Come gather ’round people
Wherever you roam
And admit that the waters
Around you have grown
And accept it that soon
You’ll be drenched to the bone.
If your time to you
Is worth savin’
Then you better start swimmin’
Or you’ll sink like a stone
For the times they are a-changin’.
— Bob Dylan
I was in-house for more than a quarter of a century and deciding on hiring another in-house attorney or sending work outside was, for the most part, a financial decision. When analyzed in this fashion the answer is simple, especially when you have the CEO and CFO breathing down your neck because you’ve been getting higher than expected hourly bills from your law firm because they failed to use project management disciplines or embrace new technologies to be more efficient in their service delivery. Why would I send traditional work outside when I can hire an inside attorney who understands my business, competitors, threats, and opportunities?
You get the idea.
But, of course, these are not new insights.
The Association of Corporate Counsel (ACC) just issued its 2018 Chief Legal Officer (CLO) survey. The survey found that for the first time in three years, the majority of CLOs surveyed anticipate an increase to their overall budget with 56% reporting they are planning to increase their department’s budget, up from 43% in 2017. The survey also found that one-in-three CLOs reported terminating outside counsel for failing to meet expectations in 2017, and 43% are definitely planning or considering termination of an outside provider or firm in 2018.
While some may surmise that certain companies will use outside counsel more in 2018, there is no doubt that the in-house bar has expanded exponentially over the last 20 years, especially when compared to the growth of the private practice bar. Since 1997, the in-house bar has tripled, as clearly evidenced by the below graph.
What to Do When Your Competition is Your Client
It is truly a difficult and somewhat unusual predicament when your biggest competition is your client. But that is where many law firms find themselves today. And there are many reasons for this, including but not limited to: (i) the increased complexity of regulations and doing business; (ii) the importance of enterprise risk management across the entire organization; (iii) the fact that every business decision has a legal component; and (iv) the need for a high degree of business and human capital knowledge by attorneys representing the company.
But there’s more to this story — cost, budgetary certainty, responsiveness, competition, and service issues are also major factors. One has to wonder if law firms had been more responsive, proactive, price sensitive, and provided better overall client service would they find themselves where they are now? Scrambling for RFPs, discounting fees, buying revenue through laterals and mergers, and watching third-party providers invade their space — it feels like a being punched by several fighters at the same time. Add to that the fact that the legal industry faces a wave of retirements in the very near future and the complexity of these challenges grows.
Law is a Business and It’s Time to Act like One
According to Charles Darwin’s On the Origin of Species, it is not the most intellectual of the species that survives; it is not the strongest that survives; but the species that survives is the one that is able best to adapt and adjust to the changing environment in which it finds itself.
Thus, whether it’s the in-house bar, unbundling disrupters, the Big 4 accounting firms, or outsourced legal providers coming after law firms’ business, it’s time to put to bed the notion that the good old days are coming back any time soon. Sure, the margins are still healthy, and for the unique firms, revenue is keeping pace with inflation, but you cannot deny that just like the publishing, travel, banking, retail and many other industries, law firms must adapt to new market realities. Timeworn solutions are not going to cut it.
To me, the answer lies in a combination of increased operational efficiencies and more proactive client partnerships and service — the elusive “adding real value” that clients want. Law firms are businesses and must operate like it — shedding unproductive assets; using more effective technology; outsourcing non-core functions; and utilizing different personnel, organizational and compensation structures.
Law firms, just like any other professional service firm, need to innovate and provide a level of service and delivery that sets them apart from their competitors. Whether it’s through process improvement, matter efficiency, or spending the necessary resources to be proactive and on-site to become “part of the client’s business”, it has to be done. Only by looking through the client’s eyes can law firms effectively compete in the 21st century.
Corporations are going to fire many of their law firms this year. But corporate clients don’t fire law firms and lawyers that get good results at a fair price and make the clients look good in the process. Client dissatisfaction is usually not due to a lack of legal expertise; it’s primarily due to poor client service or perceived indifference.
With the competition exponentially increasing, and many clients making their selection of firms based on price, the only true differentiator is service. Your experience, firm, capabilities, and responsiveness are minimum requirements today and no longer make you stand out in the market. And just plain-vanilla client satisfaction is not enough either. Today, you need to “engage” the client in a deeper and more intimate way. You have to know their “needs and wants” and be able to address them in a tailored and memorable manner. It’s only through this “total client experience” that you beat the competition and win their business before the client looks elsewhere.
Clients need their law firms to adapt and provide the same level of business discipline demanded of them in running their legal departments. They are no longer going to accept anything less than a lawyer who knows their industry, market, company, situation, people, concerns, and desires. They want you to listen to them, know more about them, understand them, and work with them as a proactive trusted business partner.
If law firms can align to these operational and service issues, the client will never think of leaving because deep down inside they know they’re not going to get this “experience” anywhere else. And the sooner your law firm moves in that direction, the sooner your firm will become indispensable.