#82 - Deloitte Prices for Outcomes. Law Firms Will Too.

Outcome based billing incents us to be as efficient as possible for us and for the client. Time and hours billing does not incent you to be as efficient as possible. I think one of the things that AI can really do is.

Hello, everybody, and welcome back to Pearls on Gloves Off. I'm Mary o', Carroll, chief operating officer at Goodwin and your host. Today we are pulling back the curtain on something I think about all the time. What can law firms learn from consulting firms and other professional services firms? The consulting world has figured out a lot of things years ago about governance, client alignment, pricing, incentive structures, and other things that law firms are only starting to think about. So I wanted to bring someone on who's actually lived in both these worlds. My guest today is Ben Campbell, general counsel of Deloitte. Ben started his career as a prosecutor at the doj, became a partner at Latham, and now leads the legal function at one of the largest consulting firms in the world, also one of the largest partnerships in the world. And what I love about Ben's perspective is that he's seen it all. The government, law firms, and now this consulting model that is frankly ahead of where we are in law firms. We talk about outcome based billing, compensation structures and incentives, how firms should adapt to the pressures that AI is creating, what clients want, and why we need to create better training and mentorship for the generation of the future. If you've ever wondered how law firms might evolve or what the next chapter of professional services looks like, this is the episode for you. Let's dive right in.

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Hi, Ben, how you doing?

I'm doing good. Another day in paradise, you know, which is synonymous with midtown Manhattan.

So happy that you're here. I think our listeners are going to really love hearing from you because I think you've had one of the most interesting cross industry careers that I can think of right now, from a DOJ prosecutor, then a law firm partner, and now a general counsel and specifically at Deloitte, which I think is super interesting. And we'll get into that because that's a path that gives you a really unique vantage point to professional services.

It's been a journey, you know, like it's not at all what I predicted, starting with the fact that I am actually in midtown Manhattan. That wasn't my plan. I grew up in the Midwest, my plan was to wind up in the Midwest. And so now, and naturally, as a result, I've been here over 30 years. Life takes you in a lot of random directions.

It sure does. I feel like it always looks like it makes sense after the fact and you look backwards, but, you know, like when you're in it, you just don't know where the path is going to take you. So let's get into your path a little bit, talk about the transition from public sector to law firm partner and then will get you into Deloitte as well.

I spent a long time with the government, 16 years, U.S. attorney's office over in Brooklyn, which is that way. And it was a great experience. Like professionally, I got the opportunity to do all kinds of things. I spent a little time down at Maine doj, you know, ended up having some responsibility for the office in the end of my career, which gave me a lot of management experience. It was really a great experience. The government, however, is a different kind of animal, right? It doesn't run out profit and loss. The takeaway from that is coming into the private sector. I spent three years at Latham and Watkins before I came over to Deloitte was really valuable because, you know, you had to really spend some time thinking about how people make money, how you deploy resources, how you get hired, whether or not your value proposition. You don't think about things like that in the government. It looks different. You know, value proposition does matter. That's about efficiency. Are you moving things along? You know, are you processing the things that come in your door? Are you being responsive to the public? Are you a caretaker of the, of the taxpayers money? There's some elements of that that are essential in my job now because I get a certain allocation from my leaders for our budget. I need to stretch that and I also need to ensure that I manage the outside council legal spend. But the time at Latham was a really great opportunity to really understand my clients and how they made money, what their businesses were, what their business model was, what was important to them. It got me a lot of sort of opportunity to really understand the strategic dynamic. The best engagements I had when I was at Latham, and many of the listeners will probably have a particular perspective like this, as are those in which I was providing legal advice, but also strategic advice, which kind of got me interested in doing a job like this. Now, this came out of left field. Latham did a lot of work with Deloitte and the general counsel was a guy that I had Met when I was in law school. I was a first year summer associate at Sidley Austin in Chicago, back to my Chicago roots or Midwestern roots. And he was the U of C hiring partner. And I hadn't seen him. You go off to the government, people don't really want to stay in touch with you. And then I saw him when I was working at Deloitte. We started going to lunch because that's what you do to try and generate business. And after about the third time, he said, hey, have you ever thought about coming in house? And I had thought about it. I didn't think that I was ready when I came out of the government. And I'm glad that I took that time because it really helped me understand the overall business environment better. And it would have been a challenge to come directly from the government to hear it. It's doable and plenty of people do it. For me, that time at Latham was really valuable. And then I wound up here. I spent a couple of years as the head of litigation and then got lucky enough to get this job.

Right. And what is it like being a GC inside a consulting firm compared to being a partner at Big Law?

