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.
Extended Payment Terms
One Luminary, whose company is in good financial shape, started by saying that they are not asking for extended payments, in fact, they have reacted positively to some smaller firms who have asked them for shorter terms, as a matter of good faith. But they haven’t done so proactively; only reacting to partner firms that ask. And it’s a minority of the spend, anyway, since most of the work is done on AFAs and that work on retainer that is paid out regularly on a quarterly basis regardless.
They did point out that many of those arrangements are up for renewal and they do plan to be more aggressive about pricing. “We are concerned that firms see we are doing ok and we can be their cash machine. We plan to still be smart and frugal.”
Firms’ Marketing and Communications Can Frustrate
There is some feeling that firms have been panicking prematurely and have not been forthcoming about their financial positions. The Am Law numbers are out and many firms had record growth in 2019. The feeling is that firms are often quick to try to raise rates, claiming that their talent is costing more, but many have announced compensation cuts. “It’s so classic. No one wants to admit weakness. I have 1001 COVID-19 newsletters, but not any real discussion about how they are doing.” Meanwhile, it’s obvious most partners take a lot of cash out every year and are expected as owners to put it back in as necessary.
The group senses that much of the firms’ reactions are kneejerk, pointing out that in most discussions they claim they are busy, that they planned for this, that they are rebuilding their bankruptcy teams, etc. We have seen enhanced marketing based on the pandemic, but it’s been mostly a lot of talk. Not much sharing. There is an opportunity for firms to reset the conversation, but firms have not been open about how they are working to get through their issues and opening a dialog.
One Luminary (whose business is publicly suffering) surprised the group by stating that they had received five requests for rate increases from their firms in the past month. The tone deaf nature of the request was shocking to those on the call. Another one reported that one of their preferred firms is focusing, even now, on revising their existing agreement despite the inopportune timing in an attempt to document revised terms as quickly as possible.
Some firms will fare quite well. Some will fail. But often the rich get richer. Those firms asking for increases may simply be in a good competitive position. Strong firms at the top of the A-list never get too hurt by these downturns.
Value of Value Adds?
Some Luminaries were keen on value adds and wonder why firms aren’t offering “a list of stuff I can do for you right now. If it was real stuff I could sink my teeth into, I’d be loyal forever.” This comment had almost universal agreement on the call.
One member claimed that some firms have reached out offering free advice, offers to sit on the company’s COVID response team, secondments, or answers to questions without starting the meter. Some claimed that other vendors, like consulting companies, have been more proactive in offering free services where law firms have not.
One Luminary, however, spoke out strongly against seeking value adds. “Times of crisis are not the time to get freebies. If you have a relationship with your firms, you are likely already getting value adds and of course they shouldn’t be taken off the table.”
It’s also become clear to the group that the reaction of law firms is often a function of the client’s perceived pain, with a lot more receptivity in sectors that are fighting for their lives. “It’s a very uneven downturn.”
Alternative Legal Service Providers
Some members reported that they have already increased their deployment of ALSPs, and they expect their counsel to work hand in hand. Such arrangements can save 30-65%. They are also getting less pushback from firms and more traction from the department with such initiatives. Some in-house practice groups where the issue has been raised previously have been coming back with interest. In other instances, practice groups are simply more interested in hearing about it. It seems budget constraints have led to better traction on change management and innovation.
Some of the work heading to ALSPs is associate-level work; a lot is paralegal-level, with legal ops managing it for the practice group. It’s mostly in litigation support but will be expanding to other work that the law department simply has to get done, like third-party subpoenas.
About 25% of Am Law 100 law firms have “Captive ALSPs,” either as practice groups or affiliated entities. The Luminaries were surprised to hear that number is so high and were wondering which firms they use have them. “It would be interesting to see THAT as a marketing push rather than Covid, Covid, Covid. Firms need to talk about the value proposition they can bring.” Consensus was they’d be interested in such offerings and internal stakeholders that may have previously stuck their noses up at such ideas may now be receptive.
Some Luminaries would competitively bid Captive ALSPs against regular ALSPs even though they may be less cost competitive. The idea being that some internal stakeholders would gladly pay a premium to stick with an offering from a “brick and mortar” firm rather than the “dreaded ALSPs.”
One Luminary noted that last week’s LVN Luminary Law Firm notes included a comment that the firms are worried about their brand. Another said “It seems like they are hiding this from their clients. Maybe that’s on purpose. It seems they only talk about these offerings when they are forced to.” The group in general expressed frustration about this.
It was also mentioned that many of the partners at firms seem to be generally unaware of the potential to leverage these resources to reduce cost to their clients. They’ve done work a certain way for a long time and haven’t explored how they can change those ways of working even though their firms have invested in the ability to do things more efficiently.
Some in the group feel that law firms are not the right organizations to build ALSPs, and that a better solution might be in firms identifying the best third-party partners to set up relationships with, in order to combine the efficiency/cost-competitiveness of ASLP work with what the law firms do well. “We don’t want to manage multiple partners. We want to go to our firm, have them come with ideas to leverage lower cost resources (both internal and external), and operate almost as a general contractor.” Others agreed, and said they reward firms who will lean into that.
Dealing with Procurement
The group as a whole expressed disdain at a comment in last week’s LVN Luminaries Law Firm notes that they’d prefer to work with GCs than Procurement, pointing out that firms need to work with Procurement in order to help companies control costs. “Everyone else deals with procurement; law firms don’t get to avoid it because they think it’s weird.”
Still, the group was clear that they understand why firms are oftentimes frustrated with Procurement and most in-house counsel don’t like working with Procurement much either. “The issue is that Procurement sometimes thinks of legal work as a commodity and law firms don’t always do a good job of differentiating themselves enough to disavow them of that notion.”
The general consensus on the call was that Legal departments are generally forced to work with Procurement when they are not able to demonstrate they are being a good steward of corporate funds. It’s a balance: line counsel may not like the controls put in place by Legal Ops, but if they don’t live by them, they’ll be forced to deal with Procurement.