Two interesting comments on the issue of rising law firm rates caught my eye this morning.
These items are from an article in The Legal Intelligencer about increases in key financial indicators at the Dechert law firm.
In the excerpts, “Smith” is Lisa R. Smith of consulting firm Hildebrandt International, and “Levin” is Alisa F. Levin of Greene Levin Snyder Legal Search Group in New York.
Here they are:
— Smith said that in talking to law firm clients, rates are only a part of the equation. For the sophisticated clients who are bringing in the high-end work, it is understood that the end result and the approach to handling the case in terms of staffing and use of technology are ultimately going to have a big effect on the overall cost.
— Levin said that if firms want to stay competitive in the New York market particularly, they will have to pay competitively and that may mean rate increases.
I think both of these are earnest reactions to a reporter’s questions about rising billing rates. I also think both are a bit of wishful thinking.
As the article notes, one Dechert client, Wyeth, may be concerned about rate increases that allegedly approach 20%. Technology and staffing alone will not make up for that sort of increase. I can guarantee that the Wyeth outside legal budget did not increase 20% from 2006 to 2007.
Then there is the oft-cited justification of rate increases as needed to fund the war for talent, particularly in New York. If this is true, and already high New York rates are going higher, then New York firms are going to price themselves out of all but the highest margin work. Put another way, is there really enough private equity, M&A and white collar defense work to go around? Mr. Spitzer is now governor, after all.
Law firms should charge whatever their services are worth. Many apparently charge whatever they can get. In the short run, all is fine, and the financial metrics show a nice positive pop.
But the long tail on rising firm rates is yet to be felt by many firms. Most clients have many options when it comes to legal counsel for all but the most unique of matters.
Just because a client is paying the new rates doesn’t mean it isn’t looking at alternatives.
As they say in the jungle: “It’s quiet. Too quiet.”