Dear full service law firms:

This is an intervention. I am concerned about your health. I am a general counsel, an in-house lawyer. If you want to stay viable, put me out of business. That is, give your clients a reason not to hire me. This is not a joke. Hear me out.

It is axiomatic that the number of in-house lawyers has grown faster than the number of lawyers in law firms over the last quarter century, and it is not hard to understand why. (See, for example, Altman Weil Flash Survey, 2018 Law Firms in Transition). Law firms have failed miserably to address the one major concern of their clients—cost. In response to the growing frustration with rising billable rates and the refusal of law firms to embrace change, companies have preferred to build up their internal legal functions. More than 85 percent of law firms are finding that their strongest competition is coming from their clients (Altman Weil, p. 1)).

Think about this for a minute. Companies have opted to pay salary, bonus and benefits to attract quality in-house lawyers, many from the very firms that they used to use on a regular basis, to do the work that they formerly asked their law firms to do. They are paying general counsel and other in-house lawyers base salaries; plus bonuses; plus in some cases stock options, restricted shares or stock appreciation rights; plus health care and other benefits. They are doing all of this primarily to avoid paying exorbitant outside counsel fees. (To be sure they also are doing this to secure lawyers who understand their business, appreciate their risk tolerances, help them set and achieve their strategic and operational goals, and drive business growth, but don't underestimate the failure of outside counsel to focus on these goals as well.)

Pendulums swing, and it is expected that this trend will one day reverse itself. A recent article in the American Lawyer titled ”The Rise (and Fall?) of In-House Counsel,” by Hugh A. Simons and Gina Passarella (February 25, 2018) asked “Is the bubble set to burst on the buildup of law departments or is now the time to go in-house?” However, dear law firm, take cold comfort in this because a pendulum that is held back, restrained from the natural pull of gravity by a greater force, will not fall. Not yet.

Law firms, against self-interest, are holding the pendulum back. They are not experimenting with alternative ways to deliver legal services, or differentiating their practice areas to set them apart from competitors (Altman Weil, p. x and Appendix 2). As a result, we see law firms suffering and many even going out of business. They are collapsing amid partner disputes over compensation, internally focused and more concerned with associate billable hours and profits per partner than client needs. See, for example, Weissmann, Jordan, “Why Law Firms Are Rigged to Fail,” The Atlantic (May 31, 2012); Morley, John, “Why Law Firms Collapse,” The Practice, Harvard Law School, Volume 3, Issues 3 (March 2017); Cohen, Mark A., “Are Law Firms Becoming Obsolete?” Forbes (June 12, 2017).

What can your law firm do to help companies and in-house lawyers?

In simple terms, put me out of business. How can it be the less expensive option for companies to increase legal staffing rather than for you to efficiently address a client's needs? And yet here we are, and you are on the outs.

Here is a revolutionary idea that just may be crazy enough to reverse the trend and to allow the pendulum to swing back toward the law firm model. Focus on what the in-house lawyer focuses on—the company's needs. And the company's needs do not include increasing the law firm's billable hours or the profits per partner. Indeed, they are not focused on the law firm at all. And know this: all of the company's needs must be accomplished with one eye on cost. Therein lies the rub.

In-house counsel are incessantly focused on cost. And there are an abundance of cost-saving approaches to help in-house lawyers accomplish these goals efficiently, including the development and use of standardized template agreements; e-billing to audit and benchmark law firm invoices; artificial intelligence to review repetitive contracts; consolidating to a smaller group of “preferred provider” law firms, to name a few. A new tool has emerged in recent years and is gaining acceptance: retention of contract lawyers at reduced hourly rates to do the work that otherwise would be done by an in-house lawyer or outside counsel.

All of these tools are working against you—they are allowing clients to get the work done without you. Companies—your clients—are searching for ways to obtain needed legal services without hiring new internal lawyers and without hiring your firm. Indeed, companies and GCs are under pressure these days not to hire additional full-time employees or FTEs or to strongly justify such moves on a cost basis. This is the pendulum swinging away from building up the internal legal function, but it is not swinging back to law firms, it is swinging to alternative legal service providers.

