Another mistake: Overestimating the value of personal relationships

A few weeks ago, I wrote that the biggest mistake lawyers make in developing new business is failing to listen.  This week I’ll talk about another mistake that is not quite as common, but just as deadly: overestimating the value of personal relationships.

As David Fine, city attorney for the City of Denver put it at a recent panel discussion for general counsel hosted by the Rocky Mountain Chapter of the Legal Marketing Association:

I don’t need to have a close personal relationship with my outside counsel.  I really don’t want to play golf with them or see them outside the office. But I do want to have a good professional relationship with them.  [They should] help us do our jobs better.

And, as several other panelists at that session stressed, these days the best way to help GCs do their jobs is to provide more value. 

In my experience, many lawyers don’t understand that the value of personal relationships has declined.   This mistake is seen most often among senior lawyers who have been working with the same clients for years, especially those who have been relatively unaffected by the economic downturn.  They’ve built entire careers by taking clients to sporting events and developing personal friendships, and believe that the best way to succeed in the future is to just keep doing the same thing.

Their behavior reminds me of the book Seduced by Success, in which Robert Herbold explains how companies like General Motors have fallen into nine success-induced traps, starting with “Neglect: Sticking with yesterday’s business model.” As Herbold says, “You believe that what enabled you to become successful will enable you to be successful forever.” Anyone who believes that will be wrong. The only question is when.

As Bill Gates put it, “Success is a lousy teacher. It seduces smart people into thinking they can’t lose.” 
When I started writing this blog five years ago, my first post described how Tyco had reduced the number of law firms they used for product liability cases from 167 down to one.  Interestingly, the one firm they ultimately decided to use - Shook, Hardy & Bacon – had not done business with Tyco before.  Shook, Hardy & Bacon did not win based on personal relationships, they won on value.

In its most recent annual survey of Chief Legal Officers (CLOs), Altman Weil reported that:

CLOs rated the importance of "relationships" with outside law firms at exactly the same low level, whether for critical work, important work or commodity work.  The personal element apparently doesn’t carry much weight in the hiring decision.

The decreasing importance of personal relationships may be surprising to some lawyers, but it has been true in other businesses for some time.  As the ACC Value Challenge Briefing Package notes,

For the past two decades, there has been an unrelenting drive by companies and their suppliers to reduce costs while increasing quality and value in their products and services.  The only outlier seemed to be the law firms.

In the book What the Customer Wants You to Know, consultant Ram Charan explained how the internet and the global economy have changed the way customers think, and that in turn has changed the nature of selling.  “[Businesses] are under enormous pressure to deliver value to their clients and their shareholders.  They are compelled to use the newfound power of transparency and overcapacity to drive down prices.”  In the past, “Salespeople built long-term relationships, cementing those ties with golf games, skybox seats and theater outings” (p. 3).  But “now the context is completely different” and those types of personal relationships no longer give salespeople an edge.

If they are not spending as much time playing golf, what are sales people doing instead?  In Escaping the Price-Driven Sale, Tom Snyder and Kevin Kearns explain that to succeed in today’s economy, “sellers have to create value by providing insight” (p. 17).  The authors argue that powerful forces of commoditization are driving prices down in every industry around the world.  The best way to “escape these price-driven sales” is to develop “business acumen” and focus on how the solutions you offer increase clients’ revenue, margin, and/or profit (p. 75). 

In his influential article Welcome to the Future: Embracing the New Normal, Paul Lippe described a very similar idea in his themes for law firm success:

In the new normal, the theme will be client intimacy, where firms do a better job of enabling success and preventing failure by being more tightly integrated with and knowledgeable about clients.

As jazz great Miles Davis said in his autobiography, “The world has always been about change.” The legal world is changing, and there will be winners and losers. The winners will be the firms that adapt fastest to the new normal, recognize that personal relationships have lost their power, and provide clients with more value TODAY.

If I managed a law firm, I would start by slashing the entertainment budget.  Then I’d invest that money, and more, in working with top clients to provide greater value.

This post is a preview of material from the second edition of The LegalBizDev Desk Reference, which will be published next fall.  To see a comment on this post by Fred Krebs, President of the Association of Corporate Counsel, click here.

Comments

[Fred Krebs]

Absolutely on point. I think it is fair to say that the vast majority of clients want a good professional relationship, as noted in the beginning of the post. This includes being effective, efficient, responsive and providing value, as defined by the client!