ADM law department COO uses data to try to change law firm behavior

How many people do you think live in Sao Paulo, Brazil? Take a second. Make a guess.

Now let David Cambria, global director of operations for law, compliance and government relations at Archer Daniels Midland Co., explain how his question illuminates a difficulty with alternative fees.

The correct answer to the question — about 12 million people — is less relevant than the behavioral theory of “anchoring.”

People make assumptions about the world based on their experiences. So someone who grew up in Shanghai, a city with an estimated 24 million residents, will likely guess that more people live in Sao Paulo than will a Chicagoan.

Shanghai residents start with a larger reference point.

“The problem with alternative-fee arrangements,” Cambria said, “is people don’t have that reference point.”

Cambria is doing his best to change that.

By capturing and analyzing data related to the cost and value of legal matters, he hopes to help Illinois’ largest public company accomplish two things:

Convince law firms to move away from the billable hour. And get ADM executives to see the legal department as an investment, not a cost center.

“That’s where I think you’re going to see a lot of growth and more understanding: What does the data tell you, and how can you help use that to drive your business decisions?” Cambria said in an interview at ADM’s Wacker Drive offices, where he has worked since the company relocated its global headquarters from Decatur in August.

He joined ADM in December 2013, about six months after D. Cameron Findlay was hired as general counsel. Findlay and Cambria’s working relationship dates back to around 2003 when Cambria was a legal department consultant for Huron Legal, and Findlay was a client and general counsel at Aon.

Findlay later hired Cambria at Aon in an operations position similar to his current role, which he describes as being the chief operating officer of ADM’s legal department.

In his COO position, he applies some of the latest technologies and forward-thinking trends to analyze the money he spends on outside counsel — and the value ADM receives from its law firms. He relies heavily on a metric he calls “total cost of outcome.”

That begins by comparing the actual cost of a completed matter with the projected or possible exposure the company faced at the outset.

He then assigns value to the work done by the law firm. Was a settlement price driven down? Was litigation avoided? Did ADM gain or preserve reputational value?

That analysis is used in two ways. First, he shows it to internal clients to explain the effectiveness of the legal department.

His goal, he said, is for ADM’s business partners to view the money it directs to the legal department as an investment — either creating value through things such as M&A or preserving value through, say, successfully defending the company in litigation.

“You can say, ‘But for our efforts here, here and here, our costs wouldn’t have been X. They would have been X plus five,’” Cambria said.

“And you can point to that. You can say we had a reduction in rates, had an (alternative-fee arrangement). You can say that our exposure on this matter was this, but we actually spent (less). … It’s really about telling a story that relates back to the business.”

Second, that analysis is also be used to determine what he is willing to pay law firms.

Cambria is able to capture data that tells him how much he has paid for any given legal matter. He can collect the amount and type of work each law firm has put in and, in some cases, right down to discrete tasks such as depositions.

Collecting that data over time, Cambria can then predict the cost and outcome of particular types of legal matters. That serves as his reference point for what he is willing to pay, and it is a crucial aspect of developing alternatives to the billable hour.

He urges law firms to do similar “data mining” to develop reference points for their own costs.

“If I have 100 matters (to compare), your firm probably has thousands of these matters of a similar type because you have whole departments who do this,” Cambria said he tells firms.

“If you were to mine your own data, I think what you’d see is your practice wisdom can take you a heck of a lot further and a heck of a lot faster in terms of what those costs should be. And you should then use that as a benchmark to better align the cost of your services to the client’s perceived value.”

While Cambria said he is willing to share his cost data with law firms, they have so far not returned the favor. One law firm, however, did tell him what it believed were its costs “per unit of work” and for a particular type of legal project.

“And then we say, ‘We know what your costs are. Now let’s talk about an agreed-to price margin, in terms of what we think is fair to pay for that type of work,’” Cambria said. “We’re having some discussions around that, so hopefully we’ll have that kind of nailed down. That’s a progression.”

Another progression has been the department’s implementation of a program it calls ALFA — the ADM law firm alliance.

Cambria and the department spent eight months selecting a group of about 20 law firms that now provide the vast majority of ADM’s legal services.

William J. Daley, ADM’s chief labor and employment counsel, said that program has helped him develop more cost-effective programs with law firms, such as commoditizing more common legal issues, including immigration or workers’ compensation.

“You can really push your firms to think about things more strategically,” Daley said. “Using the numbers we use when we track our matters and are able to negotiate those fees, you’re really able to see the value and the true cost of services.”

Daley, who was hired in January 2014, credited Cambria for being “really dialed in” with running a legal department more efficiently and developing alternative payment structures with outside counsel.

“I think everybody recognizes there’s this great opportunity out there to try to figure out how we can adopt these things,” Daley said. “But nobody has a real sense for how to put it into practice, and I think David is really good at identifying those kinds of solutions.”

Cambria is a recognized leader in optimizing legal departments. He serves on the regional board of directors for the Institute for Law Department Excellence and is helping to create a division of legal operations directors, an emerging role in corporate America, within the Association of Corporate Counsel.

Cambria, who joined ADM from a position across town at CDW and has been working with legal departments for nearly 20 years, made three predictions for how the rise of legal operations directors will impact law departments.

First, legal departments will become much more “closely ingrained” with the business as internal clients see the value a high-performing legal team provides.

Second, standards will be created that gauge the performance of legal departments across corporations.

And, finally, smaller companies will begin to outsource law department operations — creating further pressure for law firms. Under one possible model, law department directors will sell their services to multiple companies on a time and materials basis, he said.

Cambria also offered a prediction for what law firms will need to do to respond to the changes in the legal C-suite.

“What they’re going to have to do is understand what their costs are,” he said. “And they’re going to have to understand how much margin is reasonable to make on some of those practice areas in order to drive and keep profits healthy within the firm.”

In other words, change starts with a reference point.