By Jae Um
As the first quarter of 2021 winds down, we are still slogging along #pandemiclife. In our smallish corner of the world, the usual lineup of industry reports on how legal business fared in 2020 gave us a degree of familiarity (though perhaps little comfort). For a dash of novelty, we have a new entrant in this lineup: Legal Value Network’s very own Legal Pricing and Project Management Survey. (Hat tip to the Blickstein Group for another home run!)
Sticks and stones from glass skyscrapers
To put it mildly, most of the headlines on early 2020 returns on law firm performance were reductive. Reactions across the trade media and Twitterverse ranged from eye-rolling disdain to indignant outrage that law firms displayed the temerity to turn a profit in a year rocked by global calamities. Meanwhile, the S&P 500 reported their earnings… with 3 in 4 reporting earnings above estimates. That would make Q4 2020 the third best quarter for that metric since 2008.
They say people who live in glass houses shouldn’t throw stones, but perhaps this is one of the privileges of being a client. I expect some of these sentiments will reverberate across many rate and fee negotiations in the coming year, particularly once the AmLaw rankings publish firm-specific results.
The New Austerity is opportunistic
And that’s perfectly ok – as long as the commercial teams on both sides are ready to haggle.
The LPPM survey teased out several areas in which firms and clients simply can’t agree. While the survey authors did a great job contextualizing some of these gaps, I’ll add my 2 cents.
When 94% of firms believe they are making a strong effort to understand the problems clients face but 43% of clients disagree, better communication may not be enough. Here, specificity and clarity are needed – much more than can be captured in a sentiment survey.
I suspect the disconnect is one of scope. Fee earning teams at law firms do expend extraordinary effort to understand the client’s legal and business problems on which they are engaged to advise and counsel.
The mandate to reduce corporate legal spending is by definition out of scope for outside counsel. That’s not to say that outside counsel shouldn’t participate in strategic, multi-year efforts to drive positive change in how services are delivered; firms that hope to retain their key client roster should certainly be investing to modernize service delivery.
However, the individuals hired by corporations to execute those objectives are law department managers, not pricing and project managers across their supplier network. If clients expect law firms to demonstrate their understanding of these issues by simply freezing or cutting rates and invoiced amounts, I expect this gap to persist.
What makes a customer a customer?
One of the cornerstones of a free market is the freedom to participate. The market that decides the prevailing price comprises both buyer and seller, and it is the seller who proffers a service with an asking price; countering or walking away remains the buyer’s prerogative.
In classic economics, “demand” comprises both the desire to purchase a given product or service and the willingness to pay the asking price. Prospective buyers who lack the ability or willingness to pay are by definition are not customers. I am a willing buyer of $5 lattes, $100 yoga pants, and on very special, wonderful, memorable occasions, $5,000 handbags. As much as I like negotiating and for as long as I’ve coveted a Birkin, I probably won’t be walking into Hermes any time soon to ask them to drop the $20k price tag to match Chanel, Coach, or Michael Kors.
In 2021, corporate clients have more choices than ever when hiring legal service providers, and I think that’s a good thing. Clients are free to ask for pricing concessions, and they do, across the board; law firms should grant them when it makes sense for their business, instead of across the board.
Perhaps it’s time that law firms and clients both cut the cord on some of their unhappiest pairings. I’m perfectly happy with my Chanel bag, and I suspect Hermes is selling plenty of Birkins without me.