Is bigger really better? Supersized law firms generate skepticism

Large firms are merging to create even larger firms, even as midsize firms are seeing more big-ticket legislation

We’ve all heard the saying: “Bigger isn’t always better.” And that can often be the case.

An outbreak of so-called mega-mergers of already supersized law firms is generating skepticism among senior legal officers within the Fortune 100, according to a recent Wall Street Journal report.

For example, Robert Weber, general counsel for IBM Corp., told the Journal he questions the value massive law firms offer their clients. “I’m pretty skeptical about the value these big mergers give to clients,” Weber said.

One such example can be found in Dentons and U.S. firm McKenna Long & Aldridge, which are expected to vote on a merger that would create one of the top three global law firms by head count, resulting in a mega-firm of more than 3,000 lawyers. Dentons currently has about 2,500 lawyers in 75 locations in more than 50 countries. McKenna Long has about 575 lawyers, almost all of are in the U.S.

The benefits of mergers with competing law firms comes down to increasing revenue and yielding savings on the expense side, however, when it comes to hiring outside counsel, general counsel say they hire lawyers, not law firms.

“By and large, the lens I use is reputation... and the talent of the specific lawyer,” Thomas Moriarty, general counsel at CVS Caremark Corp., told the Journal.

General counsel do consider jurisdiction when selecting which firm to hire, according to a recent poll of 71 companies by Huron Legal, though subject matter expertise carries the most weight. Size mattered least, earning a rating of 1.48 on a scale of 1 to 3 (three being the most important).

The study also found that over the next 12 months, the majority of respondents expect legal spend to increase (41 percent) or stay the same (34 percent). The greatest percent of respondents predicting an increase (65 percent) were those whose companies had more than $10 billion in revenue.

As the stakes get higher, GCs and law departments will be further pressed to show their value while cutting costs wherever possible, according to Joy Saphla, managing director and Huron Legal’s Advisory services leader. 

“The industry has experienced profound change and the stakes are exceptionally high for law departments. Law departments must continuously demonstrate their value while at the same time controlling or lowering costs,” Saphla said.

In a related study, as more organizations look to cut costs when it comes to litigation, smaller firms are starting to get a bigger piece of lucrative corporate work as general counsel become savvier shoppers.

In fact, over the past three years, midsize law firms with 201 to 500 lawyers have nearly doubled their share of big-ticket litigation. The figure has risen to 41 percent from 22 percent of the work that generates more than $1 million in legal bills, based on the results of a new LexisNexis CounselLink report, “Enterprise Legal Management Trends.

One of the key trends driving this shift is the percentage of legal work a client provides to its top 10 law firms – 57 percent of companies surveyed have 10 or fewer firms accounting for at least 80 percent of outside legal fees. Another factor driving this trend is the frequency in which so-called large-enough firms offer alternative fee arrangements (AFAs) to their clients relative to the frequency with which the largest 50 offer AFAs.

 

For other stories related to law firms and law departments, check out InsideCounsel’s coverage below:

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