Are Law Firms Strategic Suppliers?

The “news” is that companies are getting better at procuring legal services and starting to wield a heavier hand at negotiating key terms. Like price.

Danny Ertel gives a very complete and nuanced discussion of this topic here. Mr. Ertel notes that negotiating leverage can be both a shield and a sword. Corporate legal departments, so the argument goes, need to exercise care when dealing with their strategic legal providers to act in their long-term interest, not just cutting short-term deals for their own sake.

I think the key here is how you define a “strategic” law firm. Whatever this meant in the past, I think most would agree that any large corporation has some strategic legal relationships, but probably fewer that they had in years past, and maybe trending to a few. Like two. Three or four at the most.

When GCs finally start to look at most legal services as something you can unbundle, in-source, outsource, project manage, or process map, the landscape changes fundamentally. All these factors make costs more transparent and services more discrete (and therefore fungible).

They also “out” the merely good law firms and value only the truly “great” lawyers. In addition, as key partners or practice groups change law firms, what is really a “strategic supplier” anyway?

It’s not like Corning’s Gorilla Glass or Samsung’s RAM and chipsets for Apple’s iPhone. These are unique components backed by massive IP. And just look at how Apple and Samsung are locked in mortal combat (patent infringement litigation) all while they continue with a multi-billion dollar purchaser-supplier relationship.

Do some GCs go too far in procuring legal services? Maybe. Do others push the boundaries of what is a best practice in a strategic purchaser-supplier relationship? Probably. But for each of these, there are probably 100 GCs who are just in the early stages of exploring the wonderful world of purchasing leverage. And it feels mighty nice, thank you very much.

The fact is that many law firms have probably been over-earning on some of their services for years. It’s pay-back time, in a way.

If a law firm is truly “strategic” to sophisticated corporate clients, it is saying “no” to some incentive deals and walking away from the table.

Go for it, strategic relationship partner. Just remember it’s a long way back to the office and there’s a good chance your cellphone will beep along the way.