While business has been experiencing the impact of the economic downturn for the best part of a year, lawyers in private practice seemed largely insulated.
A few months ago law firms were posting record profit figures across the board, but in just the past four weeks the tide has begun to turn.
Last month (November) the headline stories in Legal Director’s sister title Legal Week have been dominated by news of job cuts and cost cutting by law firms. The US firms were the first to be hit but their London counterparts are now following suit. Masons, DJ Freeman and the London office of US firm Brobeck Hale & Dorr have all announced staff job cuts, including lawyers, in the past few weeks.
And many more firms are quietly getting rid of lawyers who do not ‘fit the firm’ or ‘come up to scratch’.
What impact this will have further down the chain – on the client – is yet to be seen.
But as the work dries up and the markets become more competitive in-house lawyers should have greater clout when it comes to client service and negotiating fees.
For the big clients with large external budgets and huge buying power, negotiating with law firms on creative fee arrangements has not been a major problem.
But most of those who sit outside the Ftse 100 have not had this luxury. It is now time to take the initiative with outside advisers who are keen to snap up work. This does not mean simply demanding lower charge rates. If the market is to move forward and clients are to get true value from their advisers, the key is for clients and law firms to work together and be more creative when it comes to negotiating fees.
The current economic situation, with law firms hungrier than ever for clients’ work, should provide the ideal climate for this.
In this month’s Legal Director Benchmarker Survey on outsourcing, heads of legal were asked how high the pressure is to outsource the legal function. On a scale of one to 10, with one low and 10 high, the legal directors gave a mean score of less than three which suggests that, for many, the pressure to cut the in-house team is not high.
But a closer examination of the responses gives a more worrying picture. A significant minority of legal directors and general counsel said that their company had outsourced some or all of the legal function or planned to do so in the future.
One in five companies had outsourced all or part of their legal services in the past five years.
And of those planning to outsource in the next 12 months, 11% intend to outsource either some or all of the legal function.
There is no room for complacency. Proving the value of the legal function will be high on the agenda for in-house counsel in the coming year.