Well, it's very different. There's a couple of things that are significantly different about being in a firm that's as big as Deloitte. First, Deloitte is about 10 times the size of the largest law firm. We are large. That's just the US Firm. I'm only responsible for the US Firm. The network as a whole is much larger. But the U.S. firm has about 180,000 people split kind of evenly between folks in the U.S. and folks at our facility in India. And the thing that provides is a couple of things that are very different than being in a law firm. One is a pool of resources for investment that is much deeper and much bigger and much longer term. Like you're making strategic decisions about the business model that the firm is going to live with for 10, 15 or 20 years. And that's a bit of a different dynamic. It's more fluid, I think, in many ways because the market that we address is more fluid. It's kind of a little bit of a joke, but I think it's actually true. And the way that our business model works is to spend a lot of time with the client. Ask the client, what problems do you have? They give us a software implementation. My tax bill is way out of whack, and I need someone who can help me professionalize my internal controls. We're like, I think we can help you with that. And that dynamic shifts. If we've solved that problem, we move on to the next problem. So we are reinventing ourselves all the time. And that creates a fluidity and an energy and a dynamism that's a little bit different than a law firm where the business model is pretty well established and is likely to stay that way for a pretty long period of time. The problems you solve are different, Right, but they're basically kind of in the same swim lane. We're doing all kinds of new stuff all the time. And that leads to more planning, more investment, more discussion about strategy than I experienced in a long term.

Deloitte is a partnership model as well, right? Like one of the largest in the, in the world, probably.

I think we might be the largest in the world. We have to hold our partnership meetings and are in an arena in Las Vegas where they hold boxing matches. One of these things, like you have to go up and tell the partners, like how things are going from a legal perspective. And you're on this like, you know, stage, you can't see anybody. It's quite an experience.

I mean, so each of those people in the stands would be your client and your boss. Right? You're the general counsel working for all of them. How do you get stuff done? Do you have to get buy in from all these people? And how does the governance work?

That's a great question. In a partnership where there's a distributed architecture, partners are decision makers. They're owners of the firm. We respect that a lot. And that's a, actually an ethos we talk about constantly. It has a significant influence in the culture in the firm. We can talk about that in a little bit. The structure that we put in place to govern it is a board of directors that are elected by the partners. CEO and chair elected by the partners. They both serve four year terms, they're term limited, you know, so we change our leaders on a regular basis. We change over a portion of the board every year too. So the partners are constantly involved in the governance of the firm. And they should be. Right. That's what a partnership model is all about. But it does also require us to be organized in a way that we can actually distribute resources and go to market, you know, across a broad spectrum of services. And so we have four businesses, an advisory, consulting, tax and audit business, and they are composed of a CEO. Each one of them has a CEO and a board of directors for their own entities, and then a series of offering portfolios that are where we end Industry leaders, where we gather our teams around groupings of offerings like forensic practice or offshore tax consultation or audit. And that is an ever expanding suite of services, especially in the consultative businesses, because the problems that. That we're addressing are not the same as what we were a few years ago. And I think it works pretty well. Actually, there's a coda to this, which is I tell people at Deloitte, you know, I was actually a bit more nimble in the government than I am at Deloitte, and they find that a little stunning. And I'm like, well, the government is a hierarchical model. You're in charge of this office. You have authority. These are the things you need to call home about. Otherwise, go do your job. And the bottle doesn't change that much. Deloitte is bigger in terms of, you know, its structure, and it is more fluid in an environment where we are competing. The marketplace is changing, the circumstances in that marketplace are changing. So it needs to be more collaborative. And that goes back to the point about. You asked actually a moment ago about the culture and the partnership element. It needs to be collaborative. Right. It cannot be too hierarchical because it's a partnership. That does mean that we do sometimes struggle with questions about who's making the decision. And actually, this is a place where the Office of General Counsel really comes in, because we are the connective tissue to all these different stakeholders and can help marshal them together to say, okay, these are the folks that really need to make this decision. Let's make sure that everyone's signing off so we can go. It works reasonably well. You know, there's always moments of frustration in something like that, but for an organization this big, it does some things pretty well.

Yeah. That's so interesting. I kind of wonder when in the life cycle of Deloitte did they realize that it was big enough that they needed this sort of more proper governance with the board of directors and a CEO and your board, is that external board members, or are those all just kind of partners that get selected?

So all internal. Right. Which is a strength in a mind on a strike. It's just different. Right. They know the business incredibly well and they know the marketplace incredibly well. So we can get to really important decisions pretty quickly. We have done some things to bring in an external perspective, which is really valuable. Right. We also have several advisory boards that are composed of external folks, particularly around the audit practice, that help us ensure that we are staying current with regulatory requirements. Practice demands what clients think is a very dynamic governance structure. The conclusion or the creation of this actually goes back to when Deloitte, Haskins and Sells merged with Tooth ross and in 1989. And we created the partnership agreement as a result of that and built the board that we have today. Now both entities probably had their own boards and their own management structures before that. That set the stage for where we are. We've evolved that partnership agreement a little bit and the board has, has changed a little bit in size. But the foundational tenets were handed down my first year in law school.

So that's really interesting. You kind of mentioned that you have teams. I mean, I imagine there to be centers of excellence. I call the model that we have at the law firms the heroic partner model, where you're not just practicing law, but you're expected to drive business development and do sales and do finance and pricing and billing and elections and on. And I'm fairly certain in other professional services that is not the model. You're not sort of a, a grouping of many individual, you know, partner businesses, but instead are collaborating across, have shared goals, have centers of excellence that help with account management and sales and finance and such. You know, you've seen it from both sides. Like, how different is it?

