little sense to go through great lengths to bring these costs down. Yet it is a fact that companies are complaining about the costs of lawyers. In most cases this has less to do with the absolute costs than it has to do with the value perception. As long as the company has the feeling that the legal costs are contributing to their bottom-line, there is rarely any complaint. This changes if legal is just cost and does not contribute to profitability. Even is the most rigorous procurement processes clients do not only look at costs. When crunching the numbers that lead to the TGO Value Matrix© we found a 10% plus or minus deviation depending on the strength and quality of an existing relationship. This means that a law firm which had a very strong existing relationship with the client could be up to 10% more expensive than an average firm with a neutral relationship. A firm without any previous relationship would have to charge 10% in order to be perceived as good value. On top of that we found a second deviation. Law firms with an extremely strong brand reputation (quality, not name recognition) could also charge up to 10% more for the same mandate (compared with an equally experienced and capable law firm with a not so strong brand). This resembles the example with Supreme and the Oreo cookies. Practical follow-up: Our book Data & Dialogue, a relationship redefined (worldwide available on Amazon) contains a lot of valuable information and insights on this topic. TGO Consulting also offers one-day pricing workshops to law firm partners and a workshop on buying legal services for in-house departments. Should you be interested, send an email to Lisa at hakanson@tgo-consulting.com

First published as the feature article of the March 2020 issue of the ACC Docket. The Association of Corporate Counsel is, with more than 47.000 members in over 90 countries, the largest organisation of in-house lawyers in the world. ACC members can read the original article here Understanding the Business Means Understanding How the Company Makes Money Over the past couple of years, the mantra for corporate counsel has been to understand the business. This seems to be a late reaction to the common practice over a decade ago when the legal department was often seen as the “department of no.” In those times, commercial people in a company tried to avoid legal as much as they could, as the project would probably get stranded or considerably slowed down at best. Much has changed since! In general, when lawyers state that they need to understand the business, they refer to the products the company delivers or the sector in which it operates. For lawyers it can be hard — sometimes nearly impossible — to understand the products their company produces. How could a lawyer ever understand complex industries such as the chemical industry, the pharmaceutical industry, or the electronics industry without years of study? Of course, the lawyers working in such highly complex sectors do know the common contracting practices, how to protect intellectual property, and so on. But this does not constitute “understanding the business.” Companies don’t have legal issues; they have a business to run. Understanding the business means that lawyers need to better understand how their company makes money. To be seen as business enablers rather than a box that needs to be ticked, lawyers should assess the complexity of each issue, its contribution to profitability, the potential lost opportunity costs, and the level of expertise needed before starting to work on any matter or request. Moving beyond first in, first out Today most corporate counsel are assigned to a business line, whether it’s a product or a geographical location. In many instances, a lawyer is part of a “product team.” This ensures short lines and good communication between the lawyer and the business. In addition, many corporate legal departments are under constant pressure to reduce headcount, so it is not unusual that the in-house team is swamped with work. Most corporate counsel are in a certain mode: They provide a service at the needed pace. If a question lands on their desk then they just get on with solving it because that is their job. The order of priority is often based on the urgency communicated by the person making the request. Usually the one shouting the loudest or being the peskiest in pursuing answers will be served first. This is because they are very good at painting a picture of how much is riding on getting this matter dealt with yesterday. Polite requests tend to end up at the bottom. This system, however, doesn’t take into account what a legal issue is worth to the business in comparison to all other issues waiting to be handled. This approach also doesn’t consider who would be the best person to handle each issue based on workload and expertise. The following model can help ensure that the issues most contributing to the business can be done first at the right level of competence. This model can also help law departments unlock how to evaluate each issue from the eyes of the business, and at the same time, get the most suited person doing the job, which will potentially release a tremendous amount of value. Assess the complexity of the issue When a need for a legal service arises and lands on the desk of a corporate counsel the first step is to determine if the request can be solved in fewer than 30 minutes. A counsel receiving a phone call from Dominic in the sales department should be able to assess whether it is a relatively simple question which he or she can answer in the next half hour. The reason to do it this