December 3, 2021
Page Reading Time: 6 minutes
May I ask, how you incentivize your law firm workforce?
Thinking of pricing as only a financial exercise grossly undervalues the power it has to fundamentally shift the behavior of people of a legal team – both in-house and law firms.
This LIO case study shares the story of Husch Blackwell and its commitment to reengineer its compensation and incentive model. Over the last several years Husch Blackwell completed an overhaul of the incentive structure in their compensation plan. The novelty of this new incentive structure went on to earn recognition from the Corporate Legal Operations Consortium in 2020 when Husch Blackwell was recognized for their Legal Innovation in Operations submission.
Husch’s new incentive structure enables them to price engagements in ways that most firms simply cannot match – not just in terms of the financial components but more so on their approach to drive behaviors directly linked to the client’s personal and business objectives. This has made Husch Blackwell more competitive in the market. Their story offers a valuable lesson for in-house teams as it demonstrates the potential impact that incentive design can have on the success of engagements with outside counsel.
To help promote healthy communications around incentives, these model questions are recommended for raising the topic in a polite and non-threatening manner:
- How does your firm motivate lawyers to work efficiently, identify and work to solve client business problems, and achieve desired legal outcomes?
- What do you need from us, your client, to help you start, manage, or improve your ability to align the personal incentives of your legal workforce with our business objectives?
- How are members of your client teams measured on discrete client engagements? Are all matters and engagements treated equally?
- What levers or options does your firm use to create incentives for all members of a legal matter?
- Are there incentives you believe would improve our relationship and motivate your people to help us achieve business objectives and legal outcomes?
“Our national coordinating counsel team, the Innovāt Alliance, is built around a business model designed to fully align incentives and purpose with our clients. Once we determine the business outcomes our client is trying to achieve, what our role might be in driving those, we then configure the service model and fee arrangement around those desired outcomes,” J.Y Miller, Husch Blackwell Partner.
If you work in the legal department, chances are you don’t have many conversations with outside counsel about how they incentivize their workforce. But perhaps you should.
There can be a sense of taboo around discussing incentives between a client and firm. Clients can make the mistake of thinking that asking about their firms’ incentive structure will offend some norm of privacy. Firm lawyers can make the mistake of thinking that clients would find their firm’s incentive structures to be boring or irrelevant. As a result, the topic is most often left unaddressed, leaving critical and measurable value untapped.
Discussing incentives can be very illuminating. In the worst-case scenario, the firm and client will learn where incentives are not aligned. In the best-case scenario, they’ll discover opportunities to better align incentives, and that is the foundation of a strong business partnership.
A great example of how Husch’s new incentive structure makes them more competitive in the market is their work for SPX Corporation. SPX has exposure to asbestos related litigation. In 2019, SPX appointed Husch as its National Coordinating Counsel (NCC) to drive one of its major portfolios of asbestos litigation. Husch works almost daily with Brenda Godfrey, Assistant General Counsel, Litigation & Claims, of SPX to develop strategic plans, evaluate risk, and manage a number of local counsel across the United States who handle the day-to-day litigation in individual cases.
A core feature of the engagement is that Husch was contracted to reduce SPX’s defense spend by at least 20% relative to the 12-month period before the engagement through the use of a creative fixed fee arrangement. That commitment is counterbalanced by a set of incentives offered by SPX for Husch to achieve targets within the key performance indicators (KPIs) that matter to SPX, namely, reductions in open claim inventory and indemnity spend. If Husch achieves the target KPIs, then there are paid bonuses.
What makes this model appealing for the client is that it shifts the risk of poor performance from the client to the firm. For most firms, they would consider this risk too great. But Husch was able to accept the risk – in large part due to their incentive structure and the confidence they had in their award-winning business model.
Client KPIs, like those embraced by SPX such as reduction of open claim inventory and indemnity spend, are quantitative measurements. Husch has essentially incorporated these measurements into the incentive structure of their compensation plan. In short, Husch can confidently undertake engagements on terms that are very client friendly because Husch’s attorneys aren’t incentivized based on the number of hours they bill but rather based on their contributions to achieving a client’s desired outcomes, among other factors. Similarly, clients like SPX can be confident that their counsel are focused on outcomes. As Brenda Godfrey explained, “With Husch, I can direct my attention to the goals we’re trying to accomplish without having to require case budgets or enforce cost controls.”
