By James J. Stapleton, Managing Principal of LEAP Legal
Like many people who work on behalf of in-house legal departments, I started my career with major law firms. Over the past decade, I was responsible for the business development at two very large law firms and business was very, very good. Each firm enjoyed record revenue, growth and profits while I was there.
Which, by the way, remains the case in the legal profession. Law firms are not hurting, though that is the impression they convey. I don’t blame them, it is to their benefit that they convince clients that they are stretched to the economic breaking point. Yet in America, corporate law remains a $100 billion business.
Most profitable enterprises seek greater efficiency to maximize their profits. Law firms benefit from inefficiency. Like any other business, law firms charge the absolute most they can squeeze from their clients. In other words, they benefit from inefficiency by doing as little work for as much fees as is possible. This results in some perverse incentives. Most law firms would claim to pursue superior client service, but many attributes of great client service interfere with a law firm’s ability to generate profits. Many steps taken to build client relationships take time, and all law firms have to sell is their time, so client service and profits can exist at cross-purposes.
From a law firm’s perspective, the more control that the law firm can exert over their client relationship, the better. That control starts from the beginning of the relationship; first, they want to control the potential buyer’s decision, and second, they want to control the manner and extent and costs to which services are provided. The more that a law firm can dictate the terms of the relationship, the greater the degree of control that they can exert over your decision as to which firm to use and to what extent.
To put it bluntly, law firms don’t really want to compete with each other. They would far prefer to be sole-sourced work rather than participate in a competitive process to engage a new client. Therefore, they invest typically between 4% and 14% of their revenue in business development programs in an effort to build relationships with in-house counsel and ideally circumvent or limit a competitive process. In short, they want in-house counsel to select them directly, rather than compete through proposals and presentations. Some law firm partners derisively refer to the competitive process as a “beauty contest.”
As a result of this investment, and due to the pressing need to retain current clients, engage new clients, and cross-sell existing clients, law firms collectively practice and understand law firm selection processes much better than in-house counsel do. Over the course of a year, a large law firm will be party to hundreds if not thousands of client purchasing decisions, far more than an in-house counsel would experience, so law firm partners become very adept at influencing the process. They know how to use in-house counsel to their benefit, they hire consultants to improve their sales, business development and interpersonal capabilities, they employ an army of marketers to promote the firm, they write thought leadership and speak at conferences, they invest in directories, they eagerly pursue awards and list inclusion, they invest in sponsorships and events and webinars and trade organizations and industry groups among many, many other activities. In short, they do everything they can to present themselves to you as the only law firm choice rather than one of an array of choices. When an in-house counsel consciously limits law firm choices, they reduce the likelihood of optimizing the relationship with their law firm.
Read Mr. Stapleton’s subsequent posts titled “How law firms want you to select a new firm and how you should do it” and “The RFP for Outside Counsel“.
James J. Stapleton is the Managing Principal of LEAP Legal. Mr. Stapleton spent several decades building large law firms (Fenwick & West and Littler Mendelson) and large accounting firms (PwC, Arthur Andersen, Grant Thornton) before founding LEAP Legal. LEAP (Legal Effectiveness and Pricing) Legal works with clients to reduce legal fees, optimize relationships with their law firms and streamline their internal legal processes. He can be reached at email@example.com or by telephone at 408.204.6656.