way, instead of telling Dominic he must turn straight to a work allocation center or receive a queue number, is that nobody benefits from turning service into a bureaucratic circus. Service to the business is still the first priority. Achieving a 100 percent efficient resource allocation scheme is not a goal in itself; it will just lead to frustrations. An inflexible system fails because of growing disconnect and disconnection. A more complex issue, where it is clear it will take much more than 30 minutes to provide an answer, should be handled differently. For the legal department to truly serve the company in a way that adds the most value, it is crucial to take a look at each matter to first determine the level of priority and the right person to deal with it. Follow these three steps to determine profitability, then the cost of lost opportunity, and, finally, the level of expertise required. Step 1: Determine profitability Issues contributing the most to the bottom line of the company have priority over issues that contribute less. In short, the more profit at stake, the more priority a matter will get. This means a corporate counsel needs to assess the monetary value of a legal matter. This is where understanding the business becomes essential. Understanding the business is usually understood to be about industry sector expertise or knowing what the company produces, how this is priced, and who buys it. However, as stated earlier, understanding the business goes beyond this: It is about understanding business economics, how the company actually makes money, and how any legal issues affect this process. Companies are more concerned with opportunities, cash-flow, and profit than they are with costs. The direct costs of a legal matter are often not the most relevant economical part for the business. On the simplest level, if an issue arises where a litigation might be in the cards, then the calculation should be made as to how this will bring in money — or prevent a loss — taking into account not only the direct legal costs to the business but also the effect in terms of revenue and cash-flow. To illustrate this, imagine the real estate lawyers in the in-house legal department of a company. Two issues land at the same time: the business is asking for an analysis of the risk allocation for a new parking garage and a review of a contract for maintenance of all elevators that will be outsourced to a new maintenance company. If you don’t have the resources to deal with both issues at the same time, which one do you do first? In order to decide, you first must dig a bit deeper. Say that you will discover that the parking garage will be a paid parking garage. This means there is an opportunity for the business. The sooner a money-maker is ready, the better. Of course, there are knock-on effects of every legal issue, but if there is no danger to life or immediate and sizeable penalties for not quickly having the contract for maintenance of elevators in place, then the parking garage issue should get priority. Determining the dollar value and priority of a legal issues is not what lawyers are usually trained to do. Lawyers typically do not think about their work in monetary terms, they aim to deliver a watertight legal solution. But practice makes perfect. Over time, after enough practice, it should be a knee-jerk reaction to see the monetary component of any legal issue. Learning how to quantify it, and applying it routinely, helps to add value to the business. The same thing goes for risks. In many cases, quantifying the risks and translating that value into dollars isn’t especially challenging. Step 2: Determine cost of lost opportunity If you are evaluating the contribution to the bottom line of a legal issue, then this will result in an understanding of how much it is worth to the business. This doesn’t mean, however, that the issue is necessarily a priority. To determine if an issue should be dealt with before other issues so that we can have our corporate counsel working on the right matters in the right order, we need to consider another factor: time. A matter is often perceived as urgent when there is a deadline looming or when colleagues are hindered in their work until the issues is solved. But urgency from the perspective of the business most often comes down to the simple adage “time is money.” Time might often be the most crucial contributor to the bottom line of a company. If your company has made investments in a project or a new product, which is halted, then every day means lost turnover while still carrying the cost of finance. If the delay continues, the chances that a competitor catches up might mean that not only all potential future income tied to the project is lost but also the entire investment. Understanding the monetary impact of time is important. What opportunity will be lost for the business by not dealing with a matter straight away? For a company, the speed to market of a product, service, or endeavor that is set to generate income is often as important — and in digital businesses more important — than perfection or precision. Legal work connected to the creation of an autonomous car might not seem that urgent since the car will hardly be here tomorrow. But if the time to market is three years then issues better be resolved now or the product launch will remain three years away until a competitor has taken the envious position of being the first to enter a market. A decreased speed to market can hurt tremendously in terms of lost opportunity. A legal issue can have a part in delaying the business and corporate counsel should know the cost