Lawyers, Law Firms, And A Sophisticated Buyer

Editor’s Note: The author of this post is the founder and CEO of Legal Mosaic, a strategic consulting firm and a regular contributor to Big Law Business.

By Mark Cohen, Chief Executive Officer, Legalmosaic

“What’s your biggest professional challenge?” I asked. There was a momentary silence. Then my friend, who runs the global legal portfolio of a Fortune 50 company, responded, “I wish I could hire certain lawyers without having to retain their firms.”

That answer says a great deal. True, one buyer a market does not make. But my friend isn’t justanybuyer of legal services. He is a savvy, thoughtful legal consumer, a former law firm litigator turned in-house attorney who oversees his company’s legal matters across about 150 countries and multiple business units. He also has one of the largest legal budgets on the planet.

“I don’t mind paying the senior lawyer his or her rate,” he continued, “but I don’t like the cost that comes with it.” The cost, of course, refers to the supporting lawyers and their sky-high rates necessary to prop up profit-per-partner and the traditional law firm partnership structure. This begs the question: if lawyers — not law firms — are the key, what is the future of law firms as we know them?

It’s The Lawyer, Not The Law Firm

“So you hire certain lawyers for their judgment and expertise,” I said, “and you would prefer to have the support work going elsewhere? I guess that means that in your estimation the supporting law firm cast and infrastructure do not drive the same value as your go-to lawyer?”

“Right, I don’t hire law firms except in rare instances where I need one of a handful of them who have distinct brands. And we both know there are only a handful of those globally. I hire individual lawyers-the firm is incidental and, frankly, something I factor into the cost of hiring the lawyer I want.”

We proceeded to billing rates. There, it’s all about the matter complexity and/or novelty and the number of lawyers who can do the job capably.

“In bet–the-company cases,” my friend pointed out, “ a handful of lawyers might be equipped to do the job well, and, so, they command high fees. And I don’t quibble over those fees. Then there are my lawyers who handle less complicated, more routine matters — the legal equivalent of doctors conducting routine physicals. Their judgment is important too, but there are more of them who can do the job and, so, I pay them commensurately lower fees. Each category of lawyer is important; their value is determined by their scarcity.”

“So it’s a numbers game with lawyers who can do the job,” I said. “You choose from a group of lawyers whose expertise and judgment you trust, and you pay them by the value that type of work has for you.” He agreed.

“So let’s return to the firm and the value it drives,” I said.

“Not much in most instances,” he said, “if I had my way I would hire a particular lawyer and then tap into a network of support lawyers who would work under her/his direction — and at substantially lower rates that are more in line with the value I perceive they deliver to the tasks they are performing. I don’t ascribe much value to most firms, especially those whose only common denominators are name and high billing rates.”

The days of “for services rendered” are over. Likewise, disaggregation of many legal tasks — and the “productizing” of others have challenged the traditional assumption that law firms and their expensive structures are necessary to handle legal work. Witness the steady growth of in-house legal departments, the success of legal service providers, and the proliferation of legal technology companies.

Most Law Firm Brands are Undifferentiated and Overrated

So what does that say about law firm brands? “It’s not very important to me,” my friend said, “because as far as I’m concerned, I need expertise and an understanding of my business — that comes from individual lawyers, not from a brand.”

He went on to say that even with his global portfolio, the geographical presence of a firm is only as important as the individual attorneys in the locations where he needs them “unless it’s a tie-breaker where there is a good lawyer in the firm I’m using and another one outside of that firm. Otherwise, I will go with lawyers I have confidence in even if it involves retaining different firms.”

The takeaway is that law firm brands are not as important as many think. In fact, when I suggested that some Swiss vereins lack the uniformity of quality and delivery consistency of franchises, he readily agreed. “I don’t see much value in those firms that become global by acquisition. I could sooner see using a top-notch legal network of superb lawyers operating on a common technology platform — that would be ideal.”

So perhaps bigger is not necessarily better, especially from the client perspective. It’s not the size or brand of the firm that seems to matter most, but the level of lawyer expertise and a record of sound judgment. Perhaps law firms — like medical centers — should focus on specific areas of excellence across geographies rather than attempt to be all practice areas in all locales to secure clients. And while we’re at it, firm focus on profit-per-partner should take a backseat to client satisfaction. Brands are built on client satisfaction over time, not short term profit maximization.

What’s The Message?

There are too many high-priced lawyers vying for a dwindling supply of outsourced corporate legal work. And they are too expensive — save for those lawyers who are performing the critical judgment work-while operating within the traditional law firm structure. Already, law firms are experiencing changes in their hierarchical models brought on by client resistance to the rates charged by “support” lawyers (those not exercising judgment and performing more routine tasks). Those lawyers are valuable, but their value increasingly is challenged by clients when delivered from large law firms.

This presents great opportunities for creative lawyers to harness collaborative technology to deliver services on a more client-centric, transparent and value-driven basis. Some are already starting to do so, chipping away at BigLaw’s hegemony over outsourced corporate legal business. And, until those new providers achieve greater market penetration, in-house legal departments will continue to grow.

Think this is all theoretical fluff? I was privy to a recent bid process involving an AmLaw 100 firm and a fledgling legal service provider vying for a portfolio of contract work. The law firm made an “aggressive” $600,000 fixed-price bid ; the service provider bid $70,000 — at what I later learned was a thirty-five percent margin. The service provider got the work, and the client was pleased by the job, noting its effective use of legal and technological resources and its capture of data for future use.

Message to law firms: it’s not about the firm structure or brand much longer, especially for matters — or portfolios — that do not require a high degree of specialized expertise or significant judgment. And for those that do, sophisticated clients are beginning to insist upon a supply chain rather than a law firm doing all the work internally.

Again, this presents opportunities for lawyers — and entrepreneurs — to harness “support” legal talent and to deploy them in more cost-effective structures. Then too, more corporate lawyers might consider taking their talents to the underserved retail market where there are millions of potential paying clients who simply cannot afford law firm rates, whether those firms are large or small. Freed of the traditional law firm structure, lawyers can do more for less — without compromising client and increasing client satisfaction.

Conclusion

Lawyers can and should collaborate. But they need not necessarily do so in the traditional law firm structure that is sustained by various forms of leverage. Technology now exists that enables lawyers to collaborate seamlessly and effortlessly without the need to work in large — or even smaller firms. And that is not to mention legal service providers who often perform the same tasks as law firms but in corporate structures that are more client-centric and drive down cost significantly.

Lawyers are not going out of business. And certainly the handful of brand differentiated firms are not, either.

But the business of law is changing quickly. A harsh light is being cast on the utility and necessity of the traditional law firm structure. After all, clients hire lawyers, not law firms.