Law departments in large corporations and some law firms are definitely re-evaluating their relationships, according to an article in the March issue of Inside Counsel magazine. The article <"Feeling the Pinch: How the economic crisis could change your law firm relationships” sets forth succinctly the realities of today’s world.
Even though in-house lawyers in large corporations generally come from large outside law firms, and thus are comfortable with (1) the relationship with BigLaw, and (2) the hourly billing structure. Yet, the downturn in the economy is forcing “change in [this] dysfunctional, even codependent relationship.”
The change won’t come easily, but change will happen because it is being forced upon in-house lawyers via their budgets, and some outside law firms have removed their heads from the sand; albeit too few. Therein, lie the opportunities for smaller firms.
Said opportunities exist because:
- Too few firms are re-evaluating their client relationships. Although a few (approximately 60 out of 500 or so) law firms that service Fortune 1000 companies have improved “relationships with their clients as a result of the downturn,” not enough are doing so;
- Mid-sized firms are well positioned to provide greater value. First, these smaller firms charge for an experienced partner what some large firms charge for a junior associates. Secondly, partners in large firms are departing because they realize they might lose clients due to their firm’s high costs, whereas they can “service the same clients at a more reasonable rate” at a smaller firm;
- Alternative fees are coming into vogue. Although some large firms are finally looking more seriously at such billing alternatives as fixed fees, too many are still reluctant to use them. Why? Because they are “notoriously bad” at managing themselves effectively, which is critical when not charging by the hour;
- High associates salaries are unsustainable. Except in the very top firms, “$160,000 or even $200,000” for new associates is unaffordable for the majority of law firms. Yet, many law firms continue to pay (if they are hiring at all) these high salaries. That is just not sustainable. Maybe that explains why thousands of associates (and staff) have been put out into the cold; and
- Not enough benchmarking. The article reports that some firms are embracing metrics, but again, too few are benchmarking “net effective hourly rate” or “their client satisfaction performance.” These are some of the “proven indicators” looked at in other industries. Many large firms are reluctant to talk with their clients during these difficult times because of fear of what they may hear, smaller firms have the advantage of being naturally closer to their clients, and better able to talk with them about the real world.
So, again I’ll ask the same question I asked in my last post: What are you waiting for? Crank up the marketing. Opportunities should be abundant.