It's very different. So I think I agree with your description of what it's like to be in a law firm. I always thought of a law firm as sort of like a archipelago of islands. Each island is its sort of separate environment. Some of them are linked by bridges, some of them never want to talk to each other. And it all works holistically, right in the way that an archipelago could be governed by a central authority. And having a central economy, we're a bit more coordinated. And we have to be, because if you allowed that to be the case at scale, it would be diffuse and we wouldn't be able to get anything done. The things that I would, that I would point to is, yes, the back office functionality. We built a structure that does a lot of things that support the partner. The primary objective of the partner in Deloitte is to deliver high quality services for our clients and be engaged with the client. And the way business gets generated here differs widely between the practices. It's a little bit different than what it'd be like in a law firm. The way litigation partners generate business is different than the way corporate partners generate business. And we have those same dynamics. That's a big part of the job, but it's not the only part of the job. And we have an apparatus that is supportive of that. We also have people that we take out of the marketplace and put them in leadership jobs and tell them your job is to develop the strategic direction in the firm. Many continue to maintain client relationships because that's really important and they're good at it. I also think there's a fair amount of support for the partners that is difficult to do in a law firm because we can invest at scale. So we have what we call the enabling areas. Office of General Counsels in the enabling areas. So that includes things like people who help you with billing, people who help you with collections, a finance team, a team that will help you with staffing. It's a big issue for us, as it is with a law firm, you know, like where law firm staffing can be anecdotal, Right.

Or hallway staffing.

Right? Yeah, exactly. Or it can be calling, you know, the associate desk and getting some staffing. We centralize that in ways that allow us to deploy at scale. The other thing that's really been significant is geographic location. Right. This is one difference between a law firm and a consulting firm. We are not bound by geographic location. We are to a degree in the audit practice, but there's some flexibility in the regulatory environment that allows for some degree of cross border, cross state staffing that allows for a degree of flexibility that allows us to staff some engagements with some folks, say in India and some in Tennessee and some midtown Manhattan, which is really helpful because then you can get the best talent and the people who have the most experience, and you can make us an attractive place to hire people because it doesn't require them to relocate as frequently as it used to. That law firms are different because everyone needs to be barred in a particular location. And that is a geographic restriction that we have, but to a lesser degree. So there, you're right, there is a lot of support for the partners, which I think frees them up to concentrate on what they do really well, which is deliver high quality service and generate more business.

Yeah, And I think that's what we're all trying to get to as well. This is so interesting. I think there's a lot of similarities with professional services firms, but also so many differences in the way that they're structured and run. I'm also curious because we talk a lot about this on the podcast, incentive structures on compensation. And so partners, I imagine, at a place like Deloitte are incentivized to kind of work together to build more value for the client. What does that look like? How are they incentivized?

So that's a great question, because My personal view, from my experience being in law firms is origination credit and compensation credit for client development is an important element to law firm culture. And, you know, and some firms have gone all the way over to lockstep, you know, approach that means everybody shows up for everybody all the time. And others are much more. You eat what you kill. We're kind of in between. You know, there are incentives for you. You are rewarded if you go out and bring in a big client. But many of the clients we also have are enduring client relationships that we've had for 50, 75 years. And so the biggest thing there is to have a good relationship at the client and step in, serve the client for a long period of time, be somebody that's comfortable, the client's comfortable with. It is a bit different what happens in a law firm and a little bit more like being almost in the organization that we serve, because the client's input there is really important. We really like this person. This person's known us a really long time. That person just came, you know, five years ago and doesn't really know us as well. We prefer person A or older person B. And that is an enduring relationship. We have lead client service partners whose job is to manage the complexity of the engagements that we have across all of our businesses. So for audit firms, for audit clients, we can do only audit because of independence rules. For non audit clients, we can do a lot of stuff and a lot of clients will say, for example, have us do tax work which can help contribute to savings, which then allow them to do a software implementation. There's that dynamic is something that's really important for the lead client service partner to be able to manage across all those businesses. Which drives the point that you're talking about, which is if that person comes from the tax business, they're not incented just to land tax engagements, they're incented to land a broader relationship. And the way we go and measure is about that, right? We go total client revenue, not client revenue derived from the tax business or the audit business or the consulting or advisory businesses. And that creates an incentive structure. The way we structure the business derives, you know, in the four businesses, gives people an incentive to. To push towards an overall goal of maximizing revenue across the business as opposed to maximizing a particular individual client account. Yes, they're gold on individual P Ls, no doubt, right? You get targets and goals for the year, but the rewards are come across the business. We are all gold and rewarded based on what our portion of the business does and whether or not we did things that were consistent with the goals of the organization. I'm in the enabling areas and our goals are about maintaining cost discipline and ensuring we serve the business effectively and help them achieve commercial success. You know, but that is done at an enabling wide level. Even though the Office of General Counsel does things that are very different than what our talent team does.

Right. Okay, a couple of more questions. So the incentives for the partners we just talked about, what does that look like for the. What do you call your individual contributors? Are they all consultants or your equivalent of the associate?

I suppose in the consulting it's a consultant or senior consultant. In, in the most of the business it's manager or senior manager.

And what is their comp and incentive structure look like? As you know, I think most firms are still on the billable hour target.

