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Survey: GCs Cutting Back on Outside Firms
The Recorder
June 25, 2008
As if the economy weren't bad enough.
In the latest sign of an ever-tightening legal market, a new survey shows that more chief legal officers are planning to decrease their reliance on outside counsel and increase their in-house staffs in the coming year. To hold their ground, much less gain any, firms have to understand how that consolidation will take place, consultants said.
"General counsel and in-house law departments are starting to stratify their legal services into what we refer to as strategic, important and repetitive, or commodity services," said Daniel DiLucchio Jr., a principal in Pennsylvania with Altman Weil, which conducted the survey this month and last. Of the 126 chief legal officers who responded, nearly half hailed from companies with revenues of $2 billion to $10 billion.
DiLucchio defined price-insensitive strategic work as that which advances a business, important work as that which is critical but has no impact on the direction of a business, and price-sensitive commodity work as that which is widely available.
About half of the respondents have fired or are considering firing some of their outside counsel, up from one-third last year. And while the majority -- nearly 65 percent -- said they will continue to use outside counsel the same amount, just over one-fourth of the respondents expected to decrease their use of existing outside counsel, up from about one in six last year.
More respondents than not said they would hire additional in-house lawyers in the next year -- the last time the survey got a result like that was in 2000.
While firms already stratify work and the related billing by, say, shunting document review from top-paid senior partners to lower-billing first-year associates, consultants said they'll have to do more. Client-development professionals said the best way to maintain relationships with clients is to create customized packages for bigger clients and to play up firm strengths.
"They can't be everything to all people," said Mozhgan Mizban, a San Francisco consultant with the Zeughauser Group.
Cost will continue to be the greatest concern among chief legal officers over the next five years, survey respondents predicted.
Respondents also said that cost management was the third most important factor of many in deciding which firms to fire, behind mishandling critical matters and poor-quality legal work.
While firms need to be prepared to offer packages to their biggest clients, Mizban said, that doesn't simply mean discounts.
They can say, "'Look, for the high-end work, we're going to charge a premium, or charge you more, but in return there's all this number of hours for this day-to-day, repetitive work, we're going to give that to you at this price,' and it's a lot lower than their regular rates."
Mizban said the trend could provide opportunities for firms that are willing to adapt.
"If they're doing some top-line work for a company and they have other core practices, whether those practices are considered as important or repetitive, they've got to be putting together packages for those clients," she said. "Otherwise they're going to become a boutique ... or they're going to get acquired."
Conversely, she said, firms can gain clients by taking on work in the "important" category and building a relationship with clients.
Suzanne Hawkins, the chief of practice excellence at Heller Ehrman who oversaw a consolidation for General Electric in 2004, said she was often asked by firms how they could get some of the top work from GE.
"I used to say, 'Well, you need to work for one part of the company or one particular group, and once you're known, then you might get invited to work for other practice areas.'"
