Nixon Peabody’s chief innovation officer, Herb Stevens, left, with Jeff Lesk, managing partner of the Washington office. (Jeffrey MacMillan/Capital Business)

For the 18 partners in Nixon Peabody’s tax credit finance group, the first question they face in annual evaluations is: How is your innovation going?

The “innovation” refers to an initiative their practice leader, Jeff Lesk, who’s also managing partner of the law firm’s Washington office, spearheaded two years ago.

Lesk, whose group advises businesses on how to finance real estate projects using various tax credits, began asking partners to come up with at least one idea each year that could be developed into a new product — anything from a product for a client to a new fee structure or management strategy. The idea, and the implementation of the idea, factor into partners’ compensation.

The purpose is to urge lawyers to think more creatively about their business at a time many large law firms are struggling to stay profitable. The practice of law has traditionally been more reactive than proactive — companies ask their attorneys to draw up contracts, put together deals and interpret new laws and regulations. But that approach needs to change, Lesk said.

“We’ve had the luxury of being a reactive industry, especially when economic times were good and businesses were strong,” Lesk said. “Now, the business environment is very challenging ... we’re a reflection of the business of the country and the world. As they have have greater needs to diversify, it’s a great opportunity for us to work with them to come up with things that solve their business products.”

The innovation initiative has ushered in some colorful results. Lesk and some of the firm’s other partners came up with the idea of combining solar energy tax credits — which weren’t typically used in building affordable housing units — with other tax credits to help finance the installation of solar panels on affordable housing developments. They applied the concept in advising U.S. Bank on investing in projects that installed solar panels on 800 moderate and low-income homes in Connecticut and several apartment complexes in California.

“We were able to come up with a product that was a combined tax credit, which provided financing and almost paid for the cost of the solar panel,” Lesk said. “With that product in mind, we told our client about this concept. Now, probably every one of our major tax credit finance clients has done some combined solar work. Not one of them came to us and said, ‘Would you do a solar tax credit for us?’ It was more the other way around.”

Locally, Nixon Peabody attorneys have advised clients on how to piece together different tax credits to help pay for the construction of a Knowledge Is Power Program charter school in Anacostia, the Levine School of Music, and the Atlas and Howard theaters in the District.

Partners are also proposing new fee arrangements with clients as their contribution to innovation. Attorneys in the firm’s corporate group are rolling out what they call a “corporate start-up package” to new businesses that includes $10,000 worth of free legal advice on basic corporate issues (such as forming a corporation and issuing stock), plus a fixed cost for advice on other issues (such as labor and employment law that applies to hiring new workers).

“It’s like investing in a start-up,” said Herb Stevens, the firm’s first chief innovation officer who was appointed to the post last year. “One in 10 hits, but if it hits, it’s a big deal.”

Going outside the legal industry

The firm is also creating a “first look program,” another idea born out of the innovation initiative. Lawyers offer potential clients — typically banks or other investors in real estate projects — free legal advice before a proposed development has been approved. The idea is to get in early with a client, and hope that if the project pans out, they’ll be more likely to use Nixon Peabody when it comes time to hire lawyers to complete the project.

“If the project ends up going forward, we’ll bill those fees as part of our normal billing arrangement,” Lesk said. “And if it doesn’t, it didn’t cost them anything and gave them an opportunity to have free legal services at the beginning. It makes good business sense because if the projects do go forward, the fact that there’s a lawyer who already knows the project and has a relationship with them, when it comes time to get approval and hire a lawyer, nine times out of 10, they’re going to want to select the person they’ve done early work with.”

The innovation concept was cooked up during a partner retreat in 2010, two years into Lesk’s tenure as practice group leader.

“I started to see a divide in the group between lawyers with a more traditional approach to law responding as lawyers to requests from clients,” he said. “On the other hand, there was a group of really forward-thinking creative lawyers who were not just great as legal technicians, but out there much more creating new products. I really needed to make the entire group more like that second group.”

So Lesk looked outside the legal industry for inspiration. He picked the brains of senior scientists at the Arlington environmental nonprofit Conservation International (where Lesk serves on the advisory board), and took cues from Silicon Valley to think of innovation in terms of product development.

Lesk is now working with Stevens, who is also a partner in the tax credit finance group, to spread the innovation requirement to other practice groups. Each of the firm’s 20 practice groups now has a deputy in charge of product development.

“Our goal is to incorporate it deeply into the fabric [of the law firm],” Stevens said. “It will take years because it’s a cultural awakening. It’s just a question of getting people to see how creative they are. We’ve got a tremendously bright and energetic group of lawyers. If some of us can do it, all of us can do it.”