May I ask, would you call your firm a ‘learning organization’?

What a law firm actively seeks to learn as an organization and culture, beyond legal knowledge and expertise, is a signal to in-house teams of its true ability to help their client solve real human challenges – whether legal, business, or administrative.

 

Summary

This LIO case study shares the story of Kelley Drye and its commitment to learn and apply new thinking and execution methods geared towards addressing unmet needs of their clients.  The firm is building a methodical innovation capability that is informed by client conversations that are unconventional for law firms.  This effort earned recognition from the Corporate Legal Operations Consortium in 2020 when Kelley Drye was recognized for their Legal Innovation in Operations (LIO) submission. 

In 2020, Kelley Drye launched a business solution for one of its clients.  The story of how Kelley Drye developed this offering and where it will take them holds instructive value for law firms seeking to create a culture of innovation as well as for corporate counsel trying to promote value-driven innovation in their outside counsel relationships. Their story provides insights into meaningful innovation efforts that directly benefit the client and can be markers for in-house counsel to seek out when analyzing their legal service provider’s value-generating capabilities.

 These include assessing whether their law firm:

1. has designed a structure and culture of problem solving into their compensation model (e.g., innovation hours’ credit)
2. makes cash investments to produce bespoke innovations for their clients
3. directly involves the client in defining, creating and integrating client business solutions
4. has developed and socialized a framework to evaluate, prioritize and execute client solutions

Encouraging your law firm to make similar investments and change their perspective on how firms and clients should interact requires the in-house team to not just sit back and wait for the firm to act. Clients have a distinct role to play. It begins with having a different type of conversation than perhaps the legal team is used to.

 

Dialogue questions

To prompt a helpful dialogue on the topic of being a learning organization, these model questions are recommended for raising the topic in a polite and non-threatening manner:

1. How does your firm utilize not just legal talent, but its business talent as well, to learn about us and find ways to generate new types of measurable value?
2. What type of professional development – formal or informal – is your firm driving that helps your people become more business aware and empathetic to their clients?
3. What would you suggest is the most effective way for your clients to engage you in a conversation about their business and professional challenges and goals?
4. Do your partners actively and openly embrace having business talent from the firm directly engage with your clients? If so, what have you learned from this that might be valuable to us? If not, how can we help you start doing this?
5. What does the concept of “innovation” mean for the firm and what do you consider its most critical ingredients?

 

Narrative

More and more corporate law departments look to their service providers to do more than provide expert legal advice. Clients expect their investments in these partnerships to add measurable value to solving their business problems, not just legal problems. For the traditional law firm model, this can be challenging and their efforts to meet this client desire can result in titles, committees and efforts cloaked under the “innovation” moniker.

Kelley Drye has taken a similar yet fundamentally more meaningful path. They didn’t want to just say they were innovative; they wanted to demonstrate it through client outcomes and a clear commitment inside the firm to learning how to increase the likelihood of generating innovative outcomes. They built a methodical innovation capability that is informed by client conversations that are non-traditional for law firms

 

Background

In 2018 Kelley Drye established KD Skunkworks, an internal working group focused on innovation.  Based on its exposure to the concept of design thinking, in June 2019 KD Skunkworks conducted empathy interviews with five different clients seeking to identify unmet human needs of the actual individuals within the in-house team. The goal of each interview was to identify opportunities to potentially create client value in ways not just inclusive of legal outcomes.  Those conversations generated five innovation ideas that were “pitched” in a firm Shark Tank-style competition. The winning pitch was to be funded by the firm and led to an organized effort to execute on it.

One of those ideas related to the firm client, META Advisors, whose Chief Compliance Officer Dana Kane participated in an empathy interview.  META specializes in post-confirmation administration of bankruptcy estates under plans of liquidation, plans of reorganization and out-of-court workouts. Large commercial bankruptcies can involve claims from untold numbers of creditors.  For each claim, various data points must be updated and cross-referenced, including the overall status, amount, priority level and documentation of the claim. META must also communicate information (including personally identifiable information) to and from creditors, outside counsel, financial advisors, and others.

The key insight that emerged from Dana’s interview was the sense of personal frustration she felt from hours spent reconciling data from different spreadsheets. This was not legal work; it was administrative and costly. A team from Kelley Drye collaborated with Dana to generate ideas on how automation might improve META’s workflow and create some operating efficiency.  This opportunity was chosen as the winning pitch to be executed and funded by the firm.  

Kelley Drye engaged a project manager and technology developer to bring this idea to reality.  After analyzing the existing process, Kelley Drye was able to automate key components of the workflow to reduce error rates, decrease cycle time, and minimize drudgery in the process and in Kane’s daily life. Now, META’s claimants and creditors are able to track the status of claims in real-time.  META is in their second year of using the solution, and recently, other bankruptcy trustees have begun to approach Kelley Drye about adopting the same solution.

 

Committing to Learn

When KD Skunkworks was started in 2018, Judi Flournoy, Kelley Drye’s Chief Information Officer, approached the firm’s managing partner to ask if the firm would support the idea of giving attorneys billing credit to spend time thinking about solving problems using technology.  He said yes, and that decision has provided Kelley Drye’s lawyers with a meaningful incentive to participate in the innovation-seeking process, all without necessitating any change to accounting systems or the fundamental operating model of the firm.

