Tim Bratton, the general counsel of the Financial Times, has an interesting perspective on DLA Piper’s recently announced plan to revamp its client base. Here’s what that entails:
All partners were given details of the framework last month as part of a bid to create a cohesive approach to client wins and conflict management.
New clients will have to commit to a minimum annual legal spend with the firm, understood to be around €25,000 (£21,000) in the first year of instruction for clients of DLA Piper International where there is no potential conflict and €100,000 (£86,000) for those where there could be a conflict.
The firm’s US arm is thought likely to implement a minimum billing threshold of $200,000 (£126,000) for all new clients.
In addition, new instructions will need approval from a regional managing partner or a practice and sector head.
It is hoped the move, which is part of DLA Piper’s 2011-14 strategic plan, will help reduce conflicts where the firm has been prevented from taking on large instructions after previously accepting smaller mandates.
The firm will also assess all existing clients over the next three years to ascertain which companies it should target for more work and which it should consider dropping.
As you might imagine, by and large the reaction to this move across the commentariat has been hostile and dismissive. But what Bratton, an actual if not large client of DLA, writes about it is of particular interest. Here are a few of the things he has to say, having spoken to some DLA partners about it:
So, what’s the rationale behind the skinny? Well, more honesty here too. Partners are being “encouraged” to consider the strategic direction of the firm when taking on new clients, rather than their individual practice areas. The guidelines are there to assist them. A key reason behind this is to avoid picking up clients which might cast large “conflict shadows” (nice term) and prevent the firm from winning future high profit work.
Another reason is the reality that all clients cost a certain amount of money to administer and that in certain cases it might not be worth the cost of the administration. That it’s about treating the best clients in the best way, and that best will not necessarily mean biggest fee generators, for example the firm recognises the importance of clients with growth potential or (and maybe they had to say this because it was me on the phone) brand value.
And to his credit Bratton recognizes some of the business logic of DLA’s move:
So what to make of all the above? I’d say it demonstrates great business judgement by the management at DLA. Any non-lawyers or in-housers reading this, consider it from the perspective of your own business. It makes sense in any business to focus your efforts on your key customers, to dedicate the resource there rather than allow that resource to get distracted by noise elsewhere. Bluntly, to maximise profits. And as law firms and their clients increasingly globalise, the risk of conflict shadows must increase, necessitating decisions like the one that has been made at DLA.
This speaks to the evergreen debate between those who believe law firms are associations of professionals and those who believe they’re for-profit businesses. In terms of DLA’s specific new policies here, I side with Bratton and admire DLA’s courage in calling a spade a spade. Some clients are too small to bear the risk of conflicts they might generate, and all carry administrative headaches with them. Separately, studies have repeatedly confirmed that smaller clients (a) take longer to pay (b) demand more discounts (c) generate more writeoffs, and (d) show less loyalty to the firm. This is your profile of a desirable client?
On this one, I happen to come down on the side of DLA in principle, but with a couple of large caveats. The first is that they had better have exquisitely tuned antennae for identifying “clients with growth potential…or brand value.” It’s not always easy to know, and you could ignore a few diamonds in the rough.
The second is the bar to entry, set in the US at (so they say) $200,000 in first year spend.
That’s a lot to spend on a first date.
So does this make DLA more of a business and less of a professional services firm?
More of a business, to be sure; but only less of a professional services firm if they forget they’re in the client service business first and foremost.
