In a recent interview about his advisory work on behalf of Patton Boggs (now a part of Squire Patton Boggs), Zolfo Cooper’s Joff Mitchell recommended that law firms “get your house[s] in order.” While not all law firms today face the challenge that Patton Boggs faced and which Mr. Mitchell helped resolve, there are indications that firms should take heed.
Last week the Wall Street Journal’s Jennifer Smith reported on the growing competition that law firms face from their clients. As Ms. Smith noted, more and more companies are using their internal legal staffs to perform the routine work formerly sent out to private law firms. The data Ms. Smith recounts can be scary and tells a story that should concern law firms that are trying to survive in this ultra competitive legal environment.
It is not that clients have ended their relationships with law firms. Rather, today many clients reserve for their law firms’ only special projects. The routine legal work, previously a core component of a law firm’s business base, is being taken in-house. In bringing this work in-house, clients perceive at least three benefits. For one, many feel that law firms used the routine legal work to train the firm’s young lawyers-all on the client’s nickel. Saving that expense goes a long way towards funding an in-house legal department. Secondly, clients are finding that their company business units prefer the in-house lawyers for various reasons, including their better understanding of the client’s business. Finally, many clients find it cheaper to keep the legal work.
In the face of this competition, today’s law firms might consider it wise to “get your house in order.” But, how? Among other things, firms can:
Become More Specialized. Clients no longer see the benefit of paying for routine legal work when in-house lawyers are cheaper and more efficient. The commodity work that formerly supplemented a law firm’s more interesting and complicated matters will be harder to come by. Firms should recognize this fact of life and move away from offering a broad range of services. Instead firms should concentrate on the substantive area of their expertise. By building off that reputation and growing in specialization, a firm will be doing the legal work clients cannot do. And unlike the difficulty in touting general services, specialization allows a firm to differentiate itself more easily.
Change the Firm’s Make-up. Clients no longer want to pay for the privilege of training your baby lawyers. In part, that drives them to use their in-house staffs to perform the repetitive legal work your firm previously devoured. Morgan Lewis & Bockius has recognized this and is placing its young lawyers directly with one client for training and subsequent hiring later. As you move from generalization to specialization, remake your roster of lawyers to more senior lawyers with experience in the firm’s chosen specialties. Because younger lawyers have not developed the critical expertise, many will have to go. Morgan Lewis‘ approach may be a partial solution.
Pursue Clients That Don’t Have Legal Departments. If you can’t give up the commodity work or need time to phase it out, pursue clients that have not yet graduated to establishing a legal department or hiring an internal legal team. Generally, this means pursuing a middle market client base. Unfortunately, diving into the middle market is not a panacea. Because middle market clients are not going to find large firm rates acceptable, they may balk at the kind of rates previously charged the large clients that are now the competition. Thus, if going after the middle market client, it is imperative that the reduced rates get modeled into the firm’s budget.
Competition is coming from many directions. Are you taking steps to deal with the competition from your clients?