Now that bonuses, year-end collections, and holiday parties are behind us, it is helpful to remind ourselves (early on in the new year) that it is (paying) clients that make everything possible for Biglaw firms. A few months ago, I was the fortunate recipient of some illuminating correspondence from a Biglaw refugee turned in-house counsel, offering a “customer’s” take on what is both right and wrong with the “current law firm service delivery model.” Because I truly believe in the importance of this column offering an anonymous outlet for informed discussion of Biglaw-related topics (see my posts detailing my conversations with Old School Partner and Jeffrey Lowe), I offered to make my correspondent the resident In-House Insider.
Agreement was not long in coming, together with yet more astute observations about Biglaw. For our initial “discussion,” I have (similarly to how I handled the Lowe interview) added questions and some brief commentary to our Insider’s points, and share this written interview with you. The only changes I made to the Insider’s words were related to their identity, and the Insider was given the opportunity to revise their responses once I added the questions and commentary. I hope we can continue to benefit from this In-House Insider’s perspective in the future. For now, I definitely appreciate when I get contacted by Biglaw-related personalities looking to discuss the issues raised in my column, and share their thoughts with this audience. Without further ado….
AP: What motivated you to contact me?
IHI: For what it’s worth, I think your column on associate bonuses was spot on in terms of identifying the structural issues in the current law firm service delivery model. By way of background, I spent over a decade in Biglaw life (at great firms where I still have many close friends) before moving in-house a couple of years ago (which I always wanted to do and finally got around to doing). I have always been a corporate/transactional lawyer (translation: if I am in court someone is accusing me of something), and while I came up through the traditional Biglaw recruiting/training model (summer associate, associate training, etc…), given the impact of the GFC, never-ending rate increases, globalization of business, and a host of other marketplace dynamics, the law firm model looks quite outdated.
(AP: We ignore these perspectives at our own risk. When our clients think the business model we work within is “outdated,” it really behooves us to at least start thinking about making some fundamental changes. Otherwise, our inertia is simply creating opportunity for others to exploit, and the market has already started to hit Biglaw’s soft underbelly — by basically making it much harder than it used to be to generate outsized profits through inefficiency and premium pricing of non-core services such as copy costs or administrative time. The phenomenon of Biglaw firms utilizing (publicly no less) terms such as “expense control” and “streamlining” to describe their operations is both evidence of today’s challenges and a recent one.)
AP: How are Biglaw’s clients, including your own company, currently relating to their Biglaw firms?
IHI: My company is increasingly focused on the value proposition in our external counsel engagements and even looks to our procurement process to better track and manage costs.I know that we are not alone. I have a pretty good network of in-house folks (old firm colleagues, friends, etc.), and I hear a lot of the same from them. Firm rates outstrip inflation (along with college tuition), so something has to give. Looking to alternative vendors (small firms or Axiom) that can deliver equivalent service for less cost for labor-intensive tasks is part of the answer, keeping more work inside and alternative fee arrangements (more appropriate for litigation than transactional matters but I have had some success on the transactional side too) is another part, stressing efficient handling and staffing of matters through a holdback earned by performance measurement is another tool. All of this (and other tools we employ) work to minimize the agency cost associated with external counsel (which seems an odd concept applied to the attorney-client relationship).
(AP: The Insider’s use of the term “agency cost” to describe how companies view their relationship with outside counsel is interesting. It also put the lie to traditional notions about the sacred nature of the attorney-client relationship, and even Insider acknowledges that it is an “odd concept” to be considering when speaking about one’s own attorneys.
For my part, I ascribe the noticeable erosion of corporate “respect” for Biglaw to, in a large measure, the following two factors. First, the incessant trumpeting by the legal media of the outsized compensation afforded to many Biglaw partners, coupled with the equally incessant raising of rates by Biglaw firms in an effort to increase said partner profits. You simply can’t allow so much focus on “what you are making” to dominate the public discourse and not have sophisticated consumers start to consider metrics such as “agency cost” when they evaluate their relationships with your firm. Second, the insidious perpetuation of an “equality myth” (as in our firm is great at everything, just like our competitors) by Biglaw marketing departments also works to erode customer estimation of the unique quality of your firm’s particular offerings. Elite firms avoid this type of marketing generally, but nearly all of the remainder of the Am Law 200 seems to either be recycling the same batch of marketing “talent,” or otherwise gently colluding to create the impression that all Biglaw firms offer the same “highest-quality” representation as the other on any type of matter.
Biglaw “branding” failures is a topic worth discussing more in the future. But as Insider implies above, clients are less inclined than ever to feel married to their firms.)
AP: How has your prior experience is Biglaw shaped your views?
IHI: Working from the outside now it seems that the scores of associates thrown on a particular project constitute a nuisance cost (and a very significant one) paid for access to the partners that provide key advice to my company. Yet I am a product of that system that allowed me to develop the skills necessary to move in-house. The Biglaw system made me a productive lawyer and I still like to think I delivered value to my clients even in my associate days so it is hard for me to rationalize my thinking on this issue now that I am outside. Ultimately I always sensed that I got far more out of my firm experience (especially from my mentors) than the firm received from the business I generated and hours billed and collected (and my realization on originations and billables was always very good). The system works until it doesn’t anymore and changing market dynamics require participants to adapt. I really think that Axiom and shops like that hit a chord and may move things in the right direction (and I assure you I am not the only one). Our external counsel relationships are very important to our company and we rely on big firms all over the world, but we have limits.
(AP: The points above should be a wake-up call. Hearing that competitors like Axiom have “hit a chord” and that clients have “limits” that Biglaw persists in pushing is something that all Biglaw partners need to hear, and remind themselves of often. “Changing market dynamics” are what we are all living through, and the Axioms of the world are ready and willing to jump in whenever Biglaw forgets about that fact.
We’ll hear more from our In-House Insider next week. In the meantime, feel free to comment below or shoot me an email regarding Insider’s points above….)
Anonymous Partner is a partner at a major law firm. You can reach him by email at [email protected].