Since then, KD Skunkworks has matured into a more formal structure within the firm, and in the process taken on a different character.  Initially, KD Skunkworks was an informal working group consisting of technology enthusiasts.  Today it has evolved into the Client Services and Innovation Committee (CSIC).  This is an important milestone on Kelley Drye’s strategy roadmap because it defined a formal protocol for advancing learning and experimentation throughout the firm.  “I really do see a big difference because we have this very nice formal partner engagement with the CSIC at the highest levels of the firm,” explained Guy Wiggins, Kelley Drye’s director of practice management. Kelley Drye’s lawyers and professional staff now have a forum in which they can communicate their ideas and insights for how to make the firm more innovative and competitive, and the firm has a mechanism for evaluating, prioritizing, and executing such ideas.

The other significant change that has taken place is that the CSIC is not limited to technology enthusiasts.  “I don’t have any math or science background,” explained CSIC Chairman Bob LeHane. “In fact, I went to law school so I wouldn’t have to take statistics.” Jokes aside, LeHane takes the responsibility seriously, acknowledging that he faced a significant learning curve in his new role.  But the fact that the committee dedicated to innovation is led by someone that does not have a background in STEM is emblematic of a broader and very positive trend at Kelley Drye, which is that innovation is no longer the exclusive province of technologists.  Innovation is derived from an exploration about problem-solving, and diverse voices need to be present in that conversation from clients to legal practitioners and business professionals.

“Kelley Drye has been around for a very, very long time,” Flournoy explained. “It’s an old New York firm. I would go so far as to characterize all of the innovation-related efforts up to probably the last five years being purely driven by someone like me,” referring to her background in information technology. “Now, what’s happening and what needs to continue to happen is, those changes are being driven by others, which is really important to not only the culture of the firm but its survivability in a very competitive market.”

 

Focusing on Humans

An area that Kelley Drye has steadily been exploring is design thinking.  Design thinking encourages organizations to focus on the actual people for whom they’re providing services or products.  When you sit down to create a solution for a client’s business challenge, the first question should always be: what’s the human need behind the business challenge?

“What we’ve heard from clients over the last few years,” explained Flournoy, ”is that they don’t care about what we’re doing with innovation, what they care about is its impact to them personally, and how we can make things easier for them, more cost-effective, help them solve a business problem. That’s what they care about.”

Design thinking is a set of principles and processes that facilitates Kelley Drye in identifying, understanding, prioritizing, and ultimately fulfilling the needs of their clients.  “The design thinking methodology for us was instrumental in helping us get to what we wanted to focus on and then how to go about it,” said Flournoy. “The empathy interview component of design thinking was really important, particularly around META. It asks questions like ‘what frustrates you, and how might we eliminate that?’”

While design thinking is ultimately about identifying potential solutions, special emphasis is given to properly defining problems and their human roots.  To this end, the design process requires developing a human-centric understanding of stakeholders, which often necessitates asking questions about emotions, contexts, and processes.  Some lawyers might feel uncomfortable asking questions like these because:

• they are outside the scope of traditional legal conversations, or

• they perceive that it would violate some norm of privacy, or

• they are reluctant to ask questions they think could be perceived by the client as not knowing how to do their job or understanding the client’s needs.

Part of what makes Kelley Drye distinctive is that they are comfortable with and even excited about engaging in conversations like these with clients.  

 

CONCLUSION

Kelley Drye is evolving the scope of their services, and it’s not an accident.  They have become a “learning organization” that seeks to complement its legal expertise and brand with a distinctive problem-finding and solving capability. This is the logical consequence of specific decisions that were undertaken to unlock the potential of everyone at the firm, namely:

1. Creating a forum for submitting, evaluating, and executing innovation ideas

2. Providing a financial incentive for lawyers to participate in innovation projects

3. Intentionally pursuing ‘out of the box’ conversations with clients

Law firms that want to promote a culture of innovation can learn a valuable lesson from Kelley Drye.  The mere fact that an idea is approved by a committee does not mean that it will be successful in practice.  Some ideas will succeed, and some will fail.  But by establishing a protocol for experimenting with new ideas, a set of principles for first deciding which experiments should be run, and an organizational memory for studying the outcome of each experiment, Kelley Drye is maximizing their chances of discovering commercially successful innovations.

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.

Summary

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.

Dialogue questions

To help promote healthy communications around incentives, these model questions are recommended for raising the topic in a polite and non-threatening manner:

1. How does your firm motivate lawyers to work efficiently, identify and work to solve client business problems, and achieve desired legal outcomes?
2. 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?
3. How are members of your client teams measured on discrete client engagements? Are all matters and engagements treated equally?
4. What levers or options does your firm use to create incentives for all members of a legal matter?
5. Are there incentives you believe would improve our relationship and motivate your people to help us achieve business objectives and legal outcomes?

Narrative

“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
1	-31%	-24%	-24%
2	-39%	-26%	-43%

Long-term Investments

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.

Challenges

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.”

CONCLUSION

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.