Firm alters way it bills

Keith Vaughan says he believes that he has seen the future of law firms in the Triad.

It involves adjusting to clients not wanting to pay law-firm prices for noncritical legal services, such as research and administrative work, according to Vaughan, the managing member of Womble Carlyle Sandridge & Rice PLLC.

As a result, the firm began a corporate restructuring this week that has led to job cuts and the goal of reducing operating expenses by $5 million this year.

Vaughan did not disclose the number of local job cuts, other than to say that "it was not a large number in any one office." The firm has 530 lawyers at its 11 offices, which include five in North Carolina.

The firm also cut the salaries of most employees by 10 percent, effective Wednesday, to get their pay in line with what the firm believes is the realistic going rate within its markets.

"Clients are increasingly focused on managing the costs of all legal matters and have developed a variety of tools to accomplish this objective," Vaughan said in a memo to employees.

"In many instances, price will control the decision of which of several competing law firms will be hired. Clients are willing to pay an appropriate rate for trusted advice and court expertise from an attorney.

"But there is more price pressure on other services, such as gathering information."

Vaughan said that Womble and similarly sized law firms will have to become more flexible in reducing costs without sacrificing the quality of their services.

"That, of course, means that firms will need fewer, but more highly skilled and trained personnel at all levels," Vaughan said.

He said that the firm is determining "which jobs are necessary to serve clients and accomplish the goals of the firm, eliminating those positions that are not essential to meet those objectives."

Regarding the 10 percent salary cut for most employees, the firm said it took into consideration an expected decline in revenue for transactional and litigation work.

It also factored in more attorneys setting up their own practices after being let go by a large firm and dropping their hourly rates to retain and attract clients.

"The result is significant downward pressure on salaries of lawyers and paralegals," Vaughan said.

"We frankly believe that, from a market perspective, salaries of these groups are on average at least 10 percent higher than they should be." The starting salary range for a new attorney varies by market, but typically has been more than $100,000.

He said that the firm will consider salary-cut exceptions for those "whose work is exceptional and who meet both billable hours and profitability metrics" and bigger salary cuts for those "whose work is significantly off the standards."

Vaughan said he believes that the firm is on "the cutting edge" in North Carolina of making this kind of structural change related to clients' price expectations. He said he is aware of other firms in the nation taking a similar step related to a price-value initiative by the Association of Corporate Counsel, which it bills as a revolution and evolution in providing corporate legal services"

Officials with the N.C. Bar Association said they are not aware of another firm in the state making a similar change.

"The earlier we make these changes, the greater will be our opportunities for success," Vaughan said.

Womble's decision to put more focus on legal prices is not surprising, said Gayle Anderson, the president and chief executive of the Greater Winston-Salem Chamber of Commerce.

"There has been quite a bit of talk in our community about getting a level of service for a fixed price, and then paying more for particularly complex or difficult situations," Anderson said.

"In essence, clients are asking for attorneys to provide a certain level of service for a fixed fee, either per project or per month. Firms then try to provide the necessary services using their least expensive associates as much as possible, and reserving their higher level associates for the most difficult issues," she said.

Most professions are going through a similar revision in salaries, except for health care, said Tony Plath, a finance professor at UNC Charlotte.

"Sometimes these reductions are somewhat veiled, like passing along a greater percentage of health-care benefits costs to employees, reducing or eliminating 401(k) matching contributions, eliminating life insurance and disability-insurance coverage for employees," Plath said.

"Sometimes the cuts are up-front salary reductions. The legal profession isn't immune to this sort of thing, given that lots of their corporate work is tied to a strong economy, especially in securities issuance and mergers and acquisitions that are linked to bank-lending activity."

■ Richard Craver can be reached at 727-7376 or at rcraver@wsjournal.com.