One of my dear friends and a leading international legal marketing consultant, Leigh Dance, published this article in the January 13, 2011 issue of Legal Week. She is the Editor of the recent book "Bright Ideas: Insights from Legal Luminaries Worldwide," which was a compilation of 26 essays by global legal industry leaders on where we've been and where we're going.
This article is a must-read for law firm leaders three weeks in to 2011.
Last week when the head of a leading European law firm mentioned the Association of Corporate Counsel’s Value Challenge to me as effortlessly as he might have discussed a flagship piece of corporate legislation, it seemed to confirm that price is currently the undisputed heavyweight champion in legal services today. (For the uninitiated, the Value Challenge is a campaign from the US’s leading in-house lawyers’ group to get law firms to improve the value they offer clients).
More than any year I can recall, 2010 is when corporate law departments, global and local, have consistently deferred to costs as the key driver.
Legal Week’s just-released Client Satisfaction Report, in which 71 UK and US firms are ranked by 903 companies (covering 71% of the FTSE 100), finds that clients care most about quality of legal advice. Now before your sigh of relief, take note that throughout the research respondents lament that nothing ticks them off like law firm prices and billing practices. While praising their preferred firms for quality advice and diligent service, respondents give far lower scores on their costs, billing practices and alternative fee offers.
The question is: are corporate legal services buyers putting their money where their mouth is? It has been argued in these pages that clients aren’t really driving change in law firms. Many private practitioners report that the majority of clients are still most comfortable with the devil they know: billable hours. It’s easy to brush off cost complaints as the same old whining—but do we see real action?
I’d say, yes. In nearly every conversation I’ve had with corporate law department leaders in the last 12 months, controlling costs has been raised as a management priority, and the majority are making steady progress both within their function and with providers. Those I’m in touch with are mostly large global companies, they are headquartered around the world, and their regional and national legal teams are fighting to secure value as well.
In-house lawyers still care about performance. Performance is key when aggressive regulatory enforcement and far-flung global growth increases legal risks in multiples. Companies rate law firms very highly on technical competence, and as legal professionals they work hard to deliver high quality legal services in their companies, with in-house and outside resources.
In the end, however, they must recognize that it’s rarely technical competence that earns the general counsel a pay raise, a bonus, or even job security. In an environment where corporate profit margins are squeezed and will be for as far on the horizon as we can see, overhead costs simply must contract – including legal. Sure, there’s more demand for legal than ever before. And the bosses of general counsel are serious about complying with laws and regulations where they operate. Yet in day-to-day management (unless there’s a crisis afoot), it’s apparent that corporate leaders’ first focus is the numbers. How low can you go?
For these reasons and more, I believe that the biggest change in the legal services industry this year is that clients are following their words with action. Cost is currently the driver. Big and small corporate law departments around the world are making significant strides in finding cheaper ways to make and buy legal services. And if they haven’t yet taken action, they are under internal pressure to do so, since there are competitors in every industry boasting about their law department cost savings (read Cisco, FMC, Nokia, Tyco, Rio Tinto, Royal Dutch Shell …).
In many cases these cost savings are being achieved with the client’s preferred law firm providers in the dark. Corporate legal functions are shifting administrative work out of the law department and into lines of business, outsourcing to India, and building lower-cost legal processing centers in high-growth regions of the world. They appreciate their law firm advisors, but much of the time they have no idea that their law firms might actually be able to help with these efforts.
Many companies are taking up the challenge that Richard Susskind posed two years ago in publishing The End of Lawyers?: “What elements of their current workload can be undertaken more quickly, more cheaply, more efficiently, or to a higher quality using different and new methods of working?”
Once in-house lawyers get started, often with help from process engineers and procurement experts (or maybe Eversheds Consulting), it’s not long before their focus turns to distinguishing the value of various types of legal support. They then tend to use select expertise of select firms for only a portion of the work that the same firms used to do. A Global 50 law firm managing partner told me last month that he is seeing a double-digit percentage of the firm’s fee income lost to alternative providers. Ouch.
So, with price concerns driving law departments to take action, what can law firms do to defend their share of the market? As I see it, you need to firmly position yourselves as part of the solution, not part of the problem. Some firms are ahead of others in this respect, with innovative programmes and practices.
Engage clients by proving that you understand their issues and have viable options. Every firm needs a toolbox of specific ways to effectively address cost, transparency, efficiency, speed, etc. Your lawyers should readily discuss this with their clients without fear of opening Pandora’s box. The box is open.
Find ways to contribute to your clients’ cost control efforts: participate in evaluation and process design of their potential LPO providers, or help identify which legal administrative aspects of their transactions could be handled within the client’s lines of business. You need to do all this while offering top quality legal advice.
Law firms have done an excellent job again this year of controlling costs. Why not let clients know that you’re focusing on price as well as performance, and demonstrate how you are using your cost efficiencies to bring them new and improved options and alternatives?
Leigh Dance is president of ELD International, a legal services management consultancy.