Attorneys During COVID-19 Pt. 2

Last week, we spoke to Caroline Harrison who was able to explain certain legal implications due to this pandemic. This gave us a perspective behind labor and employment law, but what about attorneys in other fields? I wasn’t sure if this pandemic had a similar effect across the board with attorneys serving different sets of clients. I reached out to Ronald Rohde, a North Texas business and real estate attorney, to discuss potential implications with this pandemic.

McKinsey has reported that businesses are losing up to 9 percent of their annual revenue to hidden leaks in their contracts. A typical Fortune 1000 company can have around 30,000 active contracts in a given period. What do these leaks look like, how do legal departments tackle leaks that pop up, and has this pandemic lead to the development of new contract strategies?

I would agree with something like that or a number scaling for companies that yes, you are leaving money on the table. So let’s say there’s a company, they have million dollars in revenue and they’re losing 10% to leakage and so that’d be a hundred grand. Can they hire me to reduce it by more than my costs? I probably don’t even cut it in half, but let’s say I reduce it by 1%. If I did a reduction of the leakage by 1%, then my cost has to be less than 10,000. And that’s kind of the value proposition that I like and I actually want to bring that up more because it frames it in the right way. I think a lot of clients think about legal fees as for me a transactional contract. It’s like, well, what is he really saving us? It’s not a lot of money. They probably think their leakage is 1% and if it’s 1% then I’m going to save them half of that 1%, well then I can’t charge $8,000 if I’m only going to save them 5,000 a year.

A perfect example of a leak is when you sign an agreement to promise to pay a certain invoice within a number of days, but your systems and your accounting department is not set up to match that payment schedule. You don’t read the vendor’s contract carefully and you realize after the fact that the payment terms, call for payment of net 10. That means after they present you with an invoice for services rendered, they expect to be paid within 10 days of receipt. If not, then they put a late charge or a percentage fee of their services. Realistically, you have to pay it and a lot of people will just pay these late fees if their accounting might be set up for net 30. Very rarely would companies do check runs every two weeks and so they’re not going to be able to hit net 10. I would say if you run accounts payable twice a month, you need three or four days for an approval. You can really only commit to net 15, at the fastest. Net 30 is more comfortable for check runs twice a month, which is shocking. For some people they don’t look to even match up those payment terms and if you multiply that by all of your expenses it can add up to be several percentage points of your total vendor costs.

Some people won’t and some people say, “No, you signed the contract. We don’t have to provide you these services. You’ve got to pay the late fee.” I would notice this leak and advice on changing the term. A lot of times companies will agree to change payment terms, especially if it’s like net 10 to net 15, but it gave my client a chance to actually pay on time as opposed to a goal that they probably would never be able to hit.

Is there any key legal differences working with a startup versus working with a large corporation during the pandemic?

I’ll work with smaller companies in the like 500 to 1.5 million revenue range all the way up to publicly traded companies with 75 million in revenue. I don’t know if there’s a typical example, but my companies tend to spread distribution at the polls because the smaller companies are legal heavy as they’re starting and implementing their policies in place and once they get a good vendor agreement, they don’t need to spend as much with me cause they know the drill and then they’re in growth mode. Once they’ve crossed over a threshold where they’ve gotten sued, they have big contracts worth millions, then they will hire me to review every single contract again when it becomes justified based on the dollar amount for the single contract. I would say my clients range between those two with a little bit of distribution at both ends.

I think startups, they need to be more cognizant of termination clauses. Everybody that’s selling software and even non-software try to build themselves as a service company. They want you to lock into a long-term contract and get into recurring automatic billing. There’s a really big sales push in general, just to try to lock these companies into three year deals and a lot of what I would advise startups or newer companies when you’re adding on these features, get it as short as possible. I’ll pay a lot more to go month to month in the beginning to test it out and give me that flexibility to terminate because no matter what the savings is of signing a three year contract, it’s not going to be worth it if you don’t like the product and you’re saving 10% a month. I would advise bigger companies to create systems and processes so that they can have consistency in their contracts. That would really be the biggest key to their success is knowing what terms are acceptable and unacceptable in contracts and then applying that rule to everything that’s signed going forward. Obviously there’s exceptions, you can always override things, but setting up what you want as a company and then making that consistent is really the key to having a stable legal department. I guess just like an accounting system, you would never run accounting where you say that this computer is an expense for the home office. Six months later you purchase a computer and you say, “Oh, we’re going to put this as a capital improvement and advertise it.” You need a rule and you need to be very firm that there are exceptions. You need everybody in your company to understand these are the legal terms we accept, these are the ones we don’t, and absent a really special circumstance with approval from the CEO we’re not going to sign a contract with that in it. That’s what really creates the predictability and stability for a company to get to the next level.

