A week or two ago, we were having drinks here in New York with two senior corporate partners at an AmLaw 25 firm that is quite self-aware enough to know it’s not in the realm of the super-elite, and the topic turned to pricing.

A matter they’d both been working on since earlier this year recently passed $1-million in billings, which prompted their being summoned to the client’s corporate headquarters for a day-long review of the fees by the General Counsel and CFO. Fortunately for our friends, it didn’t take long for the client to conclude that all was in order—with a few minor nips and tucks here and there, more for the sake of form than anything, we suspect—and the matter is of some exigency to the client, so our friends went on their way vindicated, as it were.

Needless to say, this prompted some musing about the client’s approach to legal fees on their part, and not exactly in a vacuum, either.

To put a point on it, they had learned of another firm’s billing to the same client on a not-dissimilar matter, which they described as being at “astronomical rates” for “merely serviceable work, and some of it not even that.”

Well, wasn’t the other firm grilled just as they were?, we asked somewhat naively.

Not at all; their bills are evidently never questioned. The other firm, you see, is a super-elite firm, so the client seems to accept their so-very-stiff fees at face value and, on top of that, assumes the caliber of the work is perfection itself. So far as our friends know, that firm’s fees have never been questioned.

“This doesn’t make a lot of sense,” we observed, which we thought was a somewhat axiomatic comment. “What do you suppose the client is thinking?”

“Actually, this isn’t the first time we’ve seen something like this,” they reported. “If only we had the reputation those guys have, we could probably get away with bills like theirs as well.”

Since this seemed a topic of some sensitivity, the conversation moved on to other things, but it got us wondering.


Now, the client’s behavior with our friends’ firm vis-a-vis the super-elite firm may “make no sense” in an objective homo economicus mode, but the more Janet and I thought about it the more understandable it seems. Let’s call it the Bergdorf effect.

Bergdorf Goodman, as presumably everyone knows well (some of you perhaps too well…) is the super-high-end fashion and department store occupying most of the block between 57th and 58th Streets on the west side of Fifth Avenue. As they put it:

There’s only one Bergdorf Goodman. (emphasis theirs) A New York landmark since 1901, Bergdorf Goodman represents the pinnacle of style, service, and modern luxury. Located at 5th Avenue and 58th Street, it is the leading fashion authority and a singular destination for the most discerning customers from around the world.

Even if you’ve never set foot inside Bergdorf, you know what to expect: The most lavish and up-to-the-minute array of high end designer merchandise, priced to match. This is not the place to haggle, and you won’t be. You know what you’re in for when you walk in the door. If you’re not in the mood for paying top dollar, to coin a phrase, “don’t even go there.”

Compare that to your experience visiting a more normal department store, or even an upscale one like Saks Fifth Avenue or Nordstrom: You’re almost certainly going to wait until things are on sale; you want a bargain. The same mentality applies when you go to stores like Target, Home Depot, or (obviously) Costco. Whether or not things are “on sale” at those stores is not terribly germane: They’ve staked their reputation on low prices.

Bringing this back to Law Land is now intellectually trivial.

Clients patronizing the super-elite firms know what they’re in for in terms of legal fees. It’s not quite accurate to say that they’re not thinking about price, but by entering the door they’re entering they have made a conscious decision that their desire for what’s offered here outweighs economic considerations at the moment.

Those same clients going to non-super-elite firms are you and me at Saks and Nordstrom; we appreciate what they’re offering but we’re determined we’re not going to overpay.

So was our friends’ client being irrational or failing to “maximize shareholder value?” Not really; they would surely explain that they were choosing different providers for different purposes in different contexts. And who’s to second guess them? I think this is a genuine and (I suspect) widespread phenomenon.

Now, what should we make of this? More pointedly, what should we do with it, or about it?

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