Upon first glance, this headline from a story in the Phoenix Business Journal would appear to give managing partners some reason for cheer:
A return to the Continental Bank strategy of the 1980’s?
Probably not. After a closer look, you see that what law departments are doing is to cut costs. To be fair, the author quotes a survey from last year that showed budget strategies included:
.. a reduction of noncore spending in areas such as travel, meetings and training. Legal staff compensation also has been impacted by salary freezes or minimal increases.
While those strategies included headcount reductions over the last 18 months, most companies are still focusing on finding cost cuts outside, especially with their external law firms. Richard Susskind noted last week that London-based companies are looking for substantial savings:
…many general counsel say that they are under pressure from their boards to cut legal budgets severely from between 20 to 40 per cent. Naturally, they are turning to their law firms to ask them to rethink their hourly rates and charging models.
It’s clear to anyone who has managed the budget of a law department that 20%+ percent cuts don’t come just from cutting back on travel and training. And beyond a certain point, cutting internal headcount garners only short-term savings, allowing some work to migrate back outside, and impacting risk control and compliance efforts.
So is there good news for law firms?
Yes, in the sense that most GCs are probably more open to new ways of doing things, at lower unit costs. This includes approaches from firms other than their current incumbents.
No, in the sense that “same wine, different bottle” probably won’t get past round one and onto the short list.