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2. Law as a Commodity: A Market Check Presented by: Chris Wolfenberg With the assistance of Conor Fleming, Student-at-Law May 11, 2016

3. Chris Wolfenberg Partner 403-261-5399 cwolfenberg@fasken.com Chris Wolfenberg practises business law, focusing on public and private corporate and securities transactions in energy, mining and technology. He has acted as director and officer of a number of public, private and not-for-profit entities. 3

4. Overview 1. The Market 2. Game Changers 3. Bench Strength 4. Winning! 4

5. The Market The Players –Buyers Clients –GC Level Executives –In House Counsel –Sellers Service Providers –External Counsel »Firms »Partners »Consultants 5

6. Meltdown? Unsustainable Growth? Higher Rates Flat Demand http://blogs.wsj.com/law/2016/02/08/corporate-law-firm-billing-rates-rise-despite-weak-demand/ 6

7. Macro Conditions 7

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9. Sharply lower oil prices to weigh on Calgary’s economic growth in 2016. All sectors of the economy will be adversely affected as energy and related sectors reduce capital expenditures and staffing levels Depressed economic activity has also had a negative effect on workflow and growth in demand for legal services locally. With few notable exceptions (short term increase in litigation and insolvency) (Macro)(Micro) = Accelerated Change STRUCTURAL RESET Winners and Losers 9 Micro Conditions

10. Perceptions of Value –Change in perceptions of value and cost of legal services –Greater choice of service providers has led clients to question the value added by their legal service providers –Clients are demanding better prices for services, alternative fee structures, greater involvement and access to the decision making process and a more equitable distribution of risk – http://businessoflawblog.com/2015/06/law-firm-billing-rates-volatility http://businessoflawblog.com/2015/06/law-firm-billing-rates-volatility 10 Market Trends

11. Downward Pressure on Prices for Legal Services –Proliferation of options –Changes in how legal services are provided –Demands on In-House Counsel to reduce spending Consolidation –Global Mega Firms –Top Tier Independents –Boutiques 11

12. Market Makers The balance of power, in terms of pricing, is shifting. http://www.theglobeandmail.com/report-on-business/small-business/sb-growth/how- legal-fees-work/article626802/?page=all http://www.theglobeandmail.com/report-on-business/small-business/sb-growth/how- legal-fees-work/article626802/?page=all A variety of alternate fee arrangements (AFAs) are now being used more consistently. –Fixed Fees –Capped Fees –Success Fees –Performance based Holdbacks –Requests for Proposals (RFPs) 12

13. Fixed Fees At the outset of a matter, the Client and law firm agree on a fixed (or flat) fee to cover the defined scope of legal work The fee is established based on a mutually agreed upon scope of work, and on shared projections of what the work should cost and the value to the client Can serve to eliminate the risk of unpredictable legal costs to the client, and also provide incentive for the law firm to staff matters as leanly as possible to achieve the client’s objectives 13

14. Capped Fees (with collar) Client and firm agree to a fixed fee, as well as a collar that is set as a percentage of the fixed fee A level of shadow billing is employed to track the value of time actually spent (at agreed hourly rates) against the fixed fee If fees, as reflected in the shadow bills, exceed the fixed fee by the amount of the collar, then the client pays a percentage of the over-run. If less than the collar, the law firm pays back a percentage of the savings to the clients 14

15. Success Fees Client and firm define what results – interim or final – will constitute a “success”, and defined bonuses are awarded for successes achieved The firm may also reduce its regular fee (whether hourly or flat), as a price for sharing in the potential upside, and to reflect that an outcome that meets no definition of success does not earn full fees Success and failure are often matters within the law firm’s ability to influence, but not always. Sometimes the relationship between law firm and client supports an ‘in it together’ investment approach, in which the law firm’s fortunes mirror those of the client 15

16. Performance-Based Holdbacks A holdback is not a stand-alone fee structure, but an overlay on traditional hourly billing or fixed fees At the outset of the relationship, the client and the firm agree on a set of performance metrics against which the firm will be measured. Often these are service-related, rather than outcome related A percentage of the fee is “held back” by the client. The firm and the client meet at regular intervals to assess the firm’s performance against the metrics and the holdback amount is paid to the firm based on this evaluation 16

17. Performance-Based Holdbacks A holdback is broader and more flexible than a contingency fee or a success rate, and can be assessed on the basis of multiple factors The use of RFPs has grown dramatically recently, as many clients are now finding that the RFP process is an effective way of identifying and selecting law firms RFPs can be an effective way of implementing cost control, more accurate budgeting for the client, and greater efficiency, particularly with routine work 17

18. RFPs Issuing an RFP can be time and cost intensive if it is not managed and implemented efficiently Although cost is an important consideration in any RFP, the relationship between internal and external counsel should also play a role 18

