I wasn’t going to write about the DLA over-billing allegations that came to light about 10 days ago because I didn’t think there was much to say except that they reflect badly on all of us, and on second thought that they reflect badly on all of us.
But as it turns out it launched an interesting train of thought if you care to put together Law Firms and Overcharging: The System Itself Is Rotten, by Mark Harris, CEO of Axiom, and Tim Bratton, the GC of the Financial Times, writing Client power: why it’s up to GCs and their budgets to drive real change in law. Disclosure: I know Mark, pretty well, and Tim, not all that well, but I haven’t discussed what I’m about to say with either of them. And, although I wish I could say this was an “exchange” between Mark and Tim, their pieces were published in separate media (Forbes and LegalWeek, respectively) and five days apart. And while the corporate interests of both Mark and Tim are probably well-served by what they each have to say, I urge you to set that aside as you read their pieces and focus instead on the longer-term implications for Law Land and client relations.
Mark kicked things off with an admittedly familiar assault on the billable hour, saying it creates an incentive structure that is “inherently adversarial and zero-sum” and says that “bad behavior is going to result.”:
Like most denizens of the legal profession, we were somehow both completely shocked and at the same time not at all shocked by the recent reporting on alleged bill-padding at the global law firm DLA Piper.
But Mark has two more nuanced points:
- First, no matter how loud the drumbeat of calls for reform of the pyramidal/leverage structure becomes (including from many young associates themselves), by the time one is a sufficiently senior equity partner to actually be in a position to effect change, you’d “be crazy to follow through.” After all, you only have a relatively short number of years at the top of the food chain in which to reap the rewards of all the hard work you’ve put in.
- Second, assuming law firms aren’t going to change things radically unless they have to, Mark points out they may have to: Change could be driven by clients.
The calls for change from general counsels must be answered if for no other reason than they, and they alone, control the hundreds of billions of dollars spent on corporate legal services annually. And because, for the very first time, that’s a muscle they are willing to flex.
Indeed, if we’re going to see real change, then clients must allocate their business accordingly, as many are starting to do. How does that saying go? Fool me for 100 years, shame on you. But fool me for another 100 years . . .
Now comes Tim Bratton, who pretty much dismisses the substance of the DLA emails with a dose of candor:
I’m willing to bet that most organisations, not just law firms, have some emails hiding on their servers that would – if taken literally and out of context – show that organisation in a bad light. That’s email for you and you can’t control the uncontrollable. So anyone doing too much hand-wringing at the email etiquette of others had better keep their fingers crossed that their luck holds in the future.
Next, Tim (as have I) states pretty much the obvious, by writing that the billable hour remains very firmly entrenched:
Despite constant (in fact boringly consistent) talk of market change, believe me the hourly rate is alive and well and remains the starting point of most fee negotiations and the cornerstone of law firm metrics.
And he, like Mark, concludes that change will come—if ever—only if clients insist. Syllogistically, Tim argues that (a) clients hold the purse strings; (b) money is control; and (c) control can demand change, and pointedly says that “No amount of blogging, tweeting, or legal ceremony award giving is going to change the fundamentals of legal service provision. Only the reallocation of client budgets is going to do that.”
So it would appear that here we have violent agreement between Mark and Tim; what’s so interesting about that?
Actually, I’d like to take one step forward and one step back.
- Pro what they’re saying: Law firms will, to be sure, do what clients demand. Self-interest dictates no less, and since firms have a solid track record of not changing unless they absolutely have to, this may be the only—or surely the fastest—way for change to come about. But there’s another side to it, namely:
- Con: All clients are not alike. Not in their legal spending budgets, their sophistication, the size of their in house departments, their purchasing metrics, and so on. So long as Mark and Tim are only talking about, say, Fortune 500 or FTSE 100 clients, who can seriously disagree? And indeed, those corporations, at the top of their own food chains, spend a lot on BigLaw. But there’s another world of smaller and medium-sized corporations, publicly and privately held, that don’t have Ben Heinemann as GC, not to mention the enormous sector of the 1% high-net-worth individuals. Will they insist on change? Are they even aware, more than dimly, of this conversation?
Now, what this means to your firm depends primarily on your client mix. I’ve recently gotten to know a firm that gets over half its revenue from a single client, as well as a firm that has 15,000 active clients, with the top 100 accounting for barely 25% of total revenue. If you think Mark and Tim’s prediction is a clear and present danger, wouldn’t you rather be Firm #2?