Husch has now completed its second year as NCC for SPX for this particular portfolio, and the results of the engagement speak to the effectiveness of the model as the performance is judged against the benchmark period.
|Year||Open Claim Inventory||Defense Spend||Indemnity Spend|
The process of winning this relationship with SPX took 11 months from beginning to end, but the story of how Husch came to this position started much earlier. The foundational work that positioned Husch to win this relationship was five or six years in the making.
In 2015, Husch started another major NCC engagement for a different company, and the magnitude of that task drove them to look for new solutions. “We started discussing the approach to managing these large portfolios and what technologies we had in place,” explained J.Y. Miller. “We got our operations team involved in a number of ways, including looking at our processes and trying to clean them up, trying to be more businesslike. We brought in our IT professionals and outside technology partners who worked with us to design technology solutions that would underpin and drive those efficiencies.”
A great illustration of this drive toward efficiency is the process of checking conflicts. The first time Husch brought on a major portfolio, the conflicts check took them 4 months. The second time took them 4 days due to the incorporation of Robotic Process Automation designed by Husch IT professionals.
“We know some of our innovation efforts are going to require investment beyond a 12-month or 24-month time horizon,” explained Kevin Bielawski, Director of Legal Operations for Husch Blackwell. “Those investments are worth it in the long run. They’re going to make our client service and client experience better, plus put us in a position of competitive advantage so that our partners like J.Y. can go out and tout our capabilities in a very easy way.”
Thoughtfully Designed Incentives
Husch’s previous CEO, Greg Smith, pushed the partners to look long term and challenge themselves to break free from the status quo. “We convened a large, diverse working group to analyze the most successful teams in our firm and really study what drove their success. Working with consultants, we also evaluated lessons from successful teams in other industries. We brought all this information together, and, as a result, we completely revised our partner evaluation and compensation system to focus on incentivizing the positive behaviors that lead to client success. This model now also includes our associates,” Bielawski explained.
He further stated, “We spent a lot of time developing metrics around positive behaviors because we know and recognize that if we drive those positive behaviors, we will drive success long-term for our clients and firm.”
Husch made several key changes to their incentive structure.
- They no longer offer bonuses for simply hitting billable hour targets. They have expectations and targets, but they don’t want attorneys to focus on billing hours. Rather, they want them to focus on contributions that lead to client success (such as the KPIs measured in Husch’s NCC relationship with SPX) so they remade their entire system around that principle.
- They eliminated origination credit. “Origination can create a lot of negative behavior,” Miller explained, “and it was behavior that we didn’t think served our clients or served our people, so we eliminated that from our model.”
- They now incentivize teamwork and collaboration, which is measured in part by proliferation or true collaboration among firm lawyers. “One of the goals that we have is to earn trust so we can bring in other partners to the client relationship and expand it,” said Miller.
- They also incentivize client service, innovation, and commitment to diversity, equity, and inclusion.
“A true commitment to core values requires you to incentivize those values in your compensation system. If it is truly important to you, you must make it the centerpiece of how you reward your people. That’s what we’ve done at Husch,” Miller declared with an earned measure of pride.
Change is always hard, and this was no exception. Key challenges in adopting the new incentive structure included designing, communicating, and integrating the new metrics into the firm’s operating model and culture. For the SPX engagement, it also required refining relationships and expectations of engaging local counsel.
“It took a little time for folks to get their arms around some of the newer metrics,” Bielawski remarked. “It was new, and so that newness took some adjustments and getting used to.”
“There’s always some level of resistance to every change,” Miller said, “especially in a law firm. One thing that we’ve learned in our firm is that if we take the time to really do our due diligence and communicate effectively, then our partners are willing to take those leaps of faith. We do our research, present it to our partners, give them time to think and respond, iterate based on their feedback and then come back at it again in a revised version. By earning our partners’ trust, we are permitted to vault our firm forward in new ways.”
Husch Blackwell made robust changes to the core operating model of their firm. They took a studied approach, hired outside experts, and adopted a long-term mentality. They developed a consensus among their partnership to make a bold change that came with real risks. The result is that they are now reaping real rewards in the form of enhanced competitive advantage in the market, increased matter flow, and stronger client relationships.