Biglaw, Boutique Law Firms, General Counsel, In-House Counsel, Magic Circle, Small Law Firms

General Counsel Increasingly Dumping The Top Biglaw Firms

When smaller firms offer such a tremendous cost advantage over Biglaw, general counsel are making the move to lean and mean.

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Historically, the elite Biglaw firms derived safety and security from the knowledge that they could depend on big fees from large institutional clients. After all, where would the big dogs feel confident sending their legal work if not to a giant, white-shoe firm, with a complete support staff and the cream of the law school graduating crop? It encouraged behemoth firms and no small amount of complacency.

No one doubts that we’ve entered a new normal and that Growth Is Dead (affiliate link), but a new study confirms that there’s even more bad news for the top Biglaw firms: GCs simply don’t want them any more…

That’s what a new survey by AdvanceLaw cited in the Harvard Business Review suggests. After talking to the general counsel of 88 teeny-tiny companies like Lenovo, Vanguard, Shell, Google, NIKE, Walgreens, Dell, eBay, RBC, Panasonic, Nestle, Progressive, Starwood, Intel, and Deutsche Bank, the survey found that 74 percent of GCs would be much more likely to choose a less-pedigreed firm for high-stakes litigation over a more-pedigreed firm (defined as Am Law 20 or Magic Circle) if the difference in cost was 30 percent or more:

That 74% of GCs preferred the less pedigreed firm under the circumstances described in question 1 reaffirms that clients are becoming more and more comfortable with using a wider range of firms. Moreover, in the U.S., the current cost premium for an AmLaw 20 firm relative to, say, an AmLaw 150 or 200 firm is typically far more than 30%. Factoring in lower hourly rates as well as the greater efficiency most clients say the other firms deliver, we are likely talking about an overall cost premium in the 60+% range.

Some things in life are worth a 60-percent cost premium. One is sushi. But when it comes to choosing lawyers to push your case through the courts, there’s not much reason to pay more when talented, often highly pedigreed lawyers populate the smaller shops.

And the exodus described by the survey is traceable in revenues:

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This AdvanceLaw survey suggests that clients are serious about moving high-stakes work away from the most pedigreed (and expensive) law firms. So, are white shoe firms feeling the impact of this mindset change? When we examined revenue per lawyer (a proxy for a law firm’s ability to command a price premium) across a sample of firms, we found that growth was highest among non-pedigreed firms. Our sample of 15 especially highly reputed firms (including the likes of Cravath, Skadden, and Sullivan) experienced an average increase of only 2.9% in revenue per lawyer over the 5-year period from 2007-12. In comparison, a sample of 15 smaller, comparatively less known firms posted average growth in revenue per lawyer of 12.7% in the same period.

As the authors of the Harvard Business Review piece note, Biglaw firms have the capacity to adapt to the changing business environment. The question now is if they will do it… and if they’ll do it soon enough.

Why Law Firm Pedigree May Be a Thing of the Past [Harvard Business Review]
GCs Looking Past Law Firm Pedigree [Corporate Counsel]

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