Clients vs law firms – the war that dare not speak its name
It's funny that when comments are made about the legal industry there is often a strange, persistent notion that if only clients and advisers could get together, have a good chat and show a bit of consideration, then everything that ails the profession would be OK...
February 07, 2012 at 08:38 AM
5 minute read
Why don't law firms communicate better with clients? Why do advisers persist in business practices that encourage inefficiency? Why are law firm charge-out rates so high? Why can't we all buy the world a Coke and live in perfect harmony?
It's funny that when comments are made about the legal industry there is often a strange, persistent notion that if only clients and advisers could get together, have a good chat and show a bit of consideration, then everything that ails the profession would be OK.
Hmmm. Do pundits of the plumbing or building industries come up with this kind of fluff? Years of observing law has taught me that much of the reason why so many seemingly contradictory practices continue is simple: the interests of clients and advisers are not only often very different, they are frequently in complete opposition.
A buyer will typically want to get a product as cheaply as possible unless there is some other factor at play. Luckily for commercial lawyers there often are such considerations, such as the desire to avoid risk and the fact corporate legal procurers are spending someone else's money.
But there is a limit even to these bountiful gifts. Ultimately in-house legal teams have strong incentives to cut back external spending whereever they can. That basic desire is obviously bad news for law firms, and where it has become a prevalent mindset – say in insurance litigation or clinical negligence – it has played havoc with the lives of lawyers in private practice. That's not to ask for sympathy, that's just business. But to draw any useful conclusions about professional life is to first be honest about the adversarial undertow inherent in the relationship between buyers and sellers.
If alternative providers come along and offer the same service as a law firm at a much cheaper rate, clients will go for it, subject only to fears regarding the risks of using the new provider. And for law firms, good business will often be doing what is good for your firm, not your client. To pretend otherwise is facile.
Some optimists are ever hopeful of buyers 'seeing value' in the work lawyers undertake. That's all fine, but don't expect too much. Buyers are often erratic in how they assign value, frequently making value judgments with limited correlation with how much they use or rely on a product, or how much a service costs to provide.
And law is particularly prone to tensions between buyer and provider because it is pulled so strongly in opposing directions. Major law firms are caught between the labour market and the client market.
There is no doubt that over the last 20 years the labour market, being far more transparent and liquid than the market for clients, has been the dominant of the two influences. Competing for talent is often in conflict with what clients want, since it has routinely led law firms to raise salaries and charge-out rates (and strive to hike their own profitability, less out of greed and more out of fear of not retaining and attracting the best partners). Clients have benefited from the quality of workers attracted to law, but have also had good cause to gripe about footing the cost. (Whether we are now moving into a period in which the client market comes to dominate law firm thinking is up for debate. It probably won't be an issue of demand, more likely it will take the impact of disruptive 'Tesco law' style entrants to the legal industry to tip the balance decisively in favour of client demands).
Consider another aspect peculiar to law: the extent to which expanding in-house legal teams have become competitors to law firms. It's not hard currently for mid-market advisers because of a massive lack of work – it's more that in tough times companies are handling more work in-house. That has generated an odd dynamic for law firms where their own clients have become some of their toughest rivals.
That is not to say that the relationship between lawyer and client is all about conflict and who holds the whip hand. There are many areas of aligned interest. The appreciation of a job well done; the admiration for those that strive for high standards (providing it's not always achieved on your dime); the comfort and efficiency of well-established relationships; the regard for the provider willing to go the extra mile. All these things are valuable and will get more so as the legal market trudges on through a sustained period of subdued demand.
But neither side should forget how delicate the balance of power and interest is. Whatever innovations and advances lie ahead for the legal industry, they will be reached by hard work, competition, mutual respect and a small but healthy dose of wariness on both sides. They won't be reached via a great big hug.
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