Do Corporate Counsel Really Want Freebies – or Do they Want To Put Big law in Its Place?

By Carolyn Elefant on October 23, 2014

In a buyer’s market for legal services, great work alone often isn’t enough to attract or retain a client. At least that’s what two in-house counsel advised in recent interviews posted at JD Supra and summarized at Daily Report Online. According to these interviews, today’s in-house counsel expect outside lawyers to take the time to understand a company’s business needs, provide services that aren’t billed for and generally increase the size of the pie for the company to make in-house counsel look good to management.

For example, one in-house counsel expressed appreciation to a law firm that invited him to attend a seminar relevant to his job at the company and which also earned him CLE. Ivan Longo, a corporate counsel at CocaCola responded that the smartest thing a law firm has ever done for him is to identify a business opportunity or acquisition. In-house counsel also want their outside counsel to at least apply a cost-benefit analysis to the matters they handle and devote time and effort commensurate with the significance of the matter to the company (One counsel said that the worst thing an outside attorney ever did was to bill more than the company was seeking to recover from the other party).

While lots of law firm coaches and marketers are frantically mailing this information to their law firm clients offering to help create packages, many of these demands are plain silly if we think about them. Really – why should lawyers routinely provide un-billed services? We don’t tolerate those demands from deadbeat clients, so why do we think it’s a good idea to routinely comp a massive corporation? Sure, I understand devoting a few hours here and there to represent help a CEO client’s son incorporate his start up or bail his daughter out of a DUI. But those tasks are personal favors outside the scope of representation. But these corporate counsel seem to suggest that outside firms shouldn’t charge for work within the scope that falls within or closely relates to what the firm has been hired to do.

As for in-house counsel’s advice that law firms manage cases in a business-like fashion, it’s certainly fair to expect that a law firm that was skilled enough to merit retention is also smart enough to realize that there’s little benefit to spending $500k to chase down a $50k debt. But in-house counsel asking lawyers to act not just with a business sense, but as business advisors or business partners may find themselves regretting what they wished for. Just ask Enron.

Frankly, I don’t think that in-house counsel care one way or another whether law firms provide the services demanded. Instead, in a buyer’s market, many in-house counsel (who either hail from no-name law schools and worked their way up through the ranks or jumped ship from big law because they hated it) take glee in making now desperate big firms jump on command. That’s why you have Kia’s in-house counsel, Casey Flaherty ordering big firm lawyers to take technology audits to determine whether they can handle administrative tasks that are almost always going to be cheaper to outsource. That’s why you have in-house counsel insisting on fee caps even if those caps squeeze firms to breaking and force associate layoffs.

Still, what in-house counsel do care about more than anything is sticking to tight and ever-declining budgets for legal work. Ultimately, big law’s way of doing business remains so bloated that it’s becoming increasingly difficult for corporations to justify the cost of hiring a big law — even with all the perks and freebies – when there are so many, many alternatives. As one corporate counsel observed, “hourly fees are getting way too high in many cities and I don’t see how firms are going to be able to continue getting such high rates.”

So from where I sit, in-house counsel who hire big firms and then complain about the cost or bemoan the lack of freebies aren’t interested in savings. Corporate counsel who really want to save money or work with a grown-up who knows how to manage a budget would be hiring solos and smalls and boutiques, where that same (and probably better) $700/hour big law partner costs half as much and guess what – also realizes, as a business owner, that costs and benefits and ROI matter. But hiring solos and smalls still remains a rarity in the corporate world (as is pervasive use of alternative providers like Axiom, though that does seem to be changing) because in-house counsel would rather gratify their egos by making big law dance than hiring lawyers who could actually save the company money and deliver far better value.

4 Responses to Do Corporate Counsel Really Want Freebies – or Do they Want To Put Big law in Its Place?

Those last two paragraphs were spot on!

