Legal Industry: On The Fraught Relationship Between Short-Term Costs and Long-Term Change

August 4, 2014

wood block bar graph (art)As any attorney will tell you, Large Law clients are pushing their firms for discounts, and since the market remains quite tight in many areas, they often get them.

The immediate effect of this is usually short-term cost-cutting by Large Law firms; in order to recoup the money they lose by giving clients a discounted rate, they trim costs here and there elsewhere. In some cases, those “trims” actually start to become painful cuts.

Interestingly enough, the long-term effect of offering discounted rates could be a resistance to the sort of change that might produce what clients want – more efficient, more cost-effective legal service.

Toby Brown put it well in a post over at Three Geeks and a Law. To condense his thoughts, he pointed out that when clients push their firms for cheaper service, it does not have much effect beyond the matter at hand. In fact, it may actually prompt firms to raise their rates, so that the “discounted rate” they offer a client is actually the rate they would have charged all along. So, asking for a discounted rate is a temporary fix, but not a driver of lasting alterations to a business model, and since those alterations are not happening, law firms are not positioning themselves (or being positioned) to offer up what clients really need.

Instead of asking for a discounted rate, Brown thinks clients should push their firms for change. In a way, it is difficult to see that happening, since it asks clients to forego immediate savings on legal spend in the interest of possible, less-expensive legal service in the long run. If clients were to ask their firms for change, though, what might they ask for?

  • More significant acceptance of technology: Lawyers have a reputation for being slow to incorporate technology into their practices. In part, this is because they see their legal knowledge and expertise as the assets clients seek, and do not see technological savvy as valuable. This is unfortunate, because clients understand that technology often fosters quicker, less expensive ways of completing tasks. If attorneys could understand the ways in which technology helps them practice law, and helps the benefit of their legal acumen flow to clients more easily, it might be a different story. But whose responsibility is it to foster that viewpoint? The client? The firm? Both?
  • Forecasting: General counsels do not want to move from putting out fire to putting out fire, so to speak. A law firm that can help them develop a reasonable outlook for legal matters would be a valuable partner indeed. Having a sense of what may unfold in the future would mean a general counsel could generate a better-informed departmental plan and budget, and would make emergency spending or overages less likely. The ability to offer such a forecast is closely linked to technology, of course, but it also requires a forward-thinking, consultative attitude on the part of a law firm.
  • An alternative to hourly billing: As we noted in a previous post, 58 percent of general counsel who responded to Consero Group’s General Counsel Data Survey said they used alternative fee arrangements when sending work to outside counsel. The predictability of this pricing model makes it likely to only increase in popularity in the near future. Hourly billing has long been standard at law firms, but those outfits that resist any other approach to billing risk alienating clients who are not nearly as enamored with this model as law firms are.