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Perspective: Are Law Firms Just Like Other Vendors?

March 23, 2016, 3:39 PM

Editor’s Note: The author of this post is the founder and CEO of Legal Mosaic, a strategic consulting firm.

By Mark Cohen, Chief Executive Officer, Legalmosaic

I recently spoke at a Legal Procurement conference where the topic was “Managing Relationships.” My takeaway: providers want to know how to close business and buyers want more for less – and know they can get it. It’s a jungle out there.

Has legal buy and sell devolved from a trusted advisor to vendor dynamic? Is there a “relationship” component left? Before answering, let’s consider briefly how and why we got here.

The Way We Were

Legal practice – what lawyers do – has not changed much. But legal delivery – who bundles the work and from what model – is undergoing a tectonic shift. Technology, the global financial crisis, and regulatory changes are key factors that have fueled disaggregation (a/k/a “unbundling”) of legal services, ushered in new providers, and spawned a legal supply chain.

It used to be so simple. Law firms were “in relationships” with (much smaller) in-house legal departments. Firms sold legal expertise. Period. There was usually plenty of work to go around, and budgets were virtually unheard of. The best lawyers — and their firms — became “trusted advisers.” There was little turnover in firms, especially in the partnership ranks.

Partnership was the law firm equivalent of tenure. Firms retained and groomed the next generation of talent on the promise that “some day this could all be yours.” Clients seldom switched firms. Neither did lawyers. And if they moved, it was for a stint in a client’s in-house department, then back to the firm.

There was stability and loyalty on the buy and sell sides. And lawyers sold to other lawyers they knew well. It was clubby, collegial, and stable.

Welcome To The Jungle

That dynamic has changed dramatically in recent years. A major reason is because legal delivery is now a triad involving legal expertise, technology, and process management. Law firms remain strong in legal expertise, but they are generally laggards in technology and process. And they are no longer the only game in town. In-house departments have mushroomed, service providers have proliferated, and the Big Four and consultancies are poised to capture greater market share.

This has caused fraying of “relationships” between law firms and clients. Not only are there alternatives to law firms, but also, those options – especially elite service providers – are “better, cheaper, and faster” than firms handling tasks dependent upon technology and process. Also, procurement and other “non-lawyers” have a seat at the buy side table. This means that lawyers no longer sell exclusively to lawyers.

Service providers’ DNA differs from law firms; they are all about technology and process and can invest in it because they can assume institutional investment. They have corporate structures and are not burdened by cost inflators like “partner share” (PPP) and expensive real estate. Their market share is increasing rapidly and migrating up the complexity chain.

On the buyer side, the C-Suite recognizes that lawyers are usually not the best judges of technology and process buying. And so CFO’s, procurement, CIO’s, and other “non-lawyers” now participate with in-house counsel in vetting and selection of outsourced legal work.

Legal delivery is a bazaar with multiple buyers and sellers. To borrow from Facebook, “it’s complicated” when it comes to characterizing the relationship status between legal buyers and sellers.

Engagements closed over rounds of golf and glasses of scotch have been replaced by RFP’s and reverse auctions. And law firms routinely work with one or more “subs” (read: other law firms and/or providers), especially on larger matters.

Meanwhile, in-house departments have grown in size, internal capability, and influence. In an economic sense, they are competitors of the firms they “partner” with.

It’s a tough time to be a law firm with a traditional partnership model.

Transactional or Relationship Strategy?

Many signs indicate legal buying has become transactional. A recent Association of Corporate Counsel (ACC) survey conducted among corporate Chief Legal Officers (CLO’s) found that nearly 60 percent use RFP’s regularly, and this includes significant matters. And while it’s one thing to use RFP’s to vet vendors for high-volume/low-value work, it’s quite another in high value matters. What does this say about “relationship building?” It’s difficult to create a sense of loyalty and to foster a “relationship” under these circumstances. Then again, with partners moving around so much, there’s little loyaltywithinfirms — much less to them.

This begs the question: has trust in law firms been lost to the point where transactional vetting measures are used even in high-stakes matters? Or is this a “box ticking” exercise by bean counters to demonstrate due diligence in the selection process? And if it’s just that, why bother? The cost of RFP’s is significant for buyers and sellers. Translation: RFP’s, reverse auctions, and similar processes have their place,but there’s a time and a place.And it just doesn’t seem right when high-value matters are involved.

No doubt all this comes, in part, as a response to billing excesses by law firms and the erosion of trust that has created. At the same time, clients either value a law firm – and specific lawyers – or they go elsewhere. And that happens frequently these days as clients swap out law firms about as often as partners jump ship – as laterals or via mergers and acquisitions. It’s the free agency era.

A Need For Balance

Buyers and sellers are seeking equilibrium in the shifting legal marketplace. Sellers earn the trust of clients based upon value and results over time. Buyers would benefit from easing up on the transactional approach because it does not promote a knowledge of their business nor does it seem appropriate in high-stakes matters where trust is the paramount selection criterion. You don’t ask your surgeon to respond to an RFP when life-threatening surgery is necessary.

It’s a new marketplace with a rapidly changing buyer-seller dynamic. Data is powerful and has its place, but so too does the human element. And that should not be abandoned in the push to maximize economic return or to predict outcomes.

Buyers and sellers must find a new balance and restore trust in one another. That will be difficult to achieve in a climate where everything is negotiated.

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