The good news for law firms fretting about the next recession is that the repercussions are likely not to be as severe as those brought on by the financial crisis in 2008. The bad news is that this is because many changes that companies made in how they acquire legal services have become permanent.
Convergence programs, volume discounts, rate freezes and fixed/flat fees are mostly here to stay. Law departments are also deploying the latest technology to find more ways to constrain legal expenses and evaluate the cost-effectiveness of competing outside counsel.
Legal departments are also more willing to forgo the “safety” of hiring name-brand law firms for the value offered by middle-tier and regional law firms. And companies are also becoming more sophisticated and less reticent about making smart make/buy decisions. For example, General Electric has already saved millions of dollars by recruiting an internal team of former prosecutors to handle nearly all the company’s serious investigations.
To be sure, some firms will continue to benefit from having developed deep relationships with clients who will remain less cost-sensitive (e.g., private equity firms). Others will be able to count on profitable niches where clients will remain willing to pay premium rates for superb work (e.g., bet-the-company trials, enterprise-threatening investigations, capital markets work and complex, multi-jurisdiction transactions). But most firms will have to work in partnership with their clients to find more ways to deliver more value for less money.
If I were back in private practice, I would not wait for the next dip in the economy or engraved invitations from clients to begin these inevitable conversations. The law firms that proactively reached out to GE to explore ways to help the company weather the financial crisis generated tremendous goodwill that continues to redound to their benefit a decade later.
The next recession will present similar opportunities for law firms to demonstrate that they “get it” by addressing their clients’ needs in creative and mutually-beneficial ways.
Now is the time to invest in predictive coding and other types of artificial intelligence that will spare clients much of the cost (and a firm’s associates at least some of the pain) of mundane legal work.
Firms should explore creative, low-cost programs to secure engagements (and the resulting opportunities to gain experience) for their rising talent. They should sharpen their pencils to devise contingency fee arrangements that will enable their clients to spend less money during a down cycle in return for an opportunity to earn a premium at the successful conclusion of a matter.
Firms should find mutually-beneficial ways to provide extra bandwidth to in-house departments that will need to work their way through headcount restrictions. It’s also never too soon to engage in candid conversations with in-house colleagues about the things that a law firm is doing well (and should be doing more of) and the ways in which a law firm must improve to keep or increase its business.
Downturns are inevitable. But they also present time-sensitive opportunities that should not go to waste.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.
Alex Dimitrief is a Lecturer on Law at Harvard Law School, where he is co-teaching a class on “The Corporation as a Citizen.” He was the president & CEO of General Electric’s Global Growth Organization in 2018 and previously served as GE’s general counsel. The views in this piece are strictly his own.