Firms move up and down in the standings, but the rankings don't matter as much as a given law firm's presence on our charts. (And even with our refinements in how we gather the data, most blue-chip firms are regulars.) With this survey, we aim to show who's hiring whom. Plus, it gives us a good reason to examine one of the most crucial decisions made by corporate legal departments: which law firm to hire when the company's future could be in peril.
Make no mistake: The client/outside counsel relationship may be an old one, but it's constantly changing, even if the changes don't amount to bloody revolution. (And it bears remembering that the sacred billable hour itself is a fairly recent invention, dating back to the 1950s, and only a standard practice since the 1970s.) A survey by Altman Weil last year shows how the relationship has morphed.
We're often writing about "convergence," or the winnowing down of a company's law firm roster to a select group from an unwieldy constellation of hundreds of firms. E.I. du Pont de Nemours and Company was an early champion of convergence, and fairly recently the drug giant Pfizer Inc. slashed its firms to fewer than two dozen. Altman's survey shows, in fact, that 67 percent of the departments that were polled have either a formal or informal panel of firms.
Says consultant Leigh Dance, president of Brussels-based ELD International Inc.: "Convergence is the quickest way to make yourself a hero within the company." Especially, she adds, when outside counsel costs typically amount to half of the legal department's spending.
More telling is the pressure the departments are exerting on their firms to "change the value proposition" (rather than, as the survey says, merely cutting costs). The survey asked the departments to note on a scale of 0 to 10 (10 being intense pressure) how hard they're riding their firms. In the past two surveys, the average response rose from 5 to 6.4, with a sizable 13 percent of the respondents in the most recent survey, 2011, giving an "8" response.
The survey also showed a wide disparity in what firms seem to be willing to do in response to this pressure from law departments. When departments were asked how serious firms are about change, the largest response, almost 26 percent, rated them only a 3.
Still, there's a certain amount of inertia involved. "The GC's job is on the line" when trouble hits, says Altman's DiLucchio: "You don't shop around when you have a heart attack." Adds Hackett: "It's very, very hard to fire a law firm."
So we're not exactly seeing a revolution here; change has been incremental. What's more, it really depends on the nature of the work. Some workroutine labor matters, for examplecan be bundled and subject to a reduced rate. High-stakes litigation? Not so much. But even there, says Dance, "there's still pressure on pricing." In-house counsel are watching closely on how matters are staffed, and e-billing allows them to keep close watch on expenses.
In-house lawyers, too, are wary of saying that the post-2008 climate is revolutionary. "Those years didn't cause change, but accelerated it," says Cameron Findlay, general counsel of Medtronic Inc. and one of the winners of Corporate Counsel 's Best Legal Departments this year. The crisis "forced every company to scramble to cut costs."
What helps the in-house departments, adds Findlay, is their relatively newfound ability to see what their firms are up to, thanks to better technology. "All that data comes in electronically, and you can massage it and see what happens at different stages [of a matter]," says Findlay. "If someone's an outlier, it arms you to have a discussion."