A new set of numbers details how chief legal officers are reevaluating the way they use their law firms. The survey data from Altman Weil, however, doesn't paint a full picture of the complexities of the firm-client relationship. What do you want to hear about? Email me here. Sign up here to receive this newsletter in your inbox.

The Client Relationship Isn't a Zero Sum Game

Long before I started reporting on law firms, I was trained as a social scientist. There are a number of reasons why I turned to journalism instead, but one of them was my frustration about the hegemony of numbers in my discipline.

I was a qualitatively inclined political scientist, more trusting of narratives that take into account how humans interact than approaches purely stripped down to numbers. That kind of work had a long lineage, but by the time I got to grad school it was decidedly passé. The quantitative folks were getting the prime jobs.

As a reporter, I'm asked both to construct narratives and make sense of numbers. Often the two don't line up. Take the law firm-client relationship. Looking at it one way, it's a zero-sum game. Clients want to pay less, firms want to earn more.

It's easy to see that perspective reading Altman Weil's annual dive into what corporate chief legal officers are thinking, released earlier this week. It includes a line of questioning focused on a clear set of measurable aims: improving efficiency, lowering costs. And for a law firm leader perusing the results, the outlook is grim. For example, only 27% of chief legal officers increased outside spending in 2019 compared to 42% in 2018.

Then there's the data on what they're doing to control costs: 56.7% have secured rate reductions from law firms, 54.8% are requiring budgets from their outside counsel, 51.2% are using alternative fee arrangements or fixed fees. More worrisome: 36.7% are reducing the amount of work sent to outside counsel and 33.5% are pushing work to cheaper firms. Surprisingly, given the amount of ink alternative providers are receiving, only 8.8% of the surveyed CLOs are outsourcing to non-law firm vendors.

Another question asks why clients aren't getting even bigger discounts. And while 33.8% of respondents said they didn't want to damage good relationships and 12.2% said it wasn't fair to push firms too hard, far more said they would squeeze their firms if they could: 51.6% lamented not having enough buying power to negotiate effectively, and 48.8% said that firms simply resisted.

But I don't think that's the whole story. When I talk to firm leaders, in-house folks and consultants, everyone brings up the word "collaboration." It's a term that does come up once in the Altman Weil survey: 65.2% percent of CLOs report their legal ops team has collaborative relationships with operations professionals within their outside firms.

And that brings me back to my opening point. The relationships at play here are far more layered and complex than the survey numbers capture. Often law firms and clients have been working together for decades. Individuals on both sides like each other on a personal level. Grumbling about the relationship is one thing, but clients rarely see a law firm gains as company losses. (Perhaps once they see the countless news reports over lush bonuses for associates, but that's a slightly different story.)

I asked Tilt Institute founder Marcie Borgal Shunk the other day about how firms are responding to the rise of legal ops, and she pointed out a clear difference between businesses that have been at it for a while and those who have just realized they need to be more systematic about the business side of law.

"There's increased collaboration with the companies that have been doing this for longer. Other companies that are adding legal ops, they're coming in at the starting point," she said. That means a reliance on old tactics: "We're only going to be paying X, and you can only use these people."

But if the relationship develops and grows more texture, expect both firms and clients to recognize that there's more at stake than simply grinding the other side down.

I also wanted to hone in on one other element of the Altman Weil study. It's obvious that not all clients act alike. But bigger corporate clients, with bigger law departments, are clearly following a different path than the smaller shops out there.

Asked about what they're doing to control external costs, the CLOs overseeing more than 50 lawyers were far more likely to successfully exert rate pressure on their law firms than those overseeing between 2 and 10 lawyers. 65.8% of the former secured discounts from outside counsel, 60.5% demanded budgets, and 63.2% were using alternative fee arrangements or fixed fees. Compare this to 51.2%, 47.6% and 42.7% respectively for the smaller operations.

Meanwhile, the smaller outfits were more likely to reduce the amount of work they're sending outside (42.7% compared to 34.2%) and to send work to lower priced firms (37.8% compared to 27.3%).

There's a similar story with regard to the ALSPs. More than half of the big shops have relied on these upstarts for litigation discovery (51.3%) and document review (59.0%). But the ALSPs have yet to penetrate the smaller operations: 65% of one-lawyer law departments are still not using them, along with 57.5% of the 2-10 lawyer category, and 49.4% of those with between 11 and 50 attorneys.

It's only a matter of time before they recognize they can start slicing and dicing their work, rather than shipping it all off to their law firms. Just another something for firm leaders to start worrying about.

In The News

➤➤Big law firm merger talks! Two potential deals! And both in my backyard. The Law Firm Disrupted originates in Philadelphia, home to both Pepper Hamilton and Drinker Biddle & Reath, and my colleagues broke the news yesterday that both firms are in advanced discussions: Pepper with Atlanta-based Troutman Sanders and Drinker with Minneapolis-based Faegre Baker Daniels. The Pepper/Troutman news dropped first, giving my colleagues Lizzy McLellan and Meredith Hobbs a chance to dig a little deeper into what it means.

➤➤Over at the ABA Journal, legal tech and innovation consultant Anders Spile argues that as law firms embrace "innovation" as a buzzword and make steps towards improving the efficiency of internal processes, clients are still being left out. "To be frank, clients do not care about the internal productivity improvement of law firms if it does not influence the legal products they consume. They want external, client-facing innovation they can take part in and shape according to their specific needs," he writes.

➤➤Finally, firms continue to look eastward. One clear sign: Baker McKenzie last month naming its first ever Asia-based global chairman. John Kang, my colleague with the Asian Lawyer, sat down with Milton Cheng in his Hong Kong office to learn about the global giant's plans not just for Asia but around the world.

You'll hear from me again next Thursday! Thanks again for reading, and please feel free to reach out to me at [email protected]. Sign up here to receive The Law Firm Disrupted as a weekly email.