We have a utilization metric. Right. Because that's our business. Right. We don't make cars, we sell professional services. So we track people's time. It's not quite as disciplined or rigorous as it is in a law firm because we, some places were billing for the time, many places were not. This is actually a dynamic you and I talked about when we first caught up. We are shifting to an outcomes based billing model more and more frequently, which for many of the services we provide actually makes a lot of sense, which then frees you up from having to track hours in order to generate an invoice, still requires you to track hours. So we know how efficient we're being and it drives incentives for, if you get that right, you can really deliver high quality services in a more flexible way with a more flexible price point for the client and that's good for everybody. We're also investing a lot in technology, which helps with that as well. So this has been a journey for us and will continue to be a journey. The individual manager or senior manager, people who are not partners or principals in the firm, they're compensated on some metrics that are associated with how busy they are, but it's an overall frankly view of the quality of the work that they do. Are they making contributions to the client, Client feedback? Are they also doing things outside the client role? Do they have a more senior leadership role on their team or across the firm? And then, you know, a question about, you know, utilization is part of the equation, but it's also how did the business that they're a part of do as well? So it's a combination of the aggregate as well as individual performance. Yeah.

Impact. Do you have like the step up structure that we do first year, second year, third year and everyone kind of moves up at the same time. Or can you get promoted faster than others? Depending on.

Again, this again is also a major difference. There is not a lockstep promotion process in as there is in law firms and law firms that's, you know, established because that's a way to increase billing rate to cover increased compensation. You can be promoted more quickly. In Deloitte it might take longer to get to a particular destination. In Deloitte it gives us a lot of flexibility. That honestly is a great thing because it allows us to manage talent very effectively. You know, like I have folks who take 12 years to make partner in a law firm. That person is having a very difficult conversation at year eight. So that's a real flexibility for us. And I think it also creates a way to develop a good strong bond between the organization and the individual. OGC is a little bit like the Hotel California. People check in and they don't check out. I actually literally say to people who are in their 30s, this may be the last job interview you have because chances are very high that if you come here and you do what we would like you to do, you're going to enjoy it and you're going to stay a long time. That's not so true in the businesses we turn over a lot of, but we strive for that ethos across the firm. We would like people to stay a really long time and feel invested in the organization. But not everybody grows at the same rate.

Yeah, right. Just like every other, I think, business or organization in the world. And so you mentioned utilization. If you guys are tracking it, you're tracking people's time and their hours for utilization purposes, which makes sense. So you know, if someone's fully staff, fully engaged or not, and you're not doing it by the six minute increment, how are you sort of measuring that? If they're mostly working on outcome based.

Pricing, the practices, the talent discipline, as I said in Deloitte is not nearly as rigorous as it is in a law firm because it varies widely. You have a lot of discretion, you know, about how what increment you bill your time in, you know, so we don't strive for six minute increments in the same way that happens in a law firm because it's a lot more about us measuring how we're doing. And for some parts of the business, the audit part of the business, it is very disciplined. Or the government contracting part of the business, it is very disciplined because the Rules of the clients that we serve or the regulatory environment requires that other parts of the business, especially for outcome based billing, it's a little bit more flexible, which you can understand because people don't like to record their time. So telling them they need to record their time when it's not really mandated is a, is a polite ask. That is a challenge.

So you've come from the law firm side and I have this discussion a lot. So I want to have it with you here, which is people say if we don't have these utilization targets available hour targets, how will we know what people are working on? How will we know that they're working hard? You know, that they're not going to just say no to work and go home at 3.

So we do use it for that purpose. Right. The thing I would say is that if we are not billing time for IT billing, we're generating an invoice based on it. We did the same thing in the government. We track time in the government too. People might be like, why would you do that? Well, the answer is the same thing. It dictates resources, right. Getting people to do it in a manner that is more. The most accurate is when you're generating an invoice for it and it's required, you get the most accurate billing. And you know, like in the government, people would send me a time card and they'd fill it out for the entire year in January. I mean, like this is not what I'm talking about. Okay. Like if you do that, then you are just making it harder for me to go lobby main DOJ to get more FTEs to come and help you do your job. So don't do that. But you have to ask politely. And we have a kind of a similar dynamic here in OGC in different parts of the business that is different because some are very rigorous in their billing because they have to be a time tax. Does that audit, does that government contracting? Other places it's more outcome based billing that nevertheless utilization is an important part of overall compensation evaluation. People need to be busy. And you know, it was an old adage when I was in a law firm and it hasn't really changed, which is good work is rewarded with more work. People who are busy are typically people who are engaged and focused and, you know, good leaders. That's a dynamic in overall compensation. If you are not, if your utilization numbers drop below a particular threshold, someone will come talk to you about it.

Yeah. You sort of know, right. Who the performance are, even without the hours as a Guiding ruler.

Right. And one of the things that we are experimenting with and long term is an intriguing idea is as we move to more and more outcome based billing, utilization could become a less and less important metric because it creates weird incentives. Right. Outcome based billing incents us to be as efficient as possible for us and for the client. Time and hours billing does not incent you to be as efficient as possible and incense you to be as thorough as possible. Sometimes that's exactly what you need. The evolution of this, as the technology gets better about predicting what these things are going to look like and we have a better base of information about what these kinds of engagements looks like, allows us to, to get to a point where we can do a bit more outcome based billing. Places where traditionally we haven't been able to do that. Law firms are starting to do that too. You know, we've had conversations with some of our outside vendors about outcome based billing around some things that in the past five years ago would have been very difficult to do. That I think that's going to get better and better and I think that's really promising. We literally had a conversation about a year and a half ago in which one of our leaders said, if you take this to its logical extension, at the end of the day, utilization becomes a almost irrelevant metric. Now I think that's a bit, you know, sort of like communism saying the state's going to wither away to nothing. Easy to say, very difficult to do. But I do think that holds a lot of promise for changing the way that we engage with people and what we ask them to do and what we expect them to do and what we call them to do. Right.

