Corporate America's challenge to 'big law'

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Published on 4/7/08

I recently witnessed the start of a revolution — or, at least, a self-proclaimed one.

The occasion was a panel discussion that included the current Association of Corporate Counsel's general counsel and its former chairman. The participants discussed the organization's intention to roll out this year a communication effort that relates law-firm billings to corporate clients' perceptions of value. The effort is still taking shape, but the motivations behind it came through loud and clear.

Corporate counsel look back 40 and more years ago, before the ascendancy of hourly rate billing, to a time when legal fees were based not only on time spent, but also the nature of the service, the result achieved and the amount at stake.

They want more professionalism about fees, better communication between the corporate client and its relationship partner at the law firm, and less emphasis on increased profits per partner.

These were some of the sound bites that define the legal services revolution that corporate America seeks:

  • CEOs are asking how "average" big law-firm partners, many of whom are relatively young, can be earning $1.4 million a year while producing ordinary, or worse, service and work product.
  • CEOs are asking why a new associate who is untrained in both legal expertise and client relations is earning as much as a senior executive with 20 years of responsibility.
  • CEOs are compelled to drive for competitive efficiency; law firms drive to increase profits per partner by terminating lower revenue-producing partners rather than increasing their efficiency and effectiveness.

Such concerns were expressed strongly and articulately, but they do seem disingenuous. For example, it was in the mid-1960s when corporate clients began demanding detailed hourly billing statements, and lawyers turned to time records as a management tool to seek greater efficiencies (and also to protect themselves against criticism of "vague" bills).

And, yes, $1-million-per-lawyer profits and $1,000-per-hour billing rates produce winces. But since more than half of the legal profession earns less than $100,000, there are many talented lawyers available to do the work that corporate America wants done, at a far lower cost. Why aren't they looking for these lawyers? Because it's safer and easier to justify hiring "big law" to the same CEOs who supposedly criticize it.

It's unquestioned that corporate America faces strong competitive pressure and has a right to expect value from its outside counsel. But one must wonder whether corporate counsel adequately convey their needs to their outside counterparts — except for defining it as lower fees that are the focus of RFP "beauty contests" and fixed-fee schedules.

So long as outside counsel are working on eight- and nine-figure compensation and severance packages for the same CEOs who are criticizing them, they can be pardoned for asking whose ox is being gored.

Even so, corporate America's challenge to big law appears unlikely to go away.

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