Rees Morrison is a Certified Management Consultant (CMC) who has advised law departments for nearly 20 years to help them better manage themselves and their outside counsel. A former practicing lawyer, author of six books, a Senior Director of Hildebrandt International, and a prolific blogger (http://lawdepartmentmanagement.typepad.com), Rees has been on the front lines with numerous major corporations as they’ve investigated and embraced convergence.
McMurray: Convergence – commonly thought of as the reduction in the number of law firms engaged by corporate legal departments – has been in and out of favor for 15+ years. Where does it stand today?
Morrison: Today it’s on. The word has spread about the DuPont Model—where DuPont claims to have saved millions of dollars in legal fees by cutting its law firms from 450 down to about 37. However, convergence is still very much a phenomenon of the Fortune 500, because these are the only companies that use such large numbers of law firms. And it’s rare that convergence actually reduces the number of firms that much.
Most law departments continue to retain a significant number of law firms. Hildebrandt’s recent law department survey of the largest corporations found the first quartile departments reported having 200 law firms, the median was 301 firms, and the third quartile was 457. Big corporations simply need a lot of specialized law firms – for litigation counsel, for collections matters, for international work in various countries and for local matters.
McMurray: Then what’s the real objective and point of convergence?
Morrison: The real goal is rationalization of expenses. Big corporations want to make 80% of their legal service spending with a core group of perhaps 15 to 30 firms. The 80/20 focused spending ratio is more important than getting down to X number of firms. There may be 150 firms beyond that core group, but General Counsel are matching them to very specific matters. For the chosen few firms that get the bulk of the spending, legal departments that follow the Pied Piper of convergence inevitably find themselves attracted to larger law firms – and incidentally with the reach, infrastructure, and capital to handle boatloads of work. But the cost is typically higher with large firms.
In my experience, lawyers in law departments do not say, “Let’s hire X firm because it is one of the 30 largest firms in the world.” They say, “Let’s hire Y partner, who happens to be at one of the 30 largest, but it’s Y’s experience, style and brains we want – not the brontosaurus behind her.”
McMurray: For what types of work are you seeing the convergence–high volume commoditized work or the specialized, bet-the-company issues?
Morrison: Certainly most law departments seem to think it makes most sense to segregate matters, but there are two schools of thought on how to do that. One, which I consider to be the more traditional approach, says that the inside staff should handle the routine matters and send the specialized issues like environmental or ERISA outside. Overall it’s probably better for outside counsel to handle specialized litigation because discovery and the episodic demands of court schedules are difficult for in-house staffs to handle.
The other school of thought, which I think is more contemporary, says that in-house counsel should send the high volume, commoditized work to outside counsel because that’s where the price efficiencies are, through negotiation of fixed fees.
McMurray: What effect does convergence have on the billable hour? Do corporate counsel always expect their preferred firms to come up with alternative fee arrangements?
Morrison: Not at all. Convergence efforts haven’t led to much alternative billing, if you define it as something other than discounted rates. My experience is that 90% of billing from converged firms is still on an hourly basis.
But the fixed fee is becoming the most common alternative arrangement—the outside firm analyzes the corporate client’s past experience and says we will handle all such work in a given year for this amount. But this only works with routine matters. A multi-billion dollar merger or class action litigation involve so many variables that it’s hard to have any kind of fixed-fee arrangement for them – unless the arrangement covers a span of years or includes other, more regular services.
McMurray: How often do corporations review their list of preferred firms? Once firms are converged, is annual review or some other assessment the rule?
Morrison: Three-quarters of general counsel say they review their firms; but in practice I think less than one-quarter do. The loyalty of general counsel to the firms they select is quite high, because nobody wants to use new firms all the time. Law firms don’t like to hear this, but there’s just not that much business in play. In-house lawyers tend to stick with the preferred counsel, perhaps due to familiarity or the leverage the firms have, or simply being comfortable with the people and quality of their work. Nearly all law departments stick with the partners they like.
I also don’t see a lot of scoring or standardized measurement to compare firms, because the events and personalities are so different firm to firm and from year to year. Interestingly, there’s a lot more review and turnover in the U.K. – the panel reviews that companies make there appear to result in fairly regular turnover (even if it’s largely within the Magic Circle or major firms).
McMurray: What are the top reasons that law firms get bumped from the preferred list? Cost? Unresponsiveness? Poor performance?
Morrison: Law departments consistently rank knowledge of their business, responsiveness, team-orientation and practical advice above cost. They follow the old adage, “Better a fair price for good service than a good price for fair service.” Poor communication, lack of industry knowledge, unreliability, overworking matters – these are the things that blackball a firm.
McMurray: How can law firms and law firm marketers make the most of the convergence process to get and keep their firms hired?
Morrison: I think it’s important for marketers to understand the myths about the process by which corporate counsel hire firms. Naming these myths might step on some toes, but understanding them is absolutely vital:
- Myth #1: The selection process is wired. Although incumbent firms do have a name and reputation recognition advantage, their faults are just as well known as their strengths. So incumbency doesn’t necessarily mean a firm will win.
- Myth #2: The biggest, glossiest proposals win. That is absolutely false. Long lists of partners and matters, reams of data on diversity and community service, flow charts on technology and knowledge management, slick paper and cool packaging mean absolutely nothing. All firms do it, which means nobody stands out.
Remember, corporate clients aren’t hiring a firm, they’re hiring a few senior lawyers with whom they have trust and chemistry. Glitzy and glossy doesn’t distinguish anybody. What would distinguish a firm is to submit a two-page summary of three things you can do for the client, then say: we’ll send four senior partners to you for two days at our expense to give you a fuller assessment. That’s a response that would get attention.
- Myth #3: Online questionnaires or auctions are best. When legal departments require this kind of response, they’re asking firms to engage in a simple purchasing or procurement exercise that only works for commodity services. An online auction response is the antithesis of the chemistry and trust that drive in-house lawyers toward certain lawyers and firms.
- Myth #4: The pitch should be aimed at the General Counsel. The reality is that if an in-house department has 10 or more lawyers, the lawyers that oversee litigation or personnel matters often have much greater input into the selection process than the GC.
- Myth #5: The hard part of an RFP response is anticipating what the client wants. In my view the really hard part is pushing the law firm to get its act together – for the management committee to agree on an innovative fee package, or even for autonomous partners not to cancel each other out by individually responding to RFPs.
McMurray: Is there life after convergence for firms that don’t make the preferred list?
Morrison: At the very least, contact the in-house lawyers and debrief with them—asking how you can compete better in the future, and/or have another chance down the road. This often leads to new work.
There are a variety of alternative ways that firms can play roles outside of the chosen few. Corporate counsel want to work with a minimal number of contacts, and beyond that they don’t care how the engagement is managed. Small, local firms can partner with bigger ones on specialized issues. Firms that lost out can approach winning firms on select matters where they have a competitive advantage that the preferred firm can use.
If your firm lost out you could even approach the corporate bidder and say, we still believe we have these things to offer you and think it makes good sense for you to invite us in to talk. In-house counsel wants someone who can do the work properly. Even if you lose out on being a focal firm you can still push a specialty. Again, convergence is about overall cost, not the number of firms. A corporate law department would rather use 150 firms at lower cost than 30 firms at higher cost. If you can show you belong, you can still get a place at the table.
Deborah McMurray is the CEO and Strategy Architect of Content Pilot LLC. She can be reached at 214.351.9690 and email@example.com.