As its first topic of focus, the Council of Luminaries has decided to have regular meetings to discuss the effects of the COVID-19 pandemic on the legal industry as they materialize. The objective is to identify developments in the market, at both clients and firms and to explore potential solutions and make predictions on where things go from here. Key takeaways from each meeting will be published for the public following each discussion.
The below meeting was conducted primarily with the client-side group.
Outreach by Firms
Firms overall have not been very proactive in reaching out to clients. This is surprising; it seems like the firms are scared. “I imagine that when a partner’s phone rings, they are jumping up out of fear,” said one Luminary. “It’s like firms are expecting Armageddon.”
In the hardest-hit industries, the Luminaries have been very proactive in requesting discounts and extensions, and they feel the firms have generally been empathetic. In some cases, firms are agreeing to discounts in exchange for immediate payments of funds owed, and the clients have responded positively, at least in some cases.
The Luminaries were well aware the situation is constantly evolving with many firms facing liquidity crises. “We offered immediate payment in exchange for a discount and were rejected,” said one Luminary. “Then the firm came back a week later and agreed.”
Some firms are still trying to squeeze in rate increases—they are trying to get in the door before the next fiscal year. Some firms are even asking for more than the increase allowable from their guidelines, though this report was from an industry that has not been particularly hard hit. Industry matters. As does the practice area—some firms are holding strong in areas of high demand.
Though receiving rate increase requests during this time came as a bit of a surprise to the clients, they are not necessarily viewed negatively if they are in line with usual ways of working, coincide with the expiry of a previous rate agreement, etc. (though that doesn’t necessarily mean they will agree to it). Clients acknowledge that business will go on even though many other aspects of life remain locked down.
Some Luminaries question whether this is worth all the effort for only a few months, especially if the company has already made multi-year rate agreements with firms that it would be breaking. A better approach might be to use the opportunity to negotiate new alternative fee arrangements.
The Luminaries are concerned about their firms’ business continuity issues, and looking to make sure the firms will be able to serve them; will they have enough bench strength to deliver when needed? Some Luminaries have been vocal with their firms as they look for assurances around continuity, but don’t feel like they’ve gotten straight answers. Firms are claiming they are prepared but many firms are laying off staff. Many mid- and lower-tier firms are expected to struggle no matter what they say.
Firms are also laying off support staff and perhaps ultimately young associates, so how will they handle demand surges in some of the lower priced work?
Different Luminaries have taken different approaches to ongoing work. Some say they have asked firms to hold off on litigation to whatever extent they can. Others believe that “a good case is a closed case” and have asked their firms to continue to work with full alacrity to the extent they can (with courts being closed).
Clients also continue to state that diversity remains a priority, and they are especially concerned when staff are being laid off.
Firms are looking for assurances and are willing to be more creative to get it. Even some big New York firms that wouldn’t normally consider alternative fee arrangements are doing so. Part of the reason is that these fee arrangements come with good payment terms at some clients.
The Luminaries expect this downturn will be very different from 2008 because a lot of firms have already done cost cutting and thought about how they are doing their work. Many of the ‘levers’ available to law department operations professionals to take cost/expense out of the delivery of Legal services have already been pulled. Collaboration between clients and firms is going to be the key to finding higher level, ‘win-win’ solutions that address the needs of both sides.
One Luminary did express some concern with implementing new models that rely on collaboration and creativity if the conversation doesn’t involve the right people who know how to develop and execute creative service delivery options, “Discussions with relationship partners are almost like this is all new to them. They are looking for some help.”
Concerns About Law Firms Pricing and Project Management Teams
One Luminary raised concerns about the job safety of law firm pricing, LPM, tech and innovation staff. Law firms will have to be more efficient, price more effectively, use technology more– and since firms are more likely to cut staff, there is a concern they will cut some of these people exactly when they are needed most.
Firms will have to change the nature of their staffing, both towards lower cost resources and also because certain practice areas will be busier than others. It’s a mistake to just look at the bleeding, as this could be a v-shaped downturn with a quick recovery. Law firm billings did not go down last month – we’ll see what happens in April – but in 2008 they dipped immediately. It seems a lot of firms are hedging, just planning for the worst.
Law departments are starting to repurpose some staff. They are starting to identify which areas are not busy (e.g. M&A) and see who has skills to move to plug holes, and in some cases work with law firms (under AFA) to provide support for those teams.
At least one Luminary sees an opportunity to get internal teams to double down on tech use. “We can’t just shift our challenges to the firm. We need to do our own improvements. We are working on those workstreams. This is an open door to take advantage of all the things we wanted to do.”
Alternative Legal Service Delivery Models
The Luminaries had a message for their law firms: To the extent that the law firms are not coming to us with creative options on their own, new uses of tech, captive ALSPs, and other cost-saving idea they can provide, they are crazy.
They also made clear that firms should not be concerned about being penalized for not bringing such ideas sooner. “I know firms are reluctant because they are afraid we will ask why they didn’t present this idea sooner. But late to the game is better than not in the game at all,” said one Luminary.
“It’s not as if these ideas are a secret anyway,” added another.
Overall the consensus was that clients will not penalize firms for bringing them ideas on how they could do things better. It’s never a bad thing.