Mind your own business – should clients be telling law firms how to run their shop?
A recent article on Legal Week about an adviser review at Deutsche Bank reminded me of a concept that has gained traction in recent years: the notion that clients should get actively involved in the business model and inner workings of their external counsel. In the case of Deutsche, the bank has made it plain that it will look favourably on firms that use legal process outsourcing as part of its adviser review. The bank is certainly not alone - it's a concept that has attracted a growing level of support in the legal profession in the last five years.
February 18, 2011 at 12:55 PM
3 minute read
A recent article on Legal Week about an adviser review at Deutsche Bank reminded me of a concept that has gained traction in recent years: the notion that clients should get actively involved in the business model and inner workings of their external counsel.
In the case of Deutsche, the bank has made it plain that it will look favourably on firms that use legal process outsourcing as part of its adviser review. The bank is certainly not alone – it's a concept that has attracted a growing level of support in the legal profession in the last five years.
On one level, such a stance is taken as a sign that clients are finally taking a proactive approach to securing value from their advisers. And, to a point, there are good reasons to go down this road. Even for a client to insist on something as cosmetic as moving their work to fixed fees by implication will force changes to law firms because the industry's infrastructure is so wedded to time-based billing.
And it would be ludicrous to suggest that clients shouldn't take any interest in how law firms run their business. You would want to know that your go-to adviser had rigorous systems to maintain quality and solid standards of ethical behaviour because major short-comings in this respect would probably impact on you as the client.
And there's no doubt that law firms are increasingly making strategic decisions about their business model with a view to how it will play with clients. Some of the redundancies and cost-cutting measures that happened in 2009 were as much about what clients would think as being necessary to protect the businesses of the law firms. And recent offshoring ventures announced by Herbert Smith and Allen & Overy both have a view to client reaction (though that doesn't mean they don't make sense).
Yet, taken to an extreme, the concept is strange. Why, for example, should clients care about what associates or partners are paid? Why does it matter? Law is not like banking, where in some cases workers creamed off profits that either didn't exist or should have gone to shareholders. Law firms can only pay their staff from what they make – and there's no taxpayer money coming if a law firm gets into trouble.
Perhaps the biggest reservation about clients delving too deeply into the model of law firms is that it is a distraction from what they should be focusing on: what they are being charged.
After all, over the last 15 years, watchfulness in this area has been sorely lacking. Too often clients talked tough and then quietly caved in to constantly escalating billing rates. Indeed, the way you hear some talk it almost sounds as if it is the primary responsibility of the service providers to see that clients get value for money.
This is naive. Ultimately, it will always come down to the client to police their own interests. Clients should be rigorously focused on their bills and, in the main, leave it up to the law firms to work out ways to deliver a good service at a reasonable price. It will be a quicker route to innovation and efficiency than clients trying to show them how.
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