To understand this new landscape, Altman Weil's Flash Survey, 2018 Law Firms in Transition, is required reading. The survey was conducted with over 800 managing partners and chairs at nearly 400 law firms. Among its conclusions:

Law firms are no longer operating in a closed system in which virtually all legal service providers play by the same rules. There are outside players with outside money and a commercial mindset who are offering viable legal service alternatives to clients. They are established; they are growing; and they are not going away.

The Altman Weil survey is not an outlier. In a 2018 Client Advisory, Citi and Hildebrandt Consulting LLC concluded that “success in this market will likely come to firms who are most nimble in their response to client demands for a more efficient delivery of legal services.” (Executive Summary p. 2). They also conclude that “law firms will continue to face competition for alternative legal service providers, and from clients.” (p. 6). Greentarget, a strategic public relations firm focused exclusively on business-to-business organizations, published a 2018 Legal Industry Outlook which concluded that “firms will continue to face competition from alternative legal service providers” and that “corporate law departments continue to grow and keep more work in-house, although some view this as cyclical and likely to reverse in time.” (Greentarget, p.4).

Take a deeper dive into the use of contract lawyers as a tool to reduce cost. In the past decade new businesses have sprung up to fill this need. Axiom (founded in 2000), Outside GC (2002), Halebury (2007), Patina Solutions (2008), General Counsel Select (2008), Bliss Lawyers (2011), LOD—Lawyers on Demand (2012), and UpCounsel (2012), all provide contract lawyers to businesses at dramatically reduced rates.

As a general counsel, I have participated in this trend by retaining several contract lawyers to do work that previously was sent to outside counsel. Why hire Big Law when you can get quality legal services performed for less? Each of the mentioned companies provide seasoned lawyers who are willing to step in, meet the players, learn the business, and help it navigate legal risk and accomplish business goals—only they do it for less. Contract lawyer services succeed because they get the job done and are less expensive than either a traditional law firm or adding a FTE to the legal function, but they have shortcomings.

And herein lies the secret that can get the pendulum to swing back to you: the full service law firm can do what the contract lawyer services do, only better. It can do this by leveraging its full-service assets, cultivating closer ties with its client companies, and providing value add services without the dreaded billable hour.The full service law firm can create an offering that will encourage work to be brought to the law firm rather than outsourced to a contract lawyer.

How can you do this?

• Establish a general counsel practice.

A general counsel practice allows the full service law firm to focus on and handle the company's day-to-day legal needs as would a general counsel or other senior in-house lawyer. A GC practice can help the client achieve cost-savings by providing a fixed, budgeted fee that is less than either the total compensation costs of an internal hire or what the client traditionally has paid or would pay to outside counsel for similar work. And yes, a GC practice can be profitable for the firm.

The Altman Weil survey pointed to two actions that law firms must embrace to survive and thrive: innovation and differentiation of practice groups. However, the survey concluded that “only 38 percent of law firms are actively engaged in experiments to test innovative ideas or methods” and “50 percent of law firms do not believe they project a distinct, compelling value that differentiates them from competitors.” (Altman Weil, pp vi-vii).

A GC practice responds to both of these initiatives. The full service law firm is uniquely positioned to do this well and can actually improve upon the contract lawyer services model that is gaining traction with your client companies. There are three advantages that the full service law firm can bring to the equation.

• The full service law firm has resources across disciplines that can be leveraged for the client's advantage (and inure to the firm's advantage when certain, more complex legal issues arise).

When I retain a contract lawyer, I typically do so for a singular project, or a narrow scope. The contract legal service provider can find me the expert I need to get the job done for a relatively low hourly rate or at times a negotiated fixed fee. But I get one lawyer. He or she may be great. But they may not be. If something comes up that is out of scope, the retained lawyer may be able to help. Maybe not. But here is a thought … what if the contract lawyer was a full service law firm itself?

While some innovative law firms are already heading in this direction, these firms tend to be smaller than the full-service firms to whom this letter is directed. And for full service firms that provide options for clients along these lines, they do not lead with it. If not asked, they likely will not offer it. The smaller firms that do offer a GC practice typically do not have the resources (personnel) to handle a wide variety of critical areas—governance, compliance and training; securities and disclosure; corporate transactions; commercial contracts; real estate and environmental matters; data privacy issues; health and safety; sales and marketing; dispute resolution; due diligence; and employment advice.

