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December 1, 2008 5:30 AM

In-House at The American Lawyer

Posted by Aric Press

Picture_3 We spend many pages in our December issue discussing the prospects for significant change in the world of large law firms. The impetus for this comes from listening to many conference sessions over the past year during which speakers passionately pointed to the prospect of new money, talent, technology, and/or a new breed of client becoming the lever (or levers) that moves the status quo. We're agnostic about which, if any, of these factors stands a realistic chance; we're pretty confident, though, that it will take a while before we will see transformational change we can all believe in.

One area that may be an exception is the advent of fixed--or alternative--fee arrangements. Even as I type those words, I can't help but chuckle. "Stop writing that story," one managing partner insists in the magazine. "It's not going to happen!" If it doesn't, there are really only two interested parties to blame, the law firms and the clients. The zeitgeist certainly seems to have changed. In our annual survey of the heads of the Am Law 200, we asked whether over the next ten years they thought that "many if not most" big firms will have to change their billing practices. About three-quarters said yes. And two-thirds of them volunteered that fixed-fee deals were in the offing.

By coincidence, we also completed a survey last month with Legal OnRamp (LOR), a social networking and knowledge-sharing Web site whose founder we profile in our Change Agenda package. Together with Rees Morrison, a prominent legal department consultant, we asked LOR members who work in-house for their views on the future. (Access the survey results and our analysis here.) About 84 percent of the lawyers working at companies with revenues of at least $1 billion predicted a move toward value billing. They split evenly on whether the percentage would be more than 10 percent of total spending at their companies, but the trend line was clear.

And yet, they tarry. One reason seems to be that clients still see these plans not as a way to agree on a price, but another way to wrest a discount off the billable rate card. Another reason is that law firms, despite a massive amount of collective experience on costs, still resist trying to manage to a price point. But both sides insist that they have seen the future, and it takes the shape of a diminished billable hour. And both sides insist that it's the reluctance of the other that stands in the way of making progress. Of course, it may be that the survey results are just so much bunkum. Reading the results must be akin to what an ineffective marriage counselor confronts. Changing behavior isn't really the point of the exercise; rather it's providing a venue in which both sides can complain. We're not understood. We're not valued. We're taken for granted. We're not going to take it anymore.

But most everyone does. One of the most striking aspects of the LOR results was the contrast between the willingness of clients to speak harshly about their law firm vendors--fix your cost structure buddy, or get lost--and the rarity of an actual law firm dismissal. In this sample, on average, billion-dollar companies shed an average of 1.8 law firms a year--a result skewed by one company that cleaned out 20. Is it little wonder then that firms don't change their ways? The vast majority of the LOR respondents reported that their outside firms don't even bother with client satisfaction surveys, a result mirrored by the majority of law firm leaders who reported that they visit with few, if any, of their firm's key clients.

Readers of these pages know that these are not new trends. Thankfully, we have not lost our sense of amazement.

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