And importantly, you know, you've talked a lot about client centricity and outcome based billing really does align the incentives with the client outcomes. That's why it's called outcome based is an area that I think will increase for law firms. We are all trying to do more of it. Clients need to get educated as well. I think there's a trust and experience issue there where they just don't know what the right price is. I think we can learn so much from, you know, consulting firms and other professional services about outcome based pricing because you guys have been doing it for a while. I'd love to hear you talk about what the different types are. Maybe walk us through an example of, you know, how it works. How do you measure success in those outcomes and even some of the incentives for success fees or, you know, timeliness fees that you've built in.

Yeah, so it's a little bit like when you think about outcome based billing, I always invoke the paradigm is a little bit like if you're renovating your house, right? That's kind of outcome based billing in a very sort of aggregated way. And you create a collar of okay, if you get it done a month beforehand, you're going to get some extra money. If it goes longer, you know, you're not going to get that money. We're going to put that money in escrow as we get closer to the end date or at the start to incent you to do that. And we're going to pay some of the money up front and we're going to pay some of the money at various toll along the way. We employ the same technique a lot. And the thing that I think has been an evolution is outcome based billing requires a shift in mindset and a shift in data rate times hour billing is easy to do. It requires discipline on tracking the time. But having the engagement discussion is pretty straightforward. Having an engagement discussion about outcome based billing requires everyone to really have a pretty good idea about what we're trying to accomplish, how long it's going to take when it needs to be done, and what the ultimate outcome should look like. So you asked a question about how you measure success. Well, a lot of times that is described in the contract. We do a lot of bespoke contracting. That's a big challenge for us, right, as you can imagine, to do that at scale. And we have a lot of people who do contracting. It's not all within the office of General Counsel. We don't have anywhere near enough people to do that. But that kind of outcome based billing requires us to have a really good understanding of what are we delivering, what's the scope of the engagement, when does it need to be done, what's our responsibility and what's the client's responsibility. And the clearer we can be about that, the better. Naturally there are things that happen along the way that are complications nobody anticipates. You opened up a wall when you found you had termites, okay, now you got to talk to the contractor. So the governing principles are really things that people can get their minds around. It's the degree of discipline and information around what we're doing and our experience across doing this in a large number of areas. And that's again another place where the scale can really help our offering portfolios who do a particular type of business. So software implementation is a great place where outcome based billing is a place that we use on a regular basis. All the techniques I describe are there over and over. We do what we call operate, which is very dynamic. Actually there's like six different flavors of operate, so I'll spare you the details. Operate is basically where we perform a function for a client, sort of outsourcing things. It's not quite your mess for less, but it is a fairly significant function in which we will do a fair amount of that work. And that makes a lot of sense for some clients who really don't want to spend a lot of money hiring really smart people to generate their tax returns. Because that's a real specialized business. It's like a law firm. So they'll hire us or they'll hire somebody else. Over time, this business may be challenged by technological evolution. We're keeping abreast with that, as is everybody employing those techniques. You know, sort of what's the scope? What's the toll gate? What are the things that we can change? What are the clients responsibilities? What are our responsibilities? Do we have periodic assessments? Like the software implementation is another place where if we do something, then we hand it over to the client and the client will then determine whether or not we've met those goals. Right. And if we haven't, we won't get paid. If we have, we will get paid. If we've done it early, we might get paid a little more. If we took too long, we might get paid a little less. Again, aligning our incentives to the client. The client wants a high quality product for a reasonable cost as fast as possible. And so the contracts are incented to do that. It does require a fair amount of internal metrics. So back to your question about, you know, the support that we provide to our partners. That's pretty robust in those areas and it's evolving. Right. But I think technology really offers some opportunities to get that better and better.

Yeah. Do you know ballpark what percentage of your work is still on time and materials versus outcome based in our consultative.

Business, which I'm lumping advisory and consulting together in that the estimate I heard was at the moment about 40% of our work is outcome based. Yeah. And growing rapidly. Like if we had this discussion five years ago, probably would have been 10 to 15. So it's going up a lot and to the point where we are thinking about systematic changes. Like the utilization discussion we had a few minutes ago.

Yeah. Okay, so this is exactly why I want to have this conversation. Because I have always thought that law firms are about, you know, five years, maybe even 10 years behind where the consulting model is. And I think most law firms, I mean, this is finger in the air, but I would say, like, 20% are alternative fees are outcome based, and the rest is still on the time and materials, but also rapidly moving. And I think there's a day where, you know, we get to 40 or 50% pretty, pretty soon because clients are asking for it.