of delay. Let’s take another example: Let’s say you are a lawyer in the fashion retail business and this week you are faced with dealing with a dispute with a supplier because a significant order had been delivered late. At the same time the business wants you to look at the acquisition of an exclusive licensing agreement to use an entertainment character on your brand’s clothing. It would be tempting to deal with the dispute because lawyers tend to find contentious issues the most pressing. However, the delivery has already been made, and apart from delivering damages or a discount, the dispute will not generate one cent more in turnover. The licensing agreement, on the other hand, does not only present the opportunity to generate revenue, it is also very time sensitive. The market is a fickle thing and being there first can make or break a new endeavor. Not being able to do something is usually the most common impactor on the bottom line. Instead lawyers tend to focus on quantifying the impact of continuing to do something that might have adverse consequences. But even here, the risks are seldom quantified. The penalty for non-compliance is usually well advertised by the law, authorities, or courts. Lawyers view their primary task as avoiding noncompliance. When the General Data Protection Regulation (GDPR) was announced in the European Union, corporate lawyers created task groups and freed up resources to cover the wide spread of relevance the GDPR could potentially have in all lines of business. For most companies at that time, the consequences of not being 100 percent compliant with privacy policies or websites was in fact clear and easy to quantify. The potential fine, if discovered and if enforced (and those were two big ifs in the first year following the implementation of the GDPR), is clearly stated in the directive. The cost to the business of the issues that were not assigned the same resources or priority might have been far greater. Step 3: Determine expertise level required The third step is about “horses for courses,” a British proverb that means different people are suited to different things. Just like outside counsel, in-house counsel have an hourly cost structure. If we appreciate the hourly costs with every action taken, and how we should apply our time to the right tasks, each corporate counsel will drive more value for the organization. But this is not only about the cost of resources, it is about the cost to the business when issues end up on the wrong desk, either because the counsel is overqualified or because she is not experienced enough. The work typically ends up on the desk where the request is first received. The work will get done as quickly and as well as possible without considering if someone else is more suited, has more time, or if other tasks have higher priority. If a senior corporate counsel is busy with matters far below his or her competence level, just because the issue happened to have landed on his or her desk, then it is a waste of resources. If a senior in-house counsel is stuck working on issues that can be done by a junior lawyer simply because the request landed there first, then this is preventing the same counsel from taking on the tasks that few others can do. Maybe those tasks are even being sent needlessly to an outside counsel. This all sounds pretty obvious, but in reality many legal departments will find it hard to implement some form of ticketing system or other centralized work allocation in order to ensure skills are used at the right level and that some are not experiencing work overload while others have little to do. This is because corporate counsel, just like partners in law firms, value autonomy. The idea that someone else would have a say in how their daily work is structured would meet resistance in the initial phase. But ensuring that skills are being used in the right place by implementing some form of procedure is really the only way forward in an increasingly busy department with resource constraints. In-house teams have valuable resources, but they are not always used in the right way and are not always made to feel appreciated. An optimal workflow is key when time is precious. Therefore, the required level of expertise must be a part of any assessment that a corporate counsel or legal department should make regarding every legal issue Unlocking value To sum up and make this three-step model clear, we can compare the legal department to a train station and a legal department’s work to an incoming freight train. The carriages need offloading and the goods further handling. The way work is being handled in many legal departments today is that they start with carriage number one and proceed to carriage number two when ready, and so on. But this makes absolutely no sense if we do not know what is in each carriage and are able to determine the value of it. Having a business-focused guideline when establishing the level of priority among work and the right person to deal with it is not only important from a value creation point of view, it also makes for a happier work environment for today’s hard-pressed corporate counsel. The corporate counsel’s client is the business. Understanding the business is not about knowing your company’s market but how your business makes money. Appreciating the business economics will lead to a more efficient and better utilized legal department that has a more egalitarian workload with people who feel challenged at the proper level. This, in turn, will make the legal department and each corporate counsel more appreciated by the business where it really counts.

