Law firms recovering from fee rate squeezes of the Great Recession are under increasing pressure to add value to their clients’ business
Global corporate law firms have had so many wake-up calls in the years since the recent recession wrought its havoc that senior partners must be feeling starved of sleep. The latest alarm will not have helped.
Some 40 per cent of in-house legal departments at multinational corporations confirm they are reducing their budgets for external legal advice. Just when management committees at the international law firm elite thought they may have come through the worst of fee rate squeezes, rising demand for alternative billing models and an incessant instance on “added value”, it seems that general counsel remain unsatisfied.
According to research, of those general counsel reining in their spending on law firm advice, 75 per cent said they were committed to moving the workload to their own departments. But any private practice commercial lawyers banking on a move in-house if the work starts to evaporate at their law firms should think again. More than a third of general counsel told the researchers that to deal with increasing workloads, they were boosting the number of non-qualified – cheaper – paralegals in their teams.
The survey, conducted by consultancy Altman Weil, focused on the US legal market, but the mood music from America is bound to waft across the Atlantic soon if it hasn’t done so already.
Hard figures about expenditure and moves towards pushing commoditised legal work down the in-house department food chain are sobering enough. But perhaps the most striking note in that mood music emanates from a broader concept of the “value proposition”.
The researchers found a striking perception among leading in-house lawyers that corporate clients are piling pressure on their law firms in general. Some 35 per cent took the view that business was imposing strong or “intense” pressure on external law firms to add value to their services in addition to slashing costs.
That is a difficult conundrum to solve. Many law firms have talked a good game of getting closer to their clients to understand not just the pure black-letter law issues they face, but the commercial and competitive environment in which they operate. Likewise, many have nominated titular “client relationship partners”, who in many cases carry on talking about commercial imperatives, but do little more.
Clients are keen to see law firms demonstrate commitment to their business by embedding lawyers in their legal departments
Others, to be fair, have implemented practical measures. The “easy wins” have been enhanced and direct communication, such as regular client e-mail briefing notes in specific areas of law providing nuts-and-bolts analysis of recent judgments, and legislative and regulatory changes are a welcome addition.
Combined with those e-briefings have been regular programmes of face-to-face seminars for clients in which whole teams of private practice lawyers offer legal update presentations and discussions of varying degrees of practical value and entertainment.
So far so easy. While producing client briefings and seminars eats up resources in terms of opportunity costs – any time off the billable hour clock in the historic law firm business model is deemed as lost cash – those activities are ultimately relatively easy to offer. More difficult is the next step up the value ladder – secondments. Clients are keen to see law firms demonstrate commitment to their business by embedding lawyers in their legal departments.
That can be a big ask. Seconding trainee solicitors to a client for one of their six-month seats is all well and good, but trainees, by dint of their inexperience, can be more of a burden than a blessing.
Clients want junior associate secondees at least, preferably senior associates and ideally actual partners. That sort of demand presents significant resource and economic “challenges” for law firms. Those that have actually embedded a top-level partner in a client’s legal department for anything more than a fortnight or so are rare birds indeed.
But perhaps the nirvana of law firm added-value to in-house legal departments involves the sort of activity that until only a few years ago would have been the preserve of clipboard-toting boffins rather than pinstriped lawyers – data analytics.
Essentially, the concept is this: historically lawyers have been reluctant to describe or even acknowledge that much of what they do involves a process. Not everything lawyers turn their hands to involves intellectual magic and inspirational genius.
Deal transactions provide a case in point. There are many elements of the process that when analysed can be pushed either to outsourced providers of commoditised services or to an in-house team of paralegals. And as sacrilegious as litigation lawyers will maintain this suggestion is, even elements of contentious claims can be broken down into predictable patterns and processes.
The zeitgeist phrase is “process maps” – schematics that illustrate in clear language the scoping of a project or deal, the number of people and level of seniority required, the risks involved, and how the matter should be priced. The core elements in arriving at the map are the raw data, and the technology to harvest and interpret it.
Law firms that can compile data on those processes, and illustrate how that analysis will benefit corporate legal departments and ultimately their bosses’ bottom lines are the firms where the partners might finally get a good night’s sleep.