Last time, we took a revisionist look at the history of the general counsel. This was provoked by recent commentary about growth challenges for large law firms from Bruce MacEwen (the latest installment is here).
To look at legal demand from the inside out, I see 7 main reasons it’s trending lower:
1. The economy. This is often cited as reason #1 by law firm managing partners. It’s true, but it’s more correlation than causation. Forward-thinking general counsel had been taking a scalpel to outside services costs for years.
2. Global competition. Bruce talks about this as “Economy I,” the competitive one that almost all clients operate in. He notes that many large law firms think that they can trundle along in “Economy II.” This has little competition because it’s typically governmental entities insulated from the back of the invisible hand of one Mr. Adam Smith.
3. More alternative providers. Look no further than the special Deal Book section in today’s New York Times. The lead article by Andrew Ross Sorkin focuses on one such provider, Axiom. It’s a very positive view of Axiom, which deserves it. One small note is that the lay reader may think Mr. Sorkin is referring to a new-age “law firm.” Axiom expressly disclaims that it is one here. The good news is that its customers know this and like it.
4. Pricing transparency. More buyers of legal services are not just aware of high costs, but informed of how Firm X compares with Firm Y and how Lawyer Z compares with both. Sky Analytics is one company offering corporate counsel data and a decision tool to shine a light on the formerly dark art of lawyer selection and law firm pricing.
5. Uneven quality. One reality for very large law firms is the difficulty that clients have in paying top rates for any one of a 1,000-plus lawyers. True, you can have 1,000 very good lawyers, maybe 200 great ones. But all cross-sold as a fungible “branded” product? It costs a firm as much to deploy David Boies as it does to deploy one of David’s Boys. (Coincidentally, the New York Times covers the saga of Cravath in today’s paper here).
6. The Convergence Myth. There was a time when general counsel were told to consolidate most work with a small number of law firms. While there were some efficiencies in many cases, it’s more of a transitional tactic than a long-term, stand-alone strategy. If you ask a large law firm to manage a lot of matters for you, you better have a lot of confidence in the partner whom you call first when things go awry. Today, any efforts toward “convergence” would have to include a number of alternative providers, operating under alternative billing structures. And just who manages them?
7. The in-house mindset. As I mentioned last time, the early-stage GC was in triage mode, just trying to make sure all the work got done, and hopefully most of it done right. Today, more sophisticated law departments of any size aren’t trying to farm work out to large law firms in the first instance. They are trying to do it inside, do it cheaper without high-cost law firms, automate it, or (heaven forbid) not do it at all. I once likened legal fees to “hazardous waste” and I think that still holds.
So one take-away for many large law firms is this: when they try to do things that used to be effective in (a) getting more work and (b) charging more for it, they will hear a dead silence on the other end of the telephone. And maybe find that their next call goes straight to voicemail.
John Maynard Keynes said fighting a recession with monetary policy is like pushing on a piece of string. Many large law firm managing partners are seeing something very similar. Working with today’s informed general counsel is more like a tug-of-war.
On Thursday, a look a what new some of these new service models may mean for certain old law firms.