There’s another reason corporate counsel hire Big Law. Remember the old saying “nobody ever got fired for buying IBM?” Same thing applies. Big Law is a brand name, and therefore in a cutthroat, risk-averse corporate environment, it’s a safe bet. “They are big, they have lots of offices and hundreds of attorneys, several of them went to Harvard, so it must be good.”

I agree, Paul. Inertia keeps prospective customers rolling toward larger, faceless service providers due to the “safety” implied by a big name brand. That’s a challenge for solo and boutique practitioners to overcome.

An important part of beating the big brands is to build your _own_ reputation: highlight the value your small practice will deliver.

TL;DR: Solos expecting regular, interesting, long-term work from corporations are generally being unreasonable. Solos don’t have the necessary resources or contacts, and the costs and risks to the corporation are too extensive, no matter what in-house counsel might say to the contrary. The high cost of large firms is created by a solid value proposition which solos do not (generally) have the resources or expertise to offer.

Hi, Carolyn.

In my opinion, and it *is* just an opinion, in-house counsel would love to hire smaller firms with specific skills. Mostly, because small firms charge less per hour. But, despite what solos (and even in-house counsel) want to believe, price is NOT the buggaboo. Corporations pay the prices that large firms demand because the value proposition is clearly there.

1. Big firms have deep benches. Now, we can suggest all day long that small firms would network out that work, but that leaves in-house counsel with a) no control, which they really do need; and b) unnecessary undefineable risk exposure, which large companies don’t tolerate well.

1a. Even if large companies are willing to tolerate that kind of networked outsourcing, the large law firm walks across the hall for advice. The small firm attorney (usually, there are always exceptions) has to find the right expertise, which may or may not be in her rolodex, make the call, verify errors and omissions, verify conflicts, verify expertise, arrange payment, and finally, get advice. Except for the last, these are all extra hurdles that slow things down and increase costs.

1b. Despite the “information age,” sometimes there is NO substitute for face to face. A large firm just flies in the resource, and bills later (or absorbs the cost if necessary–especially where the value delivered can be absorbed across several departments). For a small firm attorney, the cost of flying somewhere for two days or a week can be substantial, the carrying costs prohibitive, and not recovering the cost is simply a non-starter.

2. Big firms have resources that small firms and solos cannot access, or cannot afford to access. We can pretend, and many do, but it doesn’t make it true. The most important of these, and the one I’m going to talk about here, is connections. These are generalizations, but as a general rule, they are true:

2a. When I was in law school, there was a guy with a D average in my flight. He didn’t care. He knew he was going to get an internship after first year, and he did. After second year, and he did. After third year, in a horrible economy when NO ONE was hiring, he got multiple offers, and he took one with a large firm. Why? Because his grandfather was a sitting federal judge. And his father was no less connected. There were others, less blatant, but they existed, none the less. And my school was not a “name” school. A large firm, by virtue of reputation and resources, can hire from the “name” universities (whether that “name” is a Top 10, or the largest/most prestigious in a given state), where the “connected people” go to school. And they can hire “connected people” from anywhere they choose, as well.

2b. A few years ago, I did some work for one of the larger law firms in the country. At the time it was growing, and not that large, but it had a number of very, *very* big clients. Why? Because one of the partners had gone to an ivy league school, and knew the CEOs and/or CLOs of a large number of companies, and he leveraged that. Other partners did the same. Would it have mattered if he wasn’t a good attorney? Of course not. He wasn’t doing the work. But given that he was a good attorney, people prefer to work with people they know.

2c. Now, here’s the thing. This happens all across the country. The big firms eat up the most connected graduates, AND the ones with the high grades. It’s in their best interests to do BOTH. Sure, they’d rather not have D students, and probably today they don’t have to tolerate that, but it doesn’t matter if they do. They WANT the connections. They use these people to get to their connections, not for their lawyering skills.

2d. So, what happens? You, Carolyn, for example, are a great FERC attorney. But you can only have so many connections. Lets say you have 2000 people in your rolodex, and lets say 10% of those can and do regularly award you business. That’s 200, which is very high, but you have a fairly well-known blog and good presence and location off-line as well.