And we did a little bit of this when I was at Latham. It was very limited and anecdotal, but some of my colleagues were pioneers in this area who thought very carefully about this, and what would it cost to do a deposition, to do a motion to dismiss, to do, and then they could give you a menu and generate a estimate that was a bit a la carte. Everyone understood it was an estimate. You know, it's a dark art to forecast litigation. If I could do that, I'd be putting down parlays in Vegas, not a betting man. But we are starting to hear this from our outside firms more frequently. They are beginning to experiment in this area, which requires us to be disciplined about this too. Like, honestly, one of the struggles that we've had has been a little bit about our own data. The first question I asked when I came to Deloitte 11 years ago when I was in charge of litigation was, how much do we spend a month on outside counsel? Surprisingly difficult question to answer. And so evolving our data to a point where I can see that on a regular basis and get real time updates on how much we're spending, which is chargeable directly to our businesses. So it affects their bottom line. So if I can do a good job of managing their outside legal spend, that increases their profitability. They like that. Right? That's a good thing. And so knowing that is really important. And that's an evolution for us. If we do that better, then we can have a more educated conversation with our law firm partners about what it costs and what we would expect and what the incentives should be and how that should be aligned. It requires a fair amount of work. We're learning how to do that. I think our law firms are too.

Yeah. Okay, I want to pivot for a moment because everyone has been talking about AI and the last episode we had was a couple of consultants who wrote an HBR article about how consulting is being disrupted by AI and that pyramid model is going away. And, you know, I've always said you can replace that word consulting with law firm, and you have the same conversations that are happening in this side of the world. So curious. How do you think about, you know, the disruption that is happening for professional services, AI and the pyramid model that we're all sort of operating in. And then, you know, what does that mean for training and development? The skill set that we need for the future, the staff mix of professional services.

Yeah. So we have reached the obligatory, you know, moment in our conversation where we discuss AI. It is, I don't want to say revolutionary. I think it's evolutionary and it's a continuation of things that started to happen already. Like some aspects about what we use technology for have already started to materialize in the rate in which we hire people to come into the firm. So if you look at a graph of our headcount increases, it's starting to flatten out. And that happened before AI hit and AI will probably continue that there's an argument, you know, and we don't know where this is going to land. At some point that's going to start to turn a little bit and decrease the headcount based deliveries that we do in different parts of our business. Again, it depends on how the technology is evolving and what it can do. It has limitations, right. But it's a very robust tool in the same way that your phone is a tool that now allows me to be highly productive when I'm not in the office, which unfortunately, because I commute in and out of New Jersey is a lot of time, or I can, you know, work remotely on my laptop and frankly, not really even miss a beat. Which is a big difference from what it was pre pandemic. Right. Doing this is a great illustration of that, Mike. I did one video call before the pandemic and I got shamed into it. It now it's all the time, like we wouldn't have met if it weren't for that. So you have to accept that technology is changing the way we work and we deliver and what can it do? I think the biggest sort of perspective on this is that it's going to take some of the more ministerial and routine tasks that we all did in our first and second years of law school and automate them. And I have said to, you know, people who are interested in, you know, associates or people in law school like you, like, you're going to hear a lot of nostalgia from people my age about, you know, how much we learned going through documents in a warehouse. I got to tell you, that's all bunk. Kind of figured out how to do a privilege review. By about 10:30 the morning that I was asked to do it. It was talking to my colleagues about what we found and thinking about the strategy and all the fun stuff of the job, that was really great. So we've just started to employ AI to do document review. Our advisory business has a tool, it's quite good, actually, that allowed us to jumpstart, you know, and really accelerate. And we had to do it under time pressure because it was an arb. It was a lot of documents. So we had no choice. Much like being shamed into using a video conference in the pandemic, it was time to do it right. And sometimes people need to be jolted a little bit. And it was very effective. And so what does that look like for the future? Well, I think what that means is that we can do a lot of the more ministerial stuff that's not that much fun, you know, like doing a privilege review. Not a lot of fun. No one's going to out there saying, like, sign me up for that. I'd love to do more. But they do. Everybody wants to get to what's the strategic direction, what are the issues, what is the. Let's figure out the factual story. Let's then figure out a narrative, an argument. What exposures do we have? What challenges do we have? How do we get to a resolution? What can we do to improve it to make sure it doesn't happen again? I think that's going to go faster. I also think that to your question, fundamentally this is a bit of a digression to what does that mean for headcount? I think that does change the leverage model. I think the leverage model ends up looking a bit more like what it looks like in the government, which is one or two people on a case, not 80. That's an interesting dynamic because you have to think about, well, there will always be a need for people who do what you can do and the judgment that you can bring. You've got years of experience, you're smart and you're capable, and the client's going to say, I don't know what the heck to do here, Mary, can you help me? There's always going to be a need for that. We need to ensure that people get to that and that they do it at scale. I also think many people are going to hear this and think, well, that means that no one's going to be hiring, you know, as many associates anymore. I actually think the answer is au contraire. I think what that means is more productivity means more work. If you look back at what's happened, the balloon gets bigger, right? And there's more and more room combined with demographics that are indicating that the quality, the dynamic aggregated across the country and across the world is the number of workers is going down. Those two things, I think are going to work pretty well. Productivity is the story that we talk about all the time here in otc. That's our job.

