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October 30, 2013

Two new surveys reveal what legal clients want

Every year around this time, I look forward to reading Altman Weil’s annual survey of in-house law departments to get insights into the needs of legal clients.  When the results of the 2013 Chief Legal Officers survey came out last week, the first thing I noticed was that “78.5% of CLOs negotiate price reductions from outside counsel to control costs.” I’d love to see a list of the 21.5% of companies that don’t negotiate.

Then I turned to this key question about what CLOs want law firms to do differently:  “Of the following service improvements and innovations, please select the three you would most like to see from your outside counsel.”  This year’s top three were improved budget forecasting (57%), greater cost reduction (52%) and more efficient project management (52%). 

Since better legal project management (LPM) leads to improved budget forecasting and to cost reductions, you could say that the top three client requests were LPM, LPM, and more LPM. 

The survey was based on questionnaires filled out by 207 law departments and is largely focused on their internal operations.  It also included a very interesting discussion of CLOs’ preferences for four types of pricing:  transparent, guaranteed, value-based and lowest price.  However, my interpretation of those results will be based on what I am hearing in my AmLaw 200 interviews on Client Value and Law Firm Profitability which are still underway, so that discussion will have to wait for another day. 

The survey also found that 29% of law departments plan to cut spending on outside counsel this year, while only 15% plan to increase it.   (For the remainder, 49% said that spending would stay the same, and 7% were not sure.) 

Spending cuts like this have been going on for years.  In a different survey of 968 senior legal decision makers entitled Winning and Losing Business, Acritas recently reported that in the last year, one out of three of the world’s largest companies have fired at least one law firm.  The most common reason for “firing” is an inevitable fact of life that law firms cannot avoid: the case or matter ended (20%).  The next two reasons for being fired, however, are very much under law firms’ control:  the firm was too expensive (19%) or its lawyers were slow or provided poor service (17%).  Both can be addressed by LPM.

In our experience, prestigious firms often think they are above this trend, but according to the Acritas survey (p. 4): “Prestige certainly does not provide immunity from dismissal. Three of the top four most fired firms are market-leading premium global practices. This significant shift away from premium-priced firms as primary providers is a trend we have seen developing since 2010. Under pressure to control external spending, clients are becoming more selective in their use of ‘elite’ firms, reserving them more for bet-the-company work or highly specialized matters alone.”

There is every sign that price pressures for every type of firm will continue.  Reverse auctions in which the low bidder wins, the race to the bottom, and what Bruce MacEwen has called “suicide pricing” are all part of the new normal.

What should you do if your firm is too expensive?  You could cut expenses to the bone and fire “non-essential” staff and associates.  Oh wait, you probably already did that.  You could slash your own compensation, but I don’t see too many lawyers lining up to volunteer for that option.  Or you could learn to become more efficient, by applying legal project management. 

The choice is yours.

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