You can increase that number. Maybe to 500 regularly awarding you business, which to me seems astronomical. But in the end, there is a limit. At some point, you’re spending so much time talking to connections and doing presentations, you can’t work anymore. Since, in a small firm, the ENTIRE POINT of hiring you is to get YOU, and not your associate, your value actually goes DOWN.

In a large firm, this isn’t an issue. You can have people in the firm who do nothing but bring in business through personal connections. Their time is so valuable that actually having them do billable work is a bad idea. But lets say the firm just wants them to spend 10 hours a week marketing. ALL 2000 of their attorneys are averaging 10 hours a week marketing. Some are more effective than others, but ALL OF THEM are doing it. Some of them have ten connections, and some have 200, some increase and some don’t, but they were all hired for their connectivity (and if they fail at the connecting thing, they’re gone by year five or six, no matter their grades).

Plus, they have support from a full-time marketing team to do the crap work (mailing, research, digging for phone numbers), and to figure out where to point the marketing.

That’s 20,000 lawyer marketing hours a week, or ONE MILLION HOURS per year. And all 2000 attorneys are marketing, NOT to strangers, but to their best friends from law school and undergrad, plus their family connections (which they were hired for), plus new connections they make over the years. A solo, or small firm, cannot POSSIBLY compete with that. Even if someone went to Exeter, then Stanford undergrad, then Harvard law, and was the most popular person in all schools, AND had a great family background, and kept up with all of his/her connections religiously, and for some unknown reason chooses to be solo, and hires a full-time marketing support person who is the bomb, they STILL can’t market a MILLION HOURS per year. For a large firm, that’s a minimum.

3. Big firms are MUCH less likely to go out of business mid-stream. This is a HUGE risk to corporations. And it’s completely unnecessary. If a solo gets an offer they can’t refuse to go in-house somewhere, or worse, dies or becomes disabled, the company has to find another law firm midstream. If a big firm attorney dies, becomes disabled, or moves in-house, the number 2 steps up. The company may or may not be happy with the change of guard, but the number 2 at least knows what is going on, in-house has almost certainly met her, and it won’t be necessary to change firms midstream. They might start sending new business elsewhere, but there’s not a panic to find a new firm.

4. Big firms have massive malpractice coverage (enough to cover nearly anything) and a substantial number of partners to sue as well. If a punitive verdict of half-a-billion dollars comes in, I don’t need to worry about whether I can sue for malpractice, it’s there. And the firm (and malpractice carrier and excess coverage carrier) has a vested interest in solving my problem. No solo has that kind of coverage. Yet they want to give in-house counsel advice about (say) a pipeline. What is in-house counsel going to do when the solo makes a fifty million dollar mistake, but is only carrying $5M (if anywhere close to that) in E&O coverage?

5. Big companies have been reducing the number of vendors for 25 years now. Why? Because fewer vendors mean fewer and more predictable costs, better service, and fewer mistakes. This is just as true in legal as anywhere else. In fact, it may be more true in legal.

5a. Accounting: Fewer checks/direct deposits made. Fewer invoices to touch/audit. Fewer calls from outsiders asking where the check is, or why it’s reduced. Probably fewer mistakes on the invoices to begin with.

5b. Conflicts: If a large company had the same three large law firms for ten years, the chances that any of them has a conflict with something I’m working on is small. The chances that *all* of them are conflicted is zero.

5c. Security: Outside counsel regularly has to visit in-house. One to five times a year, more if there’s serious litigation going on. I can get five large firms vetted to come on campus, or I can vet sixty different small firms.

5d. Management: If I am a corporation with coverage in fifty states (say, insurance subrogation), I can manage contracts (and meetings) for twenty firms, which have, between them, coverage in all states. Or, I can manage contracts with seventy different solos (Texas needs at least five attorneys–due to geography, they really need ten–as does California, Pennsylvania, and New York). I can field phone calls from twenty partners, or seventy. Which do you think the managing attorney prefers?