I saw in your Voyage Dallas article that you speak a lot on machine learning. Is this something that you have a positive outlook on when it comes to legal services?

I’m definitely optimistic. I think it’s a good thing. That’s kind of a side project for me in terms of getting up to speed on python or trying to code with my GPU’s. I stay in touch with a couple of the legal tech startups that are working on things and just generally, it’s going to free up time from more menial type tasks and it’s going to focus more on the relationship between the lawyer and the client. If everybody’s using the same machine learning contract software, then that part’s fine, but setting up the parameters as the input that’s going to be what’s really critical and so talking to our clients and figuring out their goals for this particular situation, that’s where we can tweak the inputs to get a contract that’s exactly what they want as opposed to a boilerplate. That’s where the lawyers are going to shine and have to communicate really well with their clients. It’s going to help the people that focus on those parts of the sales process that I talked about and the relationship, and it’s going to hurt some of the people that even our lawyers that rely on doing things that a machine can do, and it’s the same way. I think there might be more legal services. It’s the same way that the ATM didn’t replace tellers. It increased the number of tellers. So I very much am optimistic. It could be that situation because there’s a huge amount of our population or economy that doesn’t have legal representation. And so if you could remove a lot of the grunt work, you could have lawyers who just go around talking to clients, small business owners and saying like, what kind of contract do you need? Let’s draft it up. What kind of this do you need? Okay. I’ll click a few buttons and spit it out for you.

That’s something that would be a benefit and I think it would produce more lawyers. You could have lawyers going to rural areas. You can have lawyers for every single small interaction which is a good thing. It’s still way more effective to just manually do it, but when the software gets better and if it’s implemented in all 50 States yeah, you could definitely see an increase in that type of automated machine learning type of work. I’m trying to create more data sets on this is a client, when did they contact me, how many days until they responded, what was their price point, how long did it take for them to make a decision did we do a video call, did we do a phone call, did we do an email, how many emails. Gathering all that data and then figuring out this is when they hired me and trying to predict new clients. There’s so many data points that I could use and law firms are not on that cutting edge of if somebody contacts me via phone they have a 17% more chance of hiring me versus somebody who just casually emails me because I have emails that go unresponded.

Your company page states your work in commercial real-estate and I was wondering your perspective on how commercial buildings will be performing post-COVID. 

I think that there is going to be a little bit of a move as there is some shift, but at the end of the day offices aren’t going anywhere. This was a one year experiment and people will find that it’s not as easy to implement a remote work culture and they’re going to bring people back to the office. We have the vaccine and there’s measures in place so I think the death of the office is dramatic or is exaggerated and what you’re going to see is really just an adaptation again. How do these people adjust to more experiences in the retail section? How do they provide safer experiences, but still get that social interaction. So there’s going to be a social gathering place, whether it’s for your business or for shopping and so it’s not going to be a death. It’s just going to accelerate the transformation and for people that are maybe over leveraged or don’t have tenants, they’re going to be squeezed, but it’s not going to be a complete shift. Not to me like the decline of suburban shopping malls, for example, like that was a pretty broad, heavy decline in the industry and I don’t think we’re going to see an office. I mean, there’s just too many long-term leases. There’s too many benefits to having people come in together, but that’s really kind of my opinion on it. I think that you will see some transformation, people are subleasing, but I think that seminars or training, meetings would be more popular. You have a company, you have a mostly remote staff, but everybody gets together say once a month, you all fly in and you do the kind of team building and that sort of thing in an office setting together. So things like that would be really great.