What happens when a law firm stops advising a client? Leigh Jackson looks at how firms are pruning their client rosters and how clients feel about it

Even if you know you are with the wrong partner, no-one likes to be rejected. So how do clients feel when a law firm tells them they have decided that their business no longer fits with them?

After all, there has been much coverage in recent years of large City law firms actively managing their client base, a process that usually means that some smaller clients are turned away.

While in busier markets this was typically as much a means for developing advisers' business, with the emphasis on law firms focusing on larger clients, now some firms – notably Linklaters – are looking at trimming their client base to limit potential conflicts in what promises to be a more litigious environment.

But where does this leave smaller clients? And how well do law firms communicate and manage such issues?

Deborah Prince, general counsel of Which?, is one client that takes a dim view of such tactics.

She comments: "I find the strategy quite bizarre. I do not think that City firms telling smaller clients that they will be not working with them will sit well with in-housers. It will probably annoy them."

Prince adds that, if the process is adopted widely among larger firms, it might give smaller companies the impetus to work more closely with firms outside of the magic circle.

She adds: "Rejected companies should be brave enough and strong enough to look at other options.

"There will always be another firm in the wings; you may not get your first choice and you may not get a firm with a huge reputation, but that is not necessarily a bad thing. There are good lawyers out there and given a chance they could do a great job."

Prince's comment echoes a common theme among clients: that in a steep downturn, they will have little trouble finding an eager and capable lawyer at another firm if they get the cold shoulder.

Unisys UK and EMEA general counsel Pavel Klimov says: "It is currently a buyers' market – if law firms are not willing to sell their services, someone else could easily step in."

Nevertheless, Klimov believes that most companies now take a philosophical approach to having their business turned away.

He adds: "We would not be devastated if a firm decided to stop acting for us. It is a commercial reality that a firm can change its model. A relationship with a law firm is not a marriage for life."

One in-houser, who asked not be named, echoed the views of Klimov, arguing that smaller companies are traditionally less well suited to larger law firms and that the stance of some magic circle firms was unsurprising.

The in-house lawyer says: "With regard to City firms, I expect them to look closely at larger companies anyway so this is no great loss. Smaller companies are better off using smaller law firms rather than trying to gain the attentions of the magic circle."

Justine Campbell, general counsel of telecommunications company O2, says that while smaller companies may find additional advisers easy to come by in the UK and for certain types of work, the situation can be different overseas and in niche legal areas.

"It depends on the country and the type of work," she says. "The legal market in the UK is competitive but this is not the case in places such as Ireland or the Czech Republic, where the market is smaller and could be quite challenging."

Campbell adds: "Clients can usually find alternative advisers, especially in the UK. If the client has very specialised needs, such as regulatory, competition or environmental work, good firms could be harder to come by, and it can be frustrating if there is no access to these firms."

Aside from the hurt feelings of the clients, one issue that is widely debated is that of conflicts. Many clients are deeply suspicious of law firms' manoeuvring over conflicts and the justification of avoiding conflicts to break links with clients.

Klimov believes that conflicts are already managed very closely by law firms and their clients and that they are an inevitable part of modern business.

"In terms of conflict, litigation aside, in-house lawyers always have to be satisfied that confidentiality has been managed in a way that a competitor cannot gain an unfair advantage," he says.

"In a commercial context the world has changed more and more, and firms are increasingly acting on both sides of the fence. In reality, you cannot build a stone wall around your business and limit firms from acting on both sides of it," Klimov adds.

But is it in the interest of both the client and the law firm to ensure that potential conflicts are ironed out before entering into an agreement – even at the expense of deciding not to work together.

O2′s Campbell says that conflicts must be openly discussed beforehand to avoid a potentially difficult situation further down the line.

"We have had a couple of experiences where we have been turned away due to conflicts, but the situation has been handled well," she says. "It largely depends on the relationship partner."

Campbell continues: "Being refused by firms without really good grounds for it could be very frustrating, but open discussions are crucial. We would not want to be taken on by firm to find we encounter a conflict halfway through an instruction. We prefer to iron out those issues early on."

Regardless of the size of the company, the overwhelming view of general counsel is that firms should value their clients and that a mutual understanding should be the cornerstone of any relationship.

Hank Udow, chief legal officer and group secretary of Cadbury, argues that the key issue for clients is feeling that their work is important to their advisers.

Udow says: "My view is that what we are looking for are good solid relationships with law firms that are looking to get to know and understand our business, our key issues and our style."

And with firms targeting their biggest clients, it is possible that even some large companies will find it difficult to manage their relationship with the magic circle.

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