McKenna: The Demand Side of The Market is Not Demanding AFAs

Patrick McKennaFollowing is a post by Canadian strategist Patrick J. McKenna on his Rants and Raves blog and picked up by LegalOnramp. His comments that "value billing" is a revolution, but nobody came, are new evidence reported in articles on the LawMarketing Portal such as:

  • Study Finds No Groundswell for Alternative Fee Arrangements and
  • Study Finds Weak Client Demand for Alternative Fees.

We keep reading editorials about how the “clients are driving change” and one in today’s Financial Post about how the “clock is ticking on hourly billing.” Then from certain consultants come dire warnings about the potential obsolescence of law firms whose leaders are too clueless to see and react to the changes in the market. On September 14, New York will host a one-day event entitled: The Client’s Revolution. What you should be demanding from your legal advisors in the 21st Century.

Client revolution indeed! Among all of this one sees a lot of smoke, but . . . where’s the fire?

Regular readers of my blog may remember my rant (#396) back on June 30 of last year, entitled: CLO’s Are Not Serious About Change.   In that post I reported on an interesting experience working on behalf of an AmLaw listed, “Go-To” regional firm of over 500 attorneys. I spent two weeks initiating contact with the General Counsel of more than 35 Fortune 500 Companies to explore their interest in investing one-hour to meet.  The invitation was to discuss how this particular law firm could provide exceptional client service and deliver a potential savings of between 25 to 40 percent, or more.   And that proposed savings was accompanied by specific details of guaranteed responsiveness, assured predictability, enhanced added-value, and references from some top New York based Fortune 50 existing clients. To my absolute chagrin, I confessed in my post that I completely struck out! No bunts, no hits, not even a sniff of interest. I subsequently heard back from a couple of GC’s via Legal OnRamp that . . . “unfortunately, change comes slowly.”

Alex Novarese, Legal Week, law firm marketing, AFAsWell, fast forward a year and here’s an editorial from Alex Novarese at Legal Week, wherein Alex postulates that maybe someone called for a revolution but nobody came.

The harder I look at the profession the more convinced I become that clients – the demand side of the equation – are not only generally failing to enforce change, they are, if anything, more conservative than the law firms, which is saying something. What evidence is there that all but a few brave pioneers have even tried to make good on that vision? A financial crisis and a deep recession has hit Western economies and little has changed beyond a modest uptick in alternative billing. The internet? Disruptive technologies? Such trends have unquestionably forced more transparency onto the legal profession and in theory should give clients scope to take control of buying legal services. But, as yet, there has been little to back up the hype in terms of shaking up the industry or empowering clients.

Alex continues . . . outsourcing, offshoring and attempts to unbundle legal service provision – experiments in these areas are being pushed more by managing partners than pulled by clients. It was the same in earlier years when law firms went international, which was as much a strategic bet taken by the profession as a response to client demand. 

As an explanation for this lack of urgency, one commentator suggested: Unlike the management in law firms, GCs dont change every few years – they stay in leadership posts and maintain old practices. Change will take time, but perhaps it will require a generational change inside the in-house world to really make a difference.

Perhaps the real mystery is why clients are quite so ready to tolerate the status quo.  Why do some GCs make a show of complaining about the cost of legal services when they do almost nothing to materially change things?

As yet another commentator opined: Perhaps, moaning about fees gives a sense they are responding to the predicament they are in, effectively signing blank checks for legal services on behalf of their company. But, the alternative – to do something about it, is not a strong enough driver for many GCs. One has to ask, what is the benefit to the GC in annoying law firms by driving down prices, demanding fixed fees, or insisting on other non-traditional methods? For many there is none. No one in the company is second-guessing the GC’s decisions, they can maintain the status quo unchallenged. The law firms they work with are doing all they can to assure the GC that the legal spend is justified. The GCs themselves are busy, have a team to worry about, and ultimately they are spending other peoples (shareholder’s) money, not their own. For most GCs their salary is not directly linked to how efficient or inefficient their legal spending is. 

In summary, there is little incentive to change business practices unless it benefits you. For many GCs the positive / negative impacts are still too slight. They are in an accountability blind spot and few have someone going over their spending decisions with a critical eye. Most CEOs worry about their company winning the litigation, not whether the legal spend has risen by another “x” percent this year. It all makes one wonder: Who will put pressure on the GC to change?

I remember an engagement that I was involved with in the early 90s with McKinsey & Company. It involved helping “re-engineer” the legal department of a Canadian-based, international conglomerate to determine which law firm or combination of firms offered the best value proposition. Their strategic decision was whether to continue with the internal legal department as is, or whether they should shut down their internal legal capability and outsourcing all of the work. Only after the decision was made and the outside law firms were chosen did it occur to me that a couple of the choices of firms made, were not based on value at all, but were safety chutes for certain senior lawyers who would be remaining as employees within the legal department, should they ever decide or be forced to go back into private practice.

In the end things will change. Corporate behavior will slowly evolve; more CEOs and shareholders will take notice of legal spend as it grows and grows; GCs will adopt new practices simply because they dont want to stand out as someone who is not following what has become best’ practice. Things will change, but on the client side, it may yet be a long, protracted process.

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