Yeah, I totally agree with all of that. So I don't see it as threatening or scary. It's just an evolution. And the skill set that you need and all the things you just rattled off that are more important now than ever, it always leads to the question of, how do we train people? And, you know, and I think it's about shadowing, it's about mentoring, it's about apprenticeship. And that starts to become more and more important as we kind of evolve into the future model. I have talked to you about this. I've talked to Bain, I've talked to folks at McKinsey. You all have, interestingly, a very strong mentorship culture within your firms. You even said, you know, you've had enduring clients for, you know, decades upon decades. And that can't just follow one person. You're obviously, you know, getting the next generation of leaders to take on this client and to evolve with them. I understand part of that is driven by a mandatory retirement. Get the next generation ready. Talk to me through that mentorship culture. And, like, why do you think that is so much stronger in firms like yours or McKinsey or Bain than they are at Big Law?

So I think there's a couple of things about that. Our board meeting a couple weeks ago, we had a guest speaker talk about ethics, and he didn't really talk about ethics. He talked about culture, because culture drives ethics. You know, culture is you want people to be in the moment when they're by themselves and they're going to make a decision. Culture influences that decision. That's what ethics is about, right? When you're by yourself, what decision are you going to make? We have a culture that talks about partnership all the time. Now, partnership is a very small portion of the overall composition of our firm. Right. But it influences the structure that we have. We are a partnership. We will always be a partnership. Regulatory. Even if we wanted to do something different, we couldn't, and we don't. You know, we embrace the partnership, and really, it's got tons of benefits to it. It's got challenges. Right. Every organization does. So is a baseball team, whatever. But the dynamic of partnership means that you are entrusted with handing it down to the next generation, that you must do something to ensure that they know what they're doing when that time comes and that they're in good hands. You mentioned we do have a mandatory retirement, and that drives a lot because I'm gold and evaluated on whether I am actually bringing up the next generation of leaders. We have training programs for them. We do that at scale. We talk about this all the time. We have an entire development program for more junior leaders, like many companies do. And we have a facility down outside of Dallas that we built in the middle of the economic downturn in 2008, 2009. It was a big, robust debate here about clicks versus bricks for training people. And now we're doubling the size of that because we just don't have enough room to bring everybody there to infuse the culture, which also gives them a sense of purpose, an alignment of incentives. You know, it's not perfect. Right. You know, it's a big organization with lots of people. But it does necessitate that we do those kinds of things to ensure that we are actually spending the time to mentor people and to give them more opportunities. Right. It's not just mentoring. Right. People learn by watching other people do stuff, but they also learn by doing it themselves and giving them an opportunity to do that. So back to my point about volume, like getting people to do more stuff is part of the equation here. We also have to think about training, and we have to think about training in a hybrid environment. Hybrid work really works well for us for the reasons we talked about a little while ago. And that's a management challenge. And so how do you train people in a hybrid environment? It's doable. Doesn't look the same as sitting in a office with partner when they called the sec. But we talked about apprenticeship learning a lot. And there's an apprenticeship model that actually, in my mind, dignifies what happened, which is the work needed to get done. It was more efficient for me to be in the office when the partner called, and then I took the notes. So I would send them a memo of what happened afterwards, and then we'd talk about what happened with the really good mentors. And other folks were a little spotty. So it's inconsistent in a law firm, which is understandable because a law firm is so much about doing the work for the client under stressful and difficult conditions. We are too. Right. But the mandate, in order to get people in a position to take responsibility because I'm going to fall off the conveyor belt and it's coming fast, is I have to ensure that is happening. I also Think there's some technology answers here, too. Intriguingly, I think one of the things that, you know, AI can really do is I can program it right now. I could have done a mock podcast. I could do a mock deposition. We can do a mock trial, and we can change the parameters, make the judge really difficult, make the jury, you know, really skeptical, make the witnesses, you know, pliant, whatever, do that a few times and determine whether or not we have good arguments. Now, that's not as good as doing a mock. A mock exercise. That's obviously better. Better, but it doesn't hurt. And it certainly. I didn't learn hearsay until I actually had to try and get something into evidence in a mock trial. Then it was like, oh, the light bulb went off. I think there's tons of things that we can do around this, all of which are driven by, it's my responsibility to do it. If I don't do it, I am only shortchanging myself because my pension is going to depend on whether these people know what they're doing.

Yeah. Yeah. Fascinating. So as we sort of wrap up, you know, being in the seat that you are with such an incredible list of places you've done things, what do you think the legal industry sort of needs to do or go? What change would you want to impart on the legal industry?

One of the things that I think, as I view as a huge advantage that we have here at Deloitte, you and I talked about it a little while ago, is the flexibility to recognize that the Runway for progression is not the same for everybody. And this is a chronic struggle in law firms for reasons that come back to progressing the billing model. Right. And the billing rate over time.

Time.