A GC practice lawyer with a full service firm could cherry-pick needed counsel from the firm when necessary—mostly to gut-check his or her judgment on an issue. As a GC, I encourage the law firms with whom I regularly work to provide free legal services. That is, I want them available for “water cooler talk.” If I want to bounce something off an expert—as if they were a co-worker I met at the water cooler—I do not expect to see an invoice for a tenth or quarter of an hour. A GC practice would institutionalize this by allowing the GC practice lawyer to engage with other firm lawyers if the situation called for it.

If complex legal matters develop that are outside the scope of the GC practice—that naturally would be sent to outside counsel—such as specialized IP work, litigation, or a significant M&A matter, the work can be funneled to the firm to be handled outside of the GC practice's fixed fee arrangement. The deeper the relationship and trust between the law firm's GC practice lawyer and the client, the more likely such additional work will flow to the firm.

• The full service firm can recruit and retain GCs and senior level in-house counsel to lead and staff a GC practice.

General counsel and senior in-house attorneys have proven effective in building trust throughout an organization by efficiently responding to the company's day-to-day legal needs; they are keenly aware of what must be done to drive business growth while navigating acceptable business risk; they regularly advise management and the board on a company's strategic direction and operational goals; and they effectively budget and control costs. They are good at providing advice and counsel proactively, and they are fast, efficient, collaborative and creative. They know what clients want, and they appreciate what quality outside counsel brings to the party. And the good ones frequently have a large corporate network with whom they share best practices.

These lawyers can be recruited to a GC practice. While they are not necessarily interested in partnership, they do want a few things. They want to leverage their in-house legal skills and business acumen, they want to maintain their reputation in the legal marketplace, and they want to be fairly compensated despite not starting with a book of business. In establishing a GC practice, your firm can offer former GCs and other senior level in-house attorneys with all of these benefits.

There is a midsize full service law firm in Chicago that has a vibrant practice that caters to local municipalities. Compensation for the lawyers who are attracted to that practice is structured differently than it is for the firm's experienced lawyers in other practice groups. As a result, the practice group that represents these municipalities is able to do so at fixed fees that are attractive to the clients and still profitable to the firm, and the practice thrives. The same can be said for your firm's GC practice.

• The full service law firm can offer these services with a unique, fixed fee approach that can attract the client who wants to do “more with less” and confidently budget its routine legal expenses.

In a typical GC pPractice, your firm offers a seasoned legal adviser at a fixed monthly fee that would cover anything that typically would be handled by the client's internal hire. The fee would be negotiated at or below either the salaried cost of a new internal hire but significantly below the total compensation that your client might have paid for a FTE (The fee provides significant client savings because while it approximates the salary of a FTE, it does not translate into the fee all of the other benefits and bonuses that the company typically would pay to a FTE) or below their current or expected outside counsel spend for the same work. The key here is to save the client money and give it confidence in the savings by banishing the billable hour for these services.

Client and firm can establish targeted dates to periodically reevaluate the arrangement if it generates more work than expected or less work than the fee justifies.

A fixed monthly fee provides another huge in-house benefit. The expense is budgeted. No surprises. This is not always the case with alternative legal service providers like contract lawyers, many of which are sold on the proposition of lower billable hourly rates. The problem is with its reliance on a model that your clients and potential clients hate—the billable hourly rate.

As a sitting general counsel, my advice to you is to take hold of the trends and don't be victimized by them. A full service firm's GC practice can make it difficult on a cost basis for your clients to justify hiring a GC or a second in-house lawyer. A GC practice can flip the value proposition toward the firm, and get the pendulum to swing back in your direction. But your clients will not ask for this; you will have to lead them to it. Unfortunately, that may be a problem. So far at least, you have proven to be the biggest obstacle to positive change.

Noel Elfant is vice president and general counsel for the North American operations of DeLaval Inc., a leading maker of dairy farm production equipment and cleaning solutions for the food processing industry and part of the multi-billion dollar, privately-held Tetra Laval Group. He began his career in the real estate and corporate and securities departments of the Chicago-based national law firm of McDermott, Will & Emery.