It is a buyer's market for legal services. Yet, there remain many glaring deficits in the delivery of legal services that we have not remedied. To address these faults, we need to incent outside counsel to work differently, set clear expectations for what we want, and work collaboratively to ensure execution.
Recent surveys show that inside counsel seem satisfied with the quality of their people. Most inside counsel respect the legal acumen of outside counsel. We also seem satisfied with the price. Most inside counsel are content with the deep discounts they’ve negotiated or the alternative fee arrangements they’ve entered into. With the people and pricing in place, the problems linger in the process by which legal services are delivered.
As evidenced in both opinion surveys and plummeting realization rates, inside counsel want outside counsel to be more efficient, innovative, tech-savvy, proactive, cost-effective, etc.
So why aren't things changing? Law firms rarely get credit for innovation. They rarely realize a return on their investment in process and technology because clients don't pay attention. What is the fiscal impetus for funding project management, knowledge management or technology acquisition when the law department is still going to demand the same discount or invoice reductions? Indeed, the 2015 Altman Weil law firm survey opens with the observation that “The number one reason law firms aren't changing more, chosen by 63 percent of law firm leaders, is ‘Clients aren't asking for it.’”
We aren't asking for it. We make vague complaints about how legal services are delivered, but we rarely set concrete expectations as to how services should be delivered. Even when we communicate concrete expectations, we rarely take them seriously. A good example comes from pricing. Considerable ink has been devoted to the evils of the billable hour, and a large percentage of corporations use alternative arrangements for some work. Yet, the most recent analysis we’ve seen suggests that alternative fees only account for 9 percent of total corporate legal spend. Even if the number is twice that, it comports with the endless anecdotes from law firms about clients requiring alternative fee proposals and then using the proposals as an opportunity to ask for yet another discount on the standard billable rate. It's a game. Firms raise rates, clients ask for deeper discounts. Firms increase the number of hours billed, clients slash realizations. This game affects a strategically vital relationship.
We can reduce the level of antagonism while being more active in managing our firms. We can reduce costs and improve quality while firms enjoy higher realizations and superior profitability. We, however, have to get away from throwing work over the wall, firms throwing it back, having a minor skirmish a few months later when the invoice arrives and a larger battle every year when it is time to review rates. We need to break down the wall, gain visibility into how the work is being handled on both sides, and then collaborate to improve the overall delivery of legal services.
An in-depth review of how the sausage gets made will identify opportunities for improvement. A properly structured dialogue should not only identify the problems, but also lay out the path to improvement, including concrete deliverables, timelines and measurable results. Instead of saying “be more efficient,” we need to work in concert to identify specific ways to be more efficient.
Law firms are easy targets. But law departments are the largest impediment to change in the legal marketplace. We set the incentives. Right now, the incentives are not structured in a way that satisfies us, let alone the ultimate client. It is our responsibility to change the game. Law firms will play along.
Part 2 of this column will begin to lay out specific opportunities and mechanisms for improvement, focusing first on low-risk, low-complexity, high-impact initiatives.