19. Effect on Service Providers Law firms tend to be conservative by nature, law firms tend to be slow to adapt to changing market conditions http://www.lawsociety.ab.ca/advisory_2011/advisory_volume_9_issue_1_Mar2011/featur e/trending.aspx http://www.lawsociety.ab.ca/advisory_2011/advisory_volume_9_issue_1_Mar2011/featur e/trending.aspx Change will often be externally driven, rather than internally generated An external shock can serve to build momentum towards altering the status quo As a result, innovation is often more likely to take hold in periods of economic difficulty 19

20. 1.Technology Technology has changed how legal services are provided in the last decade. Greater change is coming 20 2. Game Changers

21. Automated Document Assembly –Electronic systems that can produce polished and customized first drafts of documents in much less time than lawyers –Service providers such as LegalZoom offer a cheaper option for incorporating companies, corporate filings, and trademark registration 21 Key Trends in Legal Technologies

22. Relentless Connectivity –Handheld devices provide for greater connectivity than ever before to clients –Increased connectivity leads to additional demands on lawyers to provide updates and final work product on demand 22

23. Electronic Marketplaces –Technology enabled marketplaces where sellers of legal services can present their offerings, credentials and fee structures, and buyers can choose the type of services they wish to purchase –Likely more suited to routine work that does not require a high degree of specialized legal work 23 Key Trends in Legal Technologies

24. Apps –Proliferation in the use of apps for improving workflow and efficiency for external counsel –Facilitating greater connectivity between In House Counsel and external counsel Online Dispute Resolution –Could serve to replace court or other personal appearances by parties –Would dramatically lower costs of litigation and dispute resolution 24

25. Workflow and Project Management –For high volume, repetitive legal work, workflow systems serve as automated checklists that can organize a standard process from start to finish –Project management systems are suited to more complex tasks, yet still provide for an efficient use of time and resources 25 Key Trends in Legal Technologies

26. Intelligent Systems/Artificial Intelligence –Computer systems with the ability to accurately analyze large bodies of documents –As the technology improves, will also be able to analyze, research, and draw conclusion on complex legal issues –Current examples include ROSS, a digital legal expert, built using IBM’s Watson computer, that provides legal research and analysis 26

27. Economic Impacts of Technology The availability of electronic delivery options will put downward pressure on prices for legal products and services. Better and more available information should lead to more efficient pricing. Could be extremely disruptive, especially to lawyers and firms with rigid structures and policies The data management and analytical capabilities of new technologies can support disintermediation, unbundling of services, and other efforts to move the client closer to the provider and the ultimate service or product 27

28. Unbundling of Services Unbundling, or disaggregation, of legal services occurs when transactions or litigation projects are broken down into their composite parts, which can then be allocated to different services providers, instead of using a single provider 28

29. Transactions: Unbundled Due Diligence Legal Research Transaction Management Template Selection Negotiation Bespoke Drafting Document Management Litigation: Unbundled Document Review Legal Research Project Management Litigation Support Disclosure (Electronic) Strategy Tactics Negotiation Advocacy 29 Unbundling of Services

30. Legal Advice Risk Management http://www.cba.org/CBA-Legal-Futures-Initiative/Reports/Futures-Transforming-the- Delivery-of-Legal-Service http://www.cba.org/CBA-Legal-Futures-Initiative/Reports/Futures-Transforming-the- Delivery-of-Legal-Service 30

31. Effect of Technology on Client Lawyer Dynamics 2.Relationships A well-informed Client will be a benefit to external counsel; a misinformed Client will present an additional hazard, obstacle, and potential cost factor on a file (as many doctors have found when confronted by patients who have already performed “self-diagnosis” based on information found on the Internet) 31

32. Effect of Technology on Client Lawyer Dynamics The shift created by an onslaught of online information will likely challenge important face-to-face relationships that develop between lawyers and their clients and will certainly affect the degree of loyalty that comes from continuing personal interactions in certain legal services 32

33. The Shifting Role of In House Counsel –Legal Risk Management –Knowledge Management –Expecting More From Law Firms –The More-for-Less Challenge –Strategy for General Counsel –Management of larger number of In-House Counsel 33 3. Bench Strength

34. In-house counsel, who are both buyers and suppliers of legal services, have become much more concerned with the cost as well as the quality of externally provided legal services In many cases, there is a demand for alternate fee arrangements to replace the billable hour or to create some combination of performance-based fees based on both outcomes and inputs 34 The Shifting Role of In-House Counsel

35. Moving more towards value based billing requires an understanding of how each fee structure shifts financial risks between the client and outside counsel, and how this potentially affects the law firm’s staffing and case management Properly structured and implemented, value-based billing can lead to an alignment of interests, and nurture a long- term partnership built on the creation of value for both client and law firm 35 Focusing on Value

36. Results that match true goals = better results for everyone involved Incentives to leverage technology increase efficiency and improve processes = a sustainable reduction in legal spend Risk sharing Improved relationships with clients: –Reduced stress –Better directed management time –Increased/deeper partnerships. 36 4. Winning!

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