Alex Aldridge gauges the reaction of leading general counsel to this year's Legal Week top 50 law firm results – and finds many in the mood to share a little more pain

If law firms are hoping that announcing their worst financial results since the early 1990s recession will cut them more slack with cost-conscious clients, they had better think again.

Discussing the feelings of clients with regard to the profits generated at major UK law firms in 2008-09, it is clear that general counsel believe large law firms, at least, are still doing very nicely by most yardsticks.

So while Legal Week's recent top 50 results showed profit per equity partner (PEP) fell on average by 17.3% across the group, and considerably more in the case of many firms, the legal industry remains very profitable.

Indeed, given that law firms largely managed to maintain their revenues at 2008 levels despite the sharp recession that has gripped the global economy over the last year, a fair number of legal heads say there has been little change on fees firms are charging.

Coca Cola European GC Chris Barnard says: "It looks as though there may be further room for negotiating with firms over fees and pushing for more alternative billing arrangements."

He added that a 'hotline' service which he established earlier this year with certain panel firms to provide advice on small matters is the sort of cost-cutting initiative that he hopes to build upon during the months ahead.

Jeremy Barton, general counsel at Boston Consulting Group, described the last 12 months as "business as usual" for law firms. He said that although discounting of 10%-15% by firms was now not uncommon, there had been "no really big gestures of the sort which might have been expected if the market had become much worse". Barton also questioned how competitive the recent spate of panel reviews had been in practice: "Although there were a lot of them, I did not get the impression that the competition was actually all that cut-throat," he comments.

British Telecom Retail legal head Gordon Moir agreed that the rates charged by law firms were little changed on those during the boom. "There has not been as much softening on fees on a per hour basis as one might have expected." However, Moir says that value-added arrangements, such as deals over secondees, had made up for the lack of direct rates reductions.

"We have certainly pushed for more secondees from law firms – and during the last year I would say we have had an extra 50% loaned out to us on fairly favourable terms," he comments, adding that he has been looking into greater sharing of precedents and other key documents with his panel firms.

However, not everyone is interpreting the results as a green light for more hard-bargaining with external counsel. Thomson Reuters EMEA legal head Daragh Fagan cited the significant drop in PEP revealed in the results as evidence that firms are not immune to economic conditions: "That is quite a significant decrease, and indicates to me that firms are sharing the economic difficulties being faced by their clients to some degree."

He continued: "The more important thing is long-term relationships rather than one-off short-term discounts."

Nick Deeming, GC of auction house Christie's, was similarly focused on the long term, emphasising the importance of "constant dialogue" between clients and advisers.

"I just do not see firms responding well to demands to cut fees by large amounts. Without taking a longer term view it could potentially lead to conflict. Given the complexity of legal services provision, savings and value need to be achieved through intelligent debate, rather than taking out a hammer to squash firms when they are at a weak point," he argues

Leah Cooper (pictured), managing attorney at Rio Tinto, was one of several in-house lawyers who emphasised the need for clients to take responsibility for securing value from their advisers – regardless of the financial results law firms were producing.

"I do not believe we can look at statistics indicating firms' revenues and simply complain about fees. It is up to us, as the client, to ensure we are getting the value we think we should on the work we send to external counsel," she comments.

Mark Chapman, European general counsel of investment bank Nomura, agreed that clients should focus more on the value they are getting from advisers and general market conditions, rather than the finances of advisers.

"Our relationships with law firms are impacted far less by their results than by broader market conditions," he comments.

"Of course, if one of our preferred firms suffered particularly poor results we would take an interest in why and what, if anything, that meant for us; just as we would if one produced extraordinary profits. But, generally speaking, it is not something we focus on."

Andrew Williams, EMEA general counsel of investment bank UBS, has a similar take: "What is driving banks to seek greater discounts from relationship firms is not the profitability of those firms, but the lack of profitability of the banks," he says, arguing that banks will continue to look for better terms from law firms for the foreseeable future. "It is very simple. If I get a new job, I am going to go out to three firms for a capped figure. And generally the best price will win."

Williams, however, conceded his surprise at how well law firm business models have held up given the traditional reliance of leading City law firms on banking clients.

"Considering how badly some of the banks have done over the last couple of years, the law firm model – especially the well diversified one – has performed remarkably well," he observes.

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