5e. Overseas. All the large firms (ALL) have a presence in London. Most of them have more than one presence in Asia (China, Korea, Thailand, Vietnam), Russia, Japan, the Middle East, and possibly even Africa. And of course, there is no US firm today that doesn’t have a presence in Mexico, Central America, Brazil, and possibly Chile or Argentina. As a multinational company, I can hire multiple one-stop shops, or I can spend all my time looking for solos in Dubai.

5f. Deep benches. Again. If a corporation needs specialized SEC knowledge or M&A, they can turn to their regular, huge law firm, or they can go looking for a regular, huge law firm.

5g. Finally, “service.” I once knew a small company. It grew into a pretty large company, with much larger revenues than you would think for its size. They used the same solo for many years (about fifteen). One day, they went looking for a slightly larger firm to help them set up an ESOP, because the solo had no experience in that area. The slightly larger firm turned out to be the local office of a huge firm. Which stole the client, by telling the client that they needed all sorts of work which had been “put off”. By the client, not by the attorney, but the new firm convinced the company the work could no longer wait, and they were best for the job.

The solo, which had the client for years, and didn’t think he needed to babysit the client, was nowhere during this. The client acquiesced, and before the solo could draw breath, he lost his largest, and most reliable, client, and he didn’t even get a finders fee from the big firm. The client could not have been stolen if the solo had taken the time to find the expertise the client needed. Or just told the client they needed the work done (the client could clearly afford the work). There wouldn’t have been a hole for the large firm to slip into. That solo could be wealthy today, because eventually, that firm was acquired by a multinational firm (which would not have been possible without the large firm, BTW). But the large firm saw the service opportunity that the solo had missed (or more accurately, not pushed for), convinced the company that the failure was the solo’s fault, and the solo is still working for peanuts in Dallas.

My point here isn’t that large firms will steal clients. My point here is that many solos are unwilling or unable to grow with their clients, which leaves them open to poaching. Solos (mostly) don’t want to be working in large firms. They don’t WANT the bureaucracy, management, and extra work that is NECESSARY to work with a large and/or growing company. That’s fine, but expecting the best of both worlds is simply unreasonable.

IN CLOSING (yeah, it’s been long):

I’m reminded of the time I read a rather angry blog post written by a young single US english teacher in Asia who was annoyed because the other expatriates didn’t associate with the English teachers, leaving her with a very limited social pool. (This was not an American School teacher, but someone who taught English to foreign children, which means, in terms of social status among foreigners, she’s the lowest on the rung).

I thought her complaint (“they’re snobs”) was hilarious. The people who weren’t “associating” with her were the heads of corporate divisions, high ranking employees, and their spouses, even degreed teachers, far above her in socioeconomic status. They mixed with embassy officials and political officials, not teachers (of any swipe).

In the States, none of these people would ever give her the time of day socially. Yet because she was in another country where Americans were scarce, they should invite her to parties and have drinks? *EVEN IF* there were so few expats that they HAD to invite her to make up numbers, the MINUTE a better alternative showed, or they returned to the States, all contact would be cut. Her complaint was simply unreasonable.

By the same token, solos think that they should be invited to the party just because they have a JD too. And, after all, they’re cheaper, so why not?

Solo attorneys are not in the same socioeconomic sphere as the Fortune 500. They just aren’t. Back when the world was less complicated, and a “large law firm” had fifty employees, maybe things were different. Maybe. But today, expecting anything but table scraps from a large corporation is unreasonable for most solos. If, and ONLY IF, a solo brings something very unique to the table, they might get a seat. Occasionally. But they will always be the anachronism. And the MINUTE the corporation is back in familiar territory, they will go back to their old fishing buddies. So to speak.

4 Responses to Do Corporate Counsel Really Want Freebies – or Do they Want To Put Big law in Its Place?

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