There were more than 3100 lateral partner moves among Am Law 200 firms in 2019. That is about 12 partners moving firm every working day. That would be more than one partner every working hour. So, during the time it takes me to write this article there has been at least one lateral partner move among the AML-200 alone. If we would include the 200 biggest law firms from the rest of the world the number would almost be double. Partners being loyal to their firm, clearly has become a thing of the past. The whole lateral hiring circus has become an endless boulevard of broken dreams. We know from data statistics that less than one-in-five lateral hires turns out successful. 80 percent turns out to be a disappointment to the hiring law firm or to the moving partner, and sometimes to both. Obviously, there is two categories of partners that move to another firm. There is the category of talented partners that think they see better potential to grow their practice at the other firm. The other category is the partners that have no future at their present firm and have been kindly requested to leave. This category makes up about half of all lateral moves. The looser from one firm is expected to become a winner at the next firm. For the law firms these huge numbers of lateral movements have become a bit of a curse. Of course, law firms welcome the opportunity to buy market share, revenue and profit by attracting a rainmaker from another firm, but they equally fear losing their own rainmakers to the competition. That is why most law firms have put non-compete clauses in their partnership agreements stipulating that partners owe the firm a percentage of their revenue as a penalty and/or must take a gardening leave. All this is about to change! Thursday 13 February 2020 the Washington D.C. Court of Appeals ruled that law firms have no property interest in hourly billed client matters. This case is about the question if former Howrey partners owe part of the revenue they have made on their Howrey clients after this firm went bankrupt in 2011, to the estate. But the verdict has a far wider reaching relevance: “A law firm does not have a ‘legitimate claim of entitlement’ to hourly-billed client matters because it is the clients who retain the right to control the representation,” Chief Judge Anna Blackburne-Rigsby wrote for the panel. ”A law firm’s belief that it will continue working on such hourly-billed client matters into the future constitutes no more than an ‘abstract need’ or ‘unilateral expectation.’” As a result, former partners have no duty to remit profits they earned at their new firms back to their prior ones, the D.C. court found. This verdict is widely supported by a total of 25 national and international law firms, as well as the ABA, the Association of Professional Responsibility Lawyers and the D.C. Bar Association. Your non-compete will probably not be enforceable There you have it. This court ruling confirms what we all knew already but always tried to ignore. Ultimately it is the client who decides. The client may choose to stick with the partner and follow him/her to the new firm or remain with the old firm and continue with a different partner handling their mandates. The ruling will likely render any provisions in a partnership agreement that could in any way obstruct this freedom of a client, as being void. Firms will not be allowed to send a partner on gardening leave and will not be entitled to part of their future revenue. The more high-level question is if a non-compete preventing a lawyer to continue working for a client would be valid in the first place. Law firms will have to come up with different forms of ‘penalties’ for partners who want to join the competition. This should however not be a problem. Clients should reconsider their position It is not only for the law firms that the huge numbers of lateral partner movements have become a bit of a problem. Also, for law firm clients it is has become a nuisance. Have you ever asked clients how they feel about partners entrusted with their matters moving firm? We have asked this question many times and universally clients tell us that they hate it! It invariably causes problems and costs. Some partners move to firms that are not on the panel. Often the new firm will have a higher rate. What about the other partners and lawyers who are still at the old firm, that have been involved in the client’s matters. A partner’s lateral movement is never ever in the clients’ interest. Here is my point. Why do clients still select law firms in the panel, if they, in about half of the instances, want to work with a particular partner. If the relationship between a client and a partner is so strong that the client will most likely follow the partner if he/she moves to a new firm, why not put this into writing? Engagement letters are invariably made between a client and a law firm. In about half the cases this would be wrong. In these situations, clients engage an individual lawyer, whom they want to work on their matters. If this is the case, this should be put into contact. The engagement then should be between the client and the lawyer, not with the firm. This engagement letter should then have clear provisions governing the situation if this lawyer moves to a new firm. All this is old school thinking Those of you who know me, will be aware that I truly believe in teamwork. I am convinced that both clients and law firms will be better of if the relationship is not limited to one partner. Clients need law firms to make use of ‘swarm intelligence’ to find smart and innovative answers to the clients’ questions. However, the way law firms are organized today, most incentives stimulate one individual partner to monopolize the relationship with a client. Most law firms are aware that this system will cost them money on the long run. There are invariably lots of issues around lateral departures, succession in case of retirement and young partners building up their own practice. For a law firm it would be clever to build many strong relationships between many of its lawyers and the client. This will not only mitigate the risks; it will also make the relationship much stronger. But as long as law firms keep thinking old school, their clients would be better off engaging a specific lawyer instead of a law firm.

