As the train of the economy persists in a sluggish chug, business clients continue to shrink their legal budgets, and corporate counsel clamor for their outside law firms to offer alternative fee arrangements, effective project management, and higher value. To help attorneys and legal marketers stay on track, the Legal Marketing Association’s Metro Philadelphia Chapter (LMA MPC) held a lively CLE with a panel including general counsel from a major health insurer and a Fortune 500 telecom, along with the Web service director of LexisNexis, information provider for the legal industry and the chapter’s 2011 platinum sponsor.
Moderated by the CMO of Drinker Biddle & Reath, the panel gave candid opinions and insights on how today’s in-house counsel choose outside counsel, and on the emerging character of tomorrow’s successful law firms. From the perspective of corporate counsel, prospective outside counsel who stand out from the crowd show success and skill in both:
- The areas of law needed for a particular matter; and
- Alternative fee arrangements and project management—to increase firm efficiency and client value.
Are We in the Final Days of the Billable Hour?
Under the traditional billable hour, it is in a client’s interest for the number of hours worked on a matter to be minimized, while it is in a law firm’s interest for hours to be maximized. As the billable hour puts interests of client and law firm at odds, it was near the end of its useful life even before the current economic downturn.
Today’s calls for alternative fee arrangements (AFAs) come from in-house counsels’ desire to realign client and firm interests. The true challenge is: How to set up an AFA so that a law firm shares financial risk with the client for cost overruns and inefficiency?
It is easier to find good AFAs—benefiting both firm and client—for routine and high-volume work. The Holy Grail, however, is finding good AFAs for unique and complex matters. Many inside and outside counsel, as well as legal marketers and business developers, are trying to develop workable AFAs that could replace the billable hour to the mutual benefit of firm and client. One thing is certain: In whatever form this AFA takes, it will only work in a relationship of trust.
Clients want a true partnership with their outside law firms—not a service arrangement. They want to work with outside counsel who “have skin in the game”: who are invested in the client’s interests; who will work to try to stay within budget; but it they cannot stay within budget, will share some financial responsibility.
The Disconnect
Inside Counsel’s annual survey of general counsel has revealed that outside counsel’s self-perceptions and their clients’ perceptions of them are almost laughably out of kilter. For example, more than 73 percent of GCs believed their outside counsel were not actively seeking ways to reduce costs, while 76 percent of outside counsel believed they were doing everything feasible to reduce costs. Similarly, BTI Consulting Group’s research has found that 85 percent of law firm self-perceptions did not match the market’s opinions. Why this disconnect? The LMA panelists said it is because outside counsel need to truly and deeply listen.
Outside counsel, the panelists said, need to stop assuming they know what a client wants, to listen all the time, and to ask: “Where do we want to go? What would you consider a win?” If clients have not been specific about strategies, their lawyers must ask. There is a real risk when outside counsel are spending most of their interactions talking rather than listening. While clients value their lawyers’ expertise, they do not want them to charge ahead with the conversation. Again, clients want to be listened to, and they do not want surprises.
How Do You Win and Keep Clients?
Do loyalty and longevity of relationships still count to clients these days? The panel emphatically said yes. They want to partner with their law firms—with both going the extra mile—and not jump to another firm simply for a lower price.
So how does a firm make it to favored status? After getting in the door, a newcomer would need to develop a true partnership with a client, deeply learn the company, be invested in what the company does, and communicate well.
And how does a firm lose its client? Bad results, cost overruns, and surprises: in other words, making in-house counsel look bad.
The LMA seminar also included an overview of BTI’s new report, How Clients Hire: The Role of Legal Directories and Online Lawyer Profiles. The quality of law firm websites and especially their attorney bios is critical to catch clients’ interest. Corporate counsel want to find lawyers with particular skills and with experience in particular localities—and with Web bios demonstrated this in excellent case studies and representative matters. The panelists confirmed that a firm's social-media activity and mission statements matter little. When in-house counsel search for lawyers, they first look for recommendations and then research the Web bios. There they ought to find lots of information in an easy layout, to validate attorneys’ credentials.
What is the truth behind the oft-heard saying, “Clients hire attorneys, not law firms”? This quote is a reaction to the trend about 25 years ago of firms positioning themselves as “full-service. ” In-house counsel, however, know that no firm is truly full-service, or truly national or global, and they will not use a favorite firm for everything. One general counsel said he asks new firms that are pitching, “Don’t tell me you’re best at everything—what are your two or three best groups?” The correct place for cross-selling is in recommending fellow practice groups that are truly strong.
In summation:
- This is what stays the same: While nearly all corporations' in-house counsel are dealing with shrinking legal budgets, for their most complex legal matters they will always need the best outside counsel.
- And this is what changes the game: In-house counsel want a new way for law firms to operate and be paid that rewards outside counsel for efficiency and value.
Richard Alonso is a member of LMA.