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If You Build It, He Will Come

David Burgess, publishing director of The Legal 500, offers an insight into the changing nature of legal service delivery models and how in-house legal departments are driving reform – or not.

Creating Change

David Burgess

Publishing director, The Legal 500

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Over the past year, I’ve spent a lot of my time talking to GCs, in-house legal teams and partners in private practice, to ensure that what we are doing at The Legal 500 matches up to the needs of the market.

Over the course of this exercise, I keep coming back to the most fundamental part of our business: the relationship between law firms and those who instruct them. And I’m sorry to say, but in my eyes, in-house lawyers are simply not stepping up to the plate.

It’s a hard thing for me to say, but if The Legal 500 is to help deliver better value and develop the role of the legal department within businesses, I have to be honest.

Yes, the usual complaints about the way law firms run their ‘businesses’ – the lack of succession planning, the ever-increasing bills, paying to train the associates et al – are all valid issues that need tackling. I get that. But I have to say, you are the enablers of this behaviour.

What we all hear from GCs is that budgets are being squeezed continually and they have to get more from their firms for less. One GC told me recently, ‘The amount of money that these firms are getting from us has been drastically reduced and that trend is just going to continue – we will continue to find the savings and they will just have to adjust their models if they want to work with us.’

This might be true for a few, but as a whole, it’s just not accurate – and the numbers back that up. In the latest figures published by Legal Business, the revenue of the Global 100 law firms stood at $98.82bn USD, a rise of 3% on the previous year, with profitability rising 5% over the same period.

You can argue it is the smaller firms that are suffering more as they face increased competition from alternative service providers, and that subsequently those models are being changed. But I just don’t see much evidence that those law firms are changing – and it’s definitely not top of the agenda for BigLaw.

Here’s the truth: law firms are the most reactive entities you will find in modern business. A partner at one of the largest global firms gleefully embraced this when he told me, ‘We always talk about change, but the reality is that our clients don’t have time and resource to push us on it, so we’ll just continue doing what we always do.’

And to be honest, what incentive have law firms to change their model?

Again, go back to the numbers. If you ran a business where profitability was, for two thirds of the Global 100, over 33% (rising up to over 60% for Wachtell, Gibson Dunn, and Quinn Emanuel), you probably wouldn’t think about looking to change. And because of the partnership model, inherently, there is even less incentive. One senior partner recently confessed, ‘We probably do need to think about this, but I’ll leave it to the next set of partners once I’ve retired.’

As GCs and in-house lawyers, you have to create the change you want to see.

It’s true that we have seen some movement on this from individual companies: Microsoft, for example, plans to have 90% of its legal needs handled on a retainer basis and other alternatives to hourly billing, within two years. David Howard, Microsoft’s deputy general counsel, told The New York Times: ‘We want to create a situation that encourages our lawyers to be able to pick up the phone – without going through bureaucracy or worrying about how to pay for it – and talk to the law firm about whatever is needed’.

Have their law firms agreed to this change? We understand that, so far, 14 firms have.

But it isn’t enough. More in-house teams need to push at their firms to force change.

The recent rise in legal operations is certainly going to help with this, as one of that function’s key responsibilities is looking for smarter ways to get value from external providers. This includes procurement departments: a set of specialists that strike fear into law firms!

As in-house legal departments attempt to innovate, law firms are trying out a raft of new ventures too – a trend highlighted recently in the Legal Services Innovation Index (gcm.ag/LSI_index). Yet the general feeling remains that these ‘innovations’ are to prop up the profits for the firms, and not to pass on the value to you, the client.

The reality is that there is no magic bullet to reduce your costs. But if you don’t pressure your roster of law firms to do more for less, they won’t change voluntarily – and the long and short of it is, it will ultimately be your fault.

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