September 2015 the United States Environmental Protection Agency (EPA) issued a notice of violation of the Clean Air Act to German automaker Volkswagen Group. We all know what happened next and ‘Dieselgate’ became a lawyer bonanza in its own right. Almost five years down the line the total legal costs (fines, damages, lawyers) for the car manufacturer have already mounted to a staggering 30 billion euros. Last week, on February 14, it was an article in the Financial Times that caught my eye. It read that Volkswagen had failed to reach a settlement with Germany’s largest collective lawsuit. Based on recently implemented class action legislation, the German consumer rights group VZBV (VerbraucherZentrale BundesVerband) had filed a lawsuit on behalf of over 400.000 private individuals seeking damages for the alleged value loss their diesel car had occurred. On 14 February VW had offered 830 million euros in settlement to the plaintiffs, but it had refused to pay an extra 50 million euro to the lawyers representing VZBV on top of that 830 million. Long story short: no settlement because the lawyers demanded 50 million in fees. 50 million in legal fees is a mind-blowing amount. If we would assume a blended rate of 330 it would take 100 lawyers each one-year full time on the matter to amass 50 million in legal fees. A little research on the internet seems to point towards a very small 2 partner law firm located over two small towns far away from the main German business centers. Taking into account the typical blended rates of law firms in that region, 330 euro would already be way above the average. Having only 10 instead of 100 lawyers it would take 10 years full-time for all lawyers to approach 50 million in fees. The diesel scandal only started less than 5 years ago. So, from a time-based compensation perspective 50 million surely remains outrageous. There is of course another way of looking at this. Percentage-wise 50 million would be 6% of the 830 million settlement. To place this into perspective let’s look at investment banks. For the Alibaba IPO the banks charged 1,2% and for Facebook’s IPO this was 1,1%. Obviously, the main sum was bigger, but the percentage is significantly lower than 6%. Even Wachtell Lipton, which is a mythical law firm in its own right and known for not charging by the hour, does not charge anywhere close to 6%. There is no escaping: from whatever perspective you look at this, 50 million in legal fees remains outrageous. It looks like someone it trying to get rich fast. Ambulance chasing on steroids. Let there be no doubt that in this case the individual car owners who signed up to the VZBV class action are totally free to sign away 6% of any compensation they receive to the lawyers. But then they have to pay the lawyers and not Volkswagen on top of the compensation. The way it is represented now is that the claimants do not want to fork out the money to pay their lawyers. No skin in the game Let me introduce you to the concept of having ‘skin in the game’ (explained in more detail in my book ‘Death of a Law Firm’ – chapter 6). To have "skin in the game" is to have incurred personal risk (monetary or otherwise) by being involved in achieving a goal. Someone with skin in the game risks a personal loss. If I invest my own money, I have skin in the game. If I invest someone else’s’ money I do not have skin in the game. A lawyer is someone who, in the end, by definition acts on someone else’s behalf. Although the stakes might be high, it is the client who bears the risk of failure. At most, depending on the fee structure, a lawyer will risk his or her compensation if the outcome is unsuccessful. Lawyers may act like being a high stakes player but in reality, as an individual, they have little to lose. If you as a person have skin in the game and invest a lot of money that you might lose, you are also entitled to big rewards. Things are different if you can only win and not lose. Under such circumstances a more modest and proportionate approach would be appropriate. The lawyers representing the plaintiffs in the VZBV case do not seem to have skin in the game. The worst that could potentially happen is that they did not get paid at all. As long as you have other clients and matters to work on as a firm, that should be a manageable risk. Also, from this perspective there is no rational justification for demanding 50 million in legal fees. The TGO Value Matrix© shows that there is a clear relationship between return on investment for the client and the value perception regarding the costs of legal. In general clients do not mind spending money on lawyers as long as it helps them make profit (or prevent a loss). In situations where lawyers have a significant impact on the client’s bottom line and where the number of experienced lawyers is limited, paying millions in legal fees is not seen as bad value. For example, when two large multinational companies merge with a deal value over 50 billion, paying 50 million in legal fees would not be seen as disproportionate (as historical data shows). But in the VZBV matter, a tiny local law firm representing individual consumers in a 840 million settlement is hardly the same as a global elite law firm representing a multinational in a very complicated 50 billion global cross border merger. The legal industry is not a lottery or a casino. There should always be a reasonable relation between value created for the client and the amount charged. Lawyers who want to bet and potentially make extravagant amounts of money should perhaps try their luck at the Baden-Baden casino.

