According to one source, the top 200 law firms in the US earned $84 billion in 2008 (See my post of July 7, 2009: 200 largest US law firms and their revenue in 2008.). I have not seen estimates of what portion of these firms’ fees come from corporate entities – let alone corporations with legal departments, but it seems plausible that 90 percent comes from them (about $76 billion).
Another source announced that “The US corporate legal services market generates $96 billion per year in spending of which spending on outside counsel accounts for $64 billion” (See my post of Feb. 26, 2008: estimates total US law department expenditures.). come from the US law firm revenue in their international operations? I have no idea how much revenue the international branches generate, but at least 15 percent might be reasonable.
In 2008, the Fortune 500 companies surpassed $10 trillion in revenue. If we assume 0.5 percent of their revenues went to legal costs (excluding fines, judgments and settlements), a benchmark percentage that is middle-of-the-pack, that means about $50 billion, of which roughly 60 percent typically goes to outside counsel -- $30 billion (See my post of Oct. 12, 2008: estimate of legal spend by Fortune 500.). Many companies outside the Fortune 500 use external counsel, but surely these giants account for a large portion of US law firm fees.
According to the Economist, Dec. 17, 2005 at 57, “about $250 billion is spent on legal services world-wide, about two-thirds of it in America.” That means about $165 billion in the US, but I do not know whether that figure includes the costs of inside lawyers (See my post of Jan. 10, 2006: reference to the $165 billion figure.). The same post mentions that according to BusinessWeek, Sept. 18, 2006 at 42, the total revenue of the US “legal services industry” amounts to $225 billion. The largest slice of that pie belongs to law firms, I am persuaded, so perhaps 80 percent is law firms: about $160 billion. Since consumer spending is about 3/4ths of our economy, is it reasonable to estimate that they account for the same proportion of legal fees paid law firms? No, but perhaps they account for half the fees? That would leave something like $90 billion for corporate spending on law firms.
I give up. I can’t reconcile these widely different estimations of what US legal departments spend on US law firms.
“Even if a firm has the expertise, if their business and communication style isn’t compatible with ours, it doesn’t really help.” This quote from a general counsel of a small company in Canada comes from Future Law Office: Delivering Value-Added Legal Services in Challenging Times (Robert Half Legal 2009) at 5.
“Business and communication style” conflates impressions of the firm’s billing approach and chemistry (See my post of July 4, 2009: modest value ascribed to “chemistry”.). The more specific aspect is how the partners communicate: quick calls, emails, memos, treatises, in-person, frequently, big picture first or details first …. For some in-house lawyers, however they perceive and value “communication style” is important. De gustibus non est disputandum.
Previous metaposts have compiled my comments on various aspects of law firm marketing: beauty contests, brands, cross-selling, and marketing (See my post of Nov. 28, 2007: law firm brands with 11 references; Jan. 28, 2008: brands, marketing, and cross selling; Dec. 21, 2008: beauty contests with 8 references cited; Feb. 20, 2009: cross-selling by law firm partners with 7 references; and Nov. 5, 2007: law firm marketing with 8 references.)
Other topics written about here highlight various ways law firms seek to market their services, to present themselves well to prospective clients. The truth is, too many topics fall into the bucket of “marketing” for me to sort them all out. Here are just a few examples to show why the distinction is difficult (See my post of June 18, 2009: blogs by leading firms; and July 14, 2009: monthly marketing meetings.): CLE training, consulting, joint recruiting, practice groups, and technology support. It is hard to draw a line and say, “This activity is marketing.”
Some posts straddle other topics, but have significant marketing components (See my post of July 17, 2008: secondment with 12 references; and Jan. 23, 2008: secondments.).
A surprising emphasis on technology training appeared in a recent white paper. A chart summarizes the survey responses from 150 lawyers among the largest in the United States and Canada, reported in Future Law Office: Delivering Value-Added Legal Services in Challenging Times (Robert Half Legal 2009) at 6. The question asked of them was “Which of the following techniques, if any, are being implemented by your law firm to enhance your team’s focus on client services?”
What struck me was that the second most common technique, selected by 87 percent of the lawyers was “Technical tools training or training to help employees maximize technology.” From what I see and hear, law department managers do not commonly mention technology use by firms as shaping and improving the delivery of legal services (See my post of Dec. 6, 2007: software at law firms that most helps law departments.). Maybe they are unaware of the strides law firms have taken; maybe firms over-rate the improvements their technical training has brought about.
By law, it seems, all surveys of legal departments must include a mandatory question: “Which of the following criteria is most important to you when you decide which law firm to retain?” Loopholes in the law allow the survey to fiddle with attributes and wording, but over and over the same basic six or seven attributes show up (See my post of Oct. 22, 2008: law firm attributes for selection with 12 references; Jan. 25, 2009: attributized Bayesian analysis; and March 25, 2009: attributes according to Asian legal teams.).
Yet another instance appears in Future Law Office: Delivering Value-Added Legal Services in Challenging Times (Robert Half Legal 2009) at 14. This particular survey found that “practice area expertise” got 45 percent of the responses, followed by “previous experience working with the firm.” So, overwhelmingly this group of 150 in-house lawyers turn to a firm that knows the particular legal area and has demonstrated their skills before (See my post of April 16, 2009: incumbent firms with 11 references.).
