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2.15.22: Council of Luminaries Joint Meeting

The month’s Council of Luminaries Joint meeting started around rising costs that both in-house and law firms are facing. It led to a discussion about enunciating value to clients. Client Luminary 1 –We continually hear about the in-house frustrations with rising legal costs, but there never seems to be an acknowledgement that law firms have rising costs as well. At what point do clients push back on cost cutting internally?

Law Firm Luminary 1 – We have a client that is doing extremely well financially but froze their legal budget. What does that mean? You’re not going support new deals, etc? The GC used to work at big law firms. Lawyers at big firms have a hard time talking about the value of legal services. So, GCs struggle to define value to their leadership, and budgets get cut.

Client Luminary 1 – Oftentimes the CFO and GC have a conversation. That directive gets sent down to legal ops – then gets sent to the firm. By the time it gets to us, that ship has already sailed.

Client Luminary 2 – I fight this every year. But the good news is we’ve brought our CEO around. We’ve told him to stop listening to consultants and procurement. Our GC just has to show a list of the last 6 extraordinary items that no one saw coming. We are big so we basically have a target on our logo. Where they do put pressure on us, is we are in a fiscal prudence mode throughout the company. They mean well, we do have to be prudent and looking to be cost efficient.

We’ve had discussions with firms in response to their increases. We ask them to be more efficient. Do you need a big office downtown?

We are not going to give away the candy store. But we are looking to be reasonable.

Client Luminary 1 – I agree law firm partners are bad at enunciating value to clients. Management consultants are great at articulating the value. McKinsey, etc., are great at this. Is there training for partners? Are there workshops?

Law Firm Luminary 1 – We are the front line of that train. All the demands in outside counsel guidelines are value adds. We don’t enunciate that. Getting good training for my leadership. I have people running a $300 million business with no experience running a business.

But there’s no billable credit in training on enunciating value. Still, we should be doing it.

Client Luminary 1 – How do rate increase requests come? Do they come with any value articulation?

Client Luminary 3 – Usually we get an email with no insight, no background.

We try to ask – how do we get from point A to point B? Why should we? We are the ones who have to help our GCs enunciate value. We have 3 questions all law firms should be able to answer:

1. What’s happening in this segment of work that justifies marginal increases?

2. Where have/will our services get better?

3. Is there anything that’s changed in the way you compete for work? Have you moved up-market in your competitive set in this area? They say there are other firms that are more expensive. Sometimes small firms compare their rates to AmLaw 5 firms.

All 3 give us a sense of what our law firms are facing, what extra value they are providing and competition. Those that are raising their rates, some firms are starting to price their firms out of the market.

Client Luminary 1 – If I were to summarize, two things:

1. Firms aren’t proactive in communicating the reason for the request

2. Some firms don’t understand that a part of their value prop is that they are lower cost.

Client Luminary 3 – If I ask firms “what is your bread and butter,” they really can’t answer. Maybe only 5 of our firms could give a direct answer.

Law Firm Luminary 2 – There’s a flip argument. A lot of clients’ default is “well there’s somebody cheaper.” But is it an equal substitute?

Also, the CFO cuts the budget, and instead of building a case against it, the GC is ok with it. Then the GC tells the line lawyers, go tell your law firms. Those line lawyers go tell the firms they are not accepting increases, and the partners don’t push back either.

We need some sort of value document. Don’t give a price without a scope; don’t give a scope without a price.

Law Firm Luminary 3 - There are 2 things I see bubbling here.

1. Poor communication – a lot of tone deafness

2. The market has changed significantly in the last 1.5 years, which exacerbates #1

The email that we read at the beginning, it’s tone deaf. There’s no empathy. We all have stakeholders. So how do we articulate with what the firm are trying to articulate?

I’d be frustrated too if someone sent me new rates, I had to explain, and there’s no conversation being offered.

Client Luminary 4 – We seem to conflate discussions around value and market economics.