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Birmingham Bar Association Bulletin

ing such an argument is incredibly difficult to do. It is probably still advisable to distinguish rate increase requests from higher real estate costs. CREATING NEW PROFIT CENTERS? So where does this leave us? Is relocating and restacking just flushing money away? No. If a law firm builds space that encourages collaboration and that collaboration leads to innovation (i.e. reimagining things that already exist), which in turn allows the firm to identify new ways to generate value for and revenue from their clients, then it can actually “pay off.” Bryan Cave, for instance, houses a technology department within its space. This department figured out how to take software the firm had developed to help it better manage its own legal operations and sell the same platform to its clients in the form of BCXponent, creating a revenue stream that is not dependent on billing more hours or increasing headcount. Some firms like Orrick Herrington & Sutcliffe are building incubators to create technology that not only improves the firm’s ability to practice law efficiently and effectively, but that also provides a new revenue stream for the firm. A new buildout that uses efficiencies derived from fitting more lawyers into less space to create space to house such incubators may actually “pay off.” NO JUSTIFICATION: WE ARE JUST WILLING TO PAY FOR BETTER SPACE. Maybe the best reason to relocate or build out new space is just that the partners in the firm think that such a move would make them and their employees happier to come to work every day because they are more interactive, collegial and collaborative. This has value too; it’s just not going to be seen in anyone’s paycheck. G Firm Efficiency This justification only works if there is capacity in the current system, i.e. there are attorney/paralegal hours available that are not currently being filled/billed. An increase in work resulting from collaboration would only increase revenue per square foot if it resulted in the current attorney/paralegal productivity increasing. If there is no existing capacity, any increase in demand resulting from the new layout would necessitate an increase in staff and the associated leasing of additional space to accommodate that staff. RECRUITING/ RETENTION? Perhaps the goal of relocation is to design new space that is more attractive to new law grads or laterals so that recruiting/retention is made easier. To the extent attorney turnover is high and there is a high level of confidence that a change in the space could affect that turnover, attrition costs could be reduced by the new space. This alone is not likely to justify the higher occupancy cost. To the extent the space is more attractive to laterals, a law firm again is going to be back to the problem of having to add space as it adds laterals. INCREASED BILLING RATES? Maybe the theory is that nicer and more progressive spaced will help a firm attract a higher caliber of lawyers, thereby justifying higher billing rates which can then offset the real estate costs. Proceed with caution on this assumption. Abercrombie & Fitch general counsel Robert Bostrom recalls his company’s accounting department telling him that an outside counsel’s rates were too high because their real estate costs were too high. His response to these accountants was that he wasn’t going to tell his outside law firms how to run their businesses, however, he might use different firms going forward. This sentiment was echoed in the hours I spent interviewing general counsel at ten 1,000+ employee companies earlier this year. While none of them want to tell outside counsel how to run their business, they uniformly stated that they better not see a rate increase right after outside counsel moved into showy new space or a high rent building. I will caveat this by saying that if a law firm can make a legitimate and compelling argument that the new space is going to make them more efficient and productive lawyers which will in turn result in value to the client, the move might be a non-issue, however, mak- Anita Turner, Contributor 16 Birmingham Bar Association


Birmingham Bar Association Bulletin
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