What is different about this survey is the dominance of knowledge and familiarity. “Knowledge of the business/industry” scored 9 percent while “reputation of the firm” got 6 percent. Almost unrecognized was “cost or project pricing,” with a sliver at 3 percent.
A recent white paper quotes an article by Larry Bodine, who “advises law firms to meet with general counsel at least once a quarter, at the client’s office” to talk about the client’s business. His quote appears in Future Law Office: Delivering Value-Added Legal Services in Challenging Times (Robert Half Legal 2009) at 5.
A general counsel could be deluged with invitations for such chats, since any legal department with five or more lawyers probably retains thirty or more law firms. Aside from the volume of requests for meetings, the general counsel may be the wrong target; it is usually a lawyer who reports to the general counsel who has the closest connection with the law firm. General counsel have more important fires to put out.
To be brutal, the sense many general counsel would have is that the visits masquerade for selling more work or additional services (See my post of April 2, 2009: pros and cons of cross selling.). To be even more brutal, they might fret that the partners will charge them some or all of their costs (and hourly fees).
We all applaud law firms that learn about their clients and apply that learning to the kind and quality of legal advice they give. We might not applaud a goal to make monthly marketing treks to headquarters.
To spur your key law firms, tell them how they compare to their competitors. This idea comes from Inside Counsel, June 2009 at 50, which recounts the tactic of Jim Bencer, the general counsel of Williams Co. His legal group "notifies its law firms of its diversity goals along with the fact that it will anonymously share their results, which it measures based on percentages of minorities and women in their firms. Williams then tells the firms how they rank, recognizing those that made the most progress and had the best overall statistics."
A legal team could apply this tactic to several areas. For example, effective cost per hour, ratios of partner to associate hours, training hours provided the client, matters coming in under budget, percentage of bills processed without rule infractions through e-billing. Any measure of performance could be collected and distributed, anonymously, as a comparative performance metric.
Jeanne Graham, writing in the Texas Lawyer, July 1, 2009, quotes the managing partner of Beirne Maynard & Parsons. His comments on decision trees are grounded in reality (See my post of June 17, 2009: decision tree software with 6 references.)
“The firm uses decision tree analysis when creating budgets for clients, basically looking at a series of 'what if' scenarios and their potential costs. For instance, the first scenario might be a settlement with a plaintiff, a second scenario would be the plaintiff bringing in a third party, a third scenario would be whether the case remains in state court or is moved to federal court, he says. The firm can estimate the likelihood of each scenario, and based on the firm's and client's experiences, can estimate what legal action and fees will be required to deal with each, Beirne says.”
Well said; better done. Ask your firm on a major matter to project two or three plausible ways the matter might reach resolution and their estimated fees for each way.
Dialectics appeal to me; the push and pull of opposing views exists all the time on any practice worth a discussion. So in that spirit let me present both sides of the decision to charge a lawyer in a legal department with responsibility for the department’s non-substantive dealings with a law firm (a “responsible lawyer”), starting with the positive side (See my post of May 18, 2007: inside counterpart to relationship partner appointed for each major firm.).
When there is a single point of contact, the firm’s lawyers who work on matters for the client know whom they should call if there is a relationship problem (as compared to a substantive legal issue about a specific matter).
A general counsel can assign these roles, to be responsible lawyers, as developmental steps for subordinates.
These responsibilities spread awareness of outside counsel spend and the challenges of directing counsel.
The relationship lawyer can give feedback to the firm without jolting harmonious ways of working between individuals.
The responsible in-house lawyer has the best overall view to evaluate the performance of the firm.
As with all practices, someone can legitimately criticize the negative sides of responsible lawyers.
The responsibility brings with it too little authority. How much difference can the responsible lawyer make?
A responsible lawyer has to pay at least some attention to matters outside his or her area of expertise.
The role burdens the lawyer with administrative tasks.
Marketing efforts by the firm, notably cross selling, have a clear target, which may further burden the responsible attorney.
The lawyer may have no particular aptitude for the role or desire to do it (See my post of Aug. 22, 2006: the Peter Principal.).
The responsible lawyer might lose some detachment and become a champion for his or her firm. Over time, the objectivity may diminish and decisions about the firm, such as to drop them or expand their role, become personalized, a reflection on the responsible lawyer.
The general counsel has to choose which firms deserve (are saddled with?) a responsible lawyer.
The general counsel has to decide how long each responsible lawyer remains in that role (See my post of April 8, 2005: replacing an administrator with rotating lawyers.).
Despite the arguments opposed to the practice being more numerous, I favor the selective use of the responsible lawyer role.
The Annual Report & Accounts of Juridica Investments Ltd., a publicly-traded company that finances litigation, cites data from the American Lawyer survey in 2008 of the 200 largest law firms in the US. The group of firms earned aggregate revenues of $81.5 billion. Further, says the Report, "Applying percentages from a survey of litigation revenue for this group conducted by The Lawyer magazine in 2007, total litigation revenues for these top firms were estimated to be in excess of $33 billion during 2008."
Hence, litigation accounts for about 40 percent of the large firms’ total fees (40% of $81B). If true, the estimates I have commonly seen and written about regarding 60 percent of outside counsel spend by corporations going to litigation may be too high. These two data suggest that 40 percent may be closer to the mark (See my post of March 27, 2009: breakdown of in-house lawyers by practice area.). We need to consider, however, that the aggregate revenue of these firms comes from companies as well as from individuals. The spend from companies may skew more toward litigation than does the spend from individuals.