And that is. That creates a real challenge because everybody has their moments when, you know, things are all set and you can, you know, like, everything works. But that hasn't happened for me very often. I wager it hasn't happened for any of us that often. That means that having the flexibility to be able to accelerate somebody when they're really doing a great job and they have a great business case and we need them to be at a partner level more quickly because the business needs that support is a great thing. Being able, conversely, to, say, do a little more work here or we'd like you to move into a different swim lane or do something different, you know, again, this is a place where if I can redeploy somebody to do things that I've done that several times, that can work really well. They know our business, right? We don't need to re educate somebody. So having that flexibility, I think that's a big dynamic. That's a real struggle for law firms. I feel huge, we walk here that I have that opportunity to make that flexible, dynamic choice based on how folks are doing and also to have a frank and conversation with them about what I expect and what I think is necessary for them to go to the next level, if that's what they want to do, or for them to say to me, I don't really want to go to the next level. I'm really happy doing what I'm doing. There's a place for that person and how do I take full advantage of that resource? The most I ever learned about management came when I managed the softball team at our law firm firm. The folks show up, this is your team, make it work, right? And some people are really good at one thing, some people are really good at another. Some people are good at everything. Those people are really rare, but they're there. And how do you then maximize them so they feel valued and appreciated? I have that flexibility in a way that's very difficult in a law firm. And I think if law firms can combine moving to more outcome based billing and move away from some of the metrics that we were talking about earlier, then that extends the Runway and gives them flexibility to manage their talent more effectively. At a moment when it's really going to be important to find those gems, to find those utility players who can do everything, because those people are out there and they are incredibly valuable and you're going to need more of them because they learn quickly, they learn on their own, and you can plug them into a situation which AI will not be able to do, which is, gosh, Mary, I really don't know what to do here. Can you help me?

Yeah, I couldn't agree more. That's such great advice. And honestly, that's really how every other organization and industry works, right? You have roles where you want people who are quick learners, who are corporate athletes, who can jump right in and you want to elevate them. And then there's other roles where you're like, I just want someone who really knows what they're doing and is going to stay in this role at this level for a long time and be happy with it. And there are people who prefer that. So having that flexibility creates a much better organization and happier people who don't feel this pressure to either, you know, step up every year or want to step up faster. You just have much more options.

Yeah. Totally. We do a talent survey every year here, and we score well on the talent survey. You know, I think it's because we got a lot of good other folks managing. So, you know, it's not a reflection of what I'm doing, but we found in that sort of. We had an anomalous result where people felt really good about what they did. But they also said, I don't think that I have a pathway here. And I'm like, well, that doesn't make any sense to me. Like, how can that be the case? What is the problem? And what we discovered is that we weren't talking to anybody other than those people who are on the journey from manager or senior manager to partner or managing director in the firm. So, like, from associate to non share or share equity partner. Like, well, that's. That was. We're ignoring the talent experience for a huge chunk of the people in ogc. And so we have intentionally opened that conversation up to tell people there's a pathway here for all kinds of people doing all kinds of things. But it also requires us to have a discussion about how to talk to people about that, because this is another struggle that law firms have. And Deloitte does better, but not perfectly, which is about how to manage. Right. Like, I learned, frankly, a lot about how to manage. I'm not kidding, from managing the softball team, but also from seeing people who didn't do a very good job managing or being managed by people like that. I'm like, I'm not going to do that. I don't know what to do, but I know what not to do. And history will judge whether I. When I figure that out. But the important thing is to give our people some sense of the ability to have a conversation in which I can sit down and you say, mary can. You're killing it. All right, what do you want to do? Do you want to be general counsel? Well, here's the kind of things that you want to do and the kind of sacrifice you're going to need to be make. And you may say to me, I'd love to be able to do that, but not now. I really want to do this. I love what I do. I want to do more of it. I want to be more impactful to the business, but I'm not ready to take the additional step. But I want to be ready to do that when the time comes. I can't tell you whether I'm going to be ready to do that or not. I'm like, love it. All right, great. Or maybe that conversation is, you know, I really like what I do. And I'm like, well, what you do is really valuable. But to be candid, you know, that sets some limits on where you're going to go. How do you feel about that? And you're like, you know, I'd like it if it were a little better. I'm like, okay, so let's think about some other things that you like to do. And there's other places where we can add value. Would you like to have that conversation? And you may say, no, I really don't. And then I have to be able to say to you. So to be fair, Mary, you know, I. The conversation as a result, will probably be fairly. A little bit more limited in your compensation. Right. You can understand that in the same way that if you buy something and you get an add on, you pay more for it.

That's right.

Valuable.

So, you know, and it's totally okay if that's what you want in your career.

Absolutely. And people understand that. Right. And they get it. Right. That's not an easy thing to do. And to equip people to do that. And also to make it clear to everybody, if it's not going the way that you want, then you need to tell us. Right. We may not be able to scratch that itch. Right. But then you ought to know, and you can make an informed decision. You know, your conclusion then is like, well, I don't feel like I'm valued here. I can go and do something else. If I'm not telling you that, then you can't make that decision. That's not fair. So it's a talent. Management is essentially what we do. This is a people business, and I can't be everywhere and God knows I shouldn't. My framing's relatively narrow. I'm not always making the right call. We need to get a lot of people into the discussion who know what they're doing and create an environment in which they can share. If we're doing that across the organization, at every level, about everything, it's a better place to work. You get a better result, clients are happier, Everybody wins.

Everybody wins. That's always the goal. Ben, so much fun chatting with you. I am such a fan. Thank you for your time.

And this is easily the best name podcast I've ever seen.

Thank you so much, everyone who's listening, we'll catch you next time.