No Country for Old Men is widely known for being the title of an award-winning film written and directed by Joel and Ethan Coen (the Coen brothers). The film was released in 2007 and has won no less than 76 awards on 109 nominations. The title is taken from the opening line of 20th-century poet William Butler Yeats' poem "Sailing to Byzantium". The lament that can be heard in this poem’s lines, is for no longer belonging to the country of the young. It is also a lament for the way the young neglect the wisdom of the past and, presumably, of the old. As a consultant and as an observer of the legal industry, I frequently encounter situations where the title ‘No Country for Old Men’ springs to mind. Like business in general, the business of law has predominantly been led by senior white males. Although the numbers are slowly decreasing, a substantial chunk of all revenue created in the global legal industry is produced by firms that are managed (board and executive committee) by white men who are 60-plus years of age. Increasingly this is becoming a problem. In their latest issue (February 6, 2020) The Economist published an article ‘What it takes to be a CEO in the 2020s’. This article points in a way at the same issue: the traditional white elderly male is ill equipped to navigate the future. “The nature of the job is being disrupted. In particular, CEOs’ mechanism for exercising control over their vast enterprises is failing, and where and why firms operate is in flux.” Most of the tools and techniques that have worked so well in the past, do not work anymore. Think of “Neutron” Jack Welch, who ran General Electric between 1981 and 2001, opening and shutting plants, buying and selling divisions, and ruthlessly controlling the flow of capital. There is absolutely no room for a Jack Welsh in 2020. New times ask for a new type of leader. If you do what you did, you get what you got About a year ago I attended a large legal market conference in China as one of the keynote speakers. Other speakers included Harvard professor Ashish Nanda and the well-known Richard Susskind. Part of the program was a panel discussion on the future of the Chinese legal industry by the managing partners of China’s top law firms. As the first commercial law firms only emerged in the 1990ties, many of the MPs where also the founders of the firm. Starting literally with nothing some 30 years ago, they undeniably had now achieved tremendous success. These MPs were all impressive and powerful personalities. Their discussion however made me feel sad. Based on their achievements they all strongly believed that their way was the right way, as they had a proven track-record. They completely failed to recognize that what had brought them where they are today, will not bring their firm where it needs to be tomorrow. Like the Chinese law firms, law firms in our part of the world have seen unprecedented growth. No-one being a partner in the year 2000 could imagine, not even in their wildest dreams, how much money a partner in the same firm would be making 20 years down the line. The increase in PEP over the last two decades has outpaced almost any other industry. Like the Chinese MPs, many MPs in Europe and in the US are convinced that their way is the right way. Turning a blind eye to apparent changes in the market and the needs and demands of the younger generation. Even in my own profession I see many retired managing partners setting up shop as law firm consultants. Invariably they try to replicate their ‘successes’ from the past. Almost invariably they fail. They attract business on their former experience or on the reputation their former firm. They don’t see that they were way overdue when they left, and that the world has moved on since. If you do what you did, you get what you got at best. More likely you will be doing worse. “OK Boomer” I doubt if many of you are familiar with the term “OK Boomer”? OK boomer is an internet phrase that went viral in 2019. It is used by young people to write off, usually to a humorous or mildly mocking effect, opinions that are perceived as emblematic of attitudes of baby boomers and older people more generally. These attitudes include a resistance to technological change, inclusivity of marginalized identities, and a belief that the problems of youth are due to their laziness or entitlement. If you have children in the age between 15 and 25, ask them. They will surely be able to explain what it means. The business of law is standing at the dawn of an era of unprecedented changes. While for sure many things will remain the same, what changes will be fundamental. You will need to ask yourself the question who is best positioned to navigate the firm through these unknowns. Is it the person with the most experience and the most impressive track-record, or is it the one with the most open and creative mind? Is it the person who will have no stake in the future he/she is creating, or is it the one who’s own future it concerns? Is it a proponent of the past or a herald of the future? “Hey Jaap, is this not age discrimination?”, I can hear you ask. The answer is: no, it is not. The surprising thing is that it has less to do with age, than it has to do with a state of mind. The problem lies not in being of a certain age. It lies in relying on what worked in the past, instead of being curious for what will work tomorrow. The aforementioned article in this week’s Economist puts it like this: “Mastering the tricky, creative and more collaborative game of allocating intangible capital is essential. A CEO must be able to marshal the data flowing between companies and their counter-parties, redistributing who earns profits and bears risk.” For law firms things are not fundamentally different. Leading a law firm is no longer territory for old men.