Ditching clients - so common, so logical, so controversial
Sometimes stories take a while to gain a reaction. One such piece was a news item in Legal Week at the start of the month about DLA Piper's three-year strategy, which has gone on to generate a fair amount of controversy among online commentators. The reason is incoming guidelines on which new clients should be accepted. The idea is relatively simple: new clients in Europe should generate at least €25,000 (£21,000) in the first year, or four times that level if there is deemed to be a conflict risk. In the US, the aim is to have a threshold of $200,000 (£123,000) for all new clients.
February 23, 2011 at 07:41 PM
3 minute read
Sometimes stories take a while to gain a reaction. One such piece was a news item in Legal Week at the start of the month about DLA Piper's three-year strategy, which has gone on to generate a fair amount of controversy among online commentators.
The reason is incoming guidelines on which new clients should be accepted. The idea is relatively simple: new clients in Europe should generate at least €25,000 (£21,000) in the first year, or four times that level if there is deemed to be a conflict risk. In the US, the aim is to have a threshold of $200,000 (£123,000) for all new clients.
Such tactics were swiftly picked on by vocal members of the in-house community, who branded it a crass own goal. Well, those who think like that should get over it, because the logic of why large firms should take these steps is inarguable. Clients cost a certain amount to administer and having too many clients makes a law firm hard to run effectively.
Added to which, as recently pointed out by Adam Smith, Esq, research shows that smaller clients generally take longer to pay, want cheaper rates and are less loyal. It makes plain business sense to focus your efforts on core clients. And even more relevant to large international law firms is the 'conflict shadow' of huge numbers of clients.
Indeed, there is a growing feeling in the US that its tougher stance on conflicts is increasingly becoming a block on large firms' development. It should also be noted that DLA Piper's initiative relates only to new business, not the thornier area of ditching clients.
Perhaps the real mystery is why some are still surprised by such developments. What law firms typically refer to as key client programmes have, for the last 10 or 15 years, had a heavy element of weeding out clients that no longer fit with the firm's business. It is rare to find any law firm that has achieved substantial growth in recent years that has not gone through such a process, whatever they call it.
Some decry such trends, but this is misplaced. This kind of process is central to the development of the legal services market – the segmentation towards a point where large firms handle large clients while smaller firms handle more appropriately-sized clients. This will provide better service all around as it prevents mid-sized clients being squeezed out by City giants prioritising more lucrative work.
It's also the flipside to clients putting law firms through tougher adviser reviews, which result in smaller rosters of larger firms. Think of it as a more efficient allocation of resources. Clients have many fields in which they can justifiably expect more from advisers, but if they want to get the best out of their firms they also have to remember that law firms are themselves running businesses.
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