Biglaw, Drinking, Food, In-House Counsel, Partner Issues

Inside Straight: On Business Entertainment

Why do firms create large "client entertainment" budgets? In-house columnist Mark Herrmann has some theories.

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Years ago, I knew a lawyer who thought that business entertainment worked. He was a plaintiffs’ personal injury lawyer: “I treat a doctor to a $50 lunch, and the next day he refers a case to me. I make one phone call and settle the case for $9,000, netting a $3,000 fee. And the doctor thinks we’re even! It’s unbelievable! I can’t eat enough lunches!”

Good for him. But does it work for anyone else?

I certainly treated clients to dinners and sporting events in my day, but none of those clients (or prospects) ever hired me in return for that entertainment. I didn’t expect them to, and I’d be terribly disappointed in them if they did. My having treated a guy to a dinner doesn’t make me the best lawyer to handle his case, and he’d be nuts to hire me because the caviar was beluga.

The reverse is also true. Lots of people want to meet me, buy me a meal, or take me to a cricket match (I’m now based in London, remember?) since I’ve gone in-house. A few of the folks who buy me lunch even follow up with e-mails expressing their unhappiness that I haven’t promptly retained them: “Was it something I said? Why haven’t I heard from you, other than the thank you note?”

It was nothing you said. But why should I possibly hire you simply because you bought me lunch?

I have my own theory about why firms create large “client entertainment” budgets . . .

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Client entertainment budgets tend to be controlled by the guys who run the joint. At law firms, that means that the managing partner, partners running offices, and partners running practice groups have cash sloshing around for client entertainment.

Others may also have money available for client entertainment, but that varies wildly by firm. Some firms give their lawyers essentially no money for client entertainment. (I’ve heard that Quinn Emanuel works on this model, and they seem to do okay for themselves: “We pay our partners a ton of cash. If partners know what’s good for them, they probably choose to spend some of that cash on client development.” But the firm, I hear, kicks in very little to pay for client entertainment.)

Other firms, I’ve heard, compel partners to spend some percentage of their personal income every year on client development. The firm thus doesn’t directly pay for client entertainment, but the firm requires that the partners collectively kick in a fair amount to the client development cause. (That actually isn’t a bad way to deal with the issue. After all, as Milton Friedman almost said, “Nobody spends someone else’s money as carefully as he spends his own.”)

But most firms don’t work that way. Most firms have business development budgets, and the person at the helm of one of those budgets becomes a very popular guy. If you want to fly to New York to give a talk, you need the man’s approval. If you want to take a client to dinner, you may need the man’s approval. If you want to take someone to the Yankees game (or a match over at the Marylebone Cricket Club), you need the man’s approval. (Blogging is so educational for me! I learned moments ago, as I created the link to the Marylebone Cricket Club, that the MCC revised the laws of cricket in 1788 and holds the copyright on those laws. I’m gonna be hell on wheels if I ever appear on “Jeopardy!”) So long as the man approves, you (and your guest, and occasionally spouses, too) get a night on the town, courtesy of the firm. What fun!

But if these types of events don’t yield business, why the heck do firms do it?

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I have three guesses. First, maybe I’m wrong. Maybe it’s critically important to develop relationships over meals or sporting events; client entertainment cements those relationships and causes clients to remember you when they’re deciding who to hire; and client entertainment is in fact wonderfully effective.

Second, maybe it’s like an arms race: “All the other firms are inviting clients for gourmet meals and rounds of golf at fancy clubs. I don’t like eating foie gras any more than the next guy, but I have no choice. If I don’t do it, I’ll lose business.”

Or, third, maybe it’s just a way for the guys that run the joints to entertain themselves at firm expense. When mere mortals arrive in L.A., they work. But when one of “the men” arrives in L.A., there’s always an extra ticket to a Dodgers game. And the Redskins in D.C. And the Gunners at Emirates Stadium. Buying loges for a season may be an expensive way of keeping “the men” entertained, but it does guarantee that tickets are always available. The guys who control the budgets can entertain themselves at the firm’s expense, which avoids the tax consequences of first increasing your draw and then paying your own way to dinner.

Why am I such a suspicious guy?

Maybe it’s just my nature. But, years ago, I attended (as a host) a terribly fancy client entertainment event — think along the lines of Wimbledon or The Masters — and was startled to find a “goody bag” waiting for me in my hotel room. (These were quite nice goody bags; my fancy watch still sits in its box in a drawer somewhere.) I understand the concept of giving goody bags to guests; those are, after all, the folks with whom law firms are trying to curry favor. But why would a law firm give goody bags to its own partners? We’re not trying to curry favor with ourselves, and the partners who attend these events (with the exception of me, of course) are typically the most influential (and highly paid) folks in the joint. They’re the people who need free gifts least of all.

What could possibly be going on here?

Oh, wait! Someone has to curry favor with the heavy-hitters at the law firm! And that someone is the event planner — the firm employee or outside vendor who arranged the accommodations, tickets, and fine meals. So one of “the men” at the firm authorized the event, participated in it, had a good time, and received a goody bag to boot, to encourage him to schedule more business development events in the future. The event planner planned well indeed.

I’m sure the marketing guys will systematically expose my ignorance and prejudice in response to this column, telling me that I just don’t understand how the world works. But maybe I do, and maybe the world would work a little better if firms reduced (or eliminated) many of these client entertainment budgets.

If you’ll excuse me now, I have a date over at Twickenham.

Mark Herrmann is the Chief Counsel – Litigation and Global Chief Compliance Officer at Aon, the world’s leading provider of risk management services, insurance and reinsurance brokerage, and human capital and management consulting. He is the author of The Curmudgeon’s Guide to Practicing Law and Inside Straight: Advice About Lawyering, In-House And Out, That Only The Internet Could Provide (affiliate links). You can reach him by email at inhouse@abovethelaw.com.

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