General counsel all over the world are steeling themselves for what seemingly has become an annual rite at the beginning of every year: the announcement of law firm billing rate increases. We know they are coming and believe they will be substantial. At the outset of the fall recruiting season, law firms announced hefty increases in starting salaries for entering associates. We also saw legal publications boast record utilization rates, margins and profits-per-partner for the major firms. The rate increases cannot be far behind.
As general counsel, we are all under constant pressure to control costs, while maintaining and improving the quality of the legal services we deliver. Doing so during a time of major profit growth by our outside counsel is quite a challenge.
At Chevron, we have worked very hard to build effective partnerships with outside counsel, and we want our firms to be prosperous. The current market environment is very favorable to law firms and rates are increasing far faster than we as clients would like to see. It is simple economics that demand curves slope downward and rate increases cause demand to moderate until pricing discipline is regained. That is exactly what we are seeing in the legal market today, as companies try to manage their demand for law firm services in direct response to rapidly escalating billing rates.