It's December 2016. The economy seems like it's doing pretty well, so businesses throughout the United States are hosting holiday parties.
So are the law firms. Ask your attorney about his or her law firm holiday party. The answers will give you an insight on your law firm's overhead and pricing model.
Like any business, law firm overhead matters and overhead impacts price as a direct pass though cost item. If your law firm has a fancier office than you in the downtown business core, that's fine, but just know that you are paying to ensure your attorney can work in a fancy office loacted in the downtown business core. Holiday parties cost money, and it's the customers of the business who pay for the holiday party. Your law firm's holiday party is no different; you and the other clients of your law firm pay for the holiday party.
Here's two things to look for when you are evauating whether or not you are paying too much for legal services because the law firm you use has excessive overhead.
Contact Mark D. Walters
I'm a big fan of mediation, and especially early mediation for most cases. Early mediation, if successful, will save the business a ton of money by avoiding discovery and trial preparation litigation expenses. Even in cases where the mediation conference does not resolve the dispute that day, I have found that the parties will sometimes resolve the dispute shortly thereafter.
It may surprise you to know that it's a fairly common practice among litigators to jokingly express outrage to their colleagues at the firm for settling cases short of trial because early resolution results in a lost billing opportunity. It's meant to be cute, bit it's pretty offensive, and it illustrates a point that most businesses already know. There is tension between the law firm and litigator's revenue goals and the business/client's goal of avoiding legal fees. Richard Susskind, in his seminal book, The End of Lawyers? Rethinking the Nature of Legal Services, explains this tension between law firms and clients. "The client will generally hope their legal requirements are routine and can be disposed of quickly and painlessly, while the law firm will generally hanker after more challenging instructions that will occupy them for more time.” (pg. 149).
From the law firm's perspective: no trial = No trial related revenue.
From the client's perspective:
No trial = No trial related expenditures AND no trial related distractions.
In almost every case, it is better to resolve the dispute voluntarily than to roll the dice and take it to trial so a judge or jury can decide the issue for you. If you're not hearing this advice from your law firm, consider its economic interests and get a second opinion.
Contact Mark D. Walters
If you're still working with large law firms, you have to read this article on Bloomberg BNA.
Fannie Mae GC: The Law Firm Profit Structure Is Broken
The article is an interview with the General Counsel of Fannie Mae, Brian Brooks. General Counsels and major businesses like Fannie Mae know how to buy legal services, and they have great leverage with their law firms.
Here are two excerpts to give you a feel for how sophisticated consumers of legals services think and act:
"First of all, as associate rates have gone up, what have companies done in response? What
they’ve done is say to their law firms, “We will not pay for first-year or second-year associates at all.”"
"The second irony is: people think law firms make money on the billable hour, but when you sit down with the business consultants of the world, and you really delve into the numbers, you find out they don’t make money on the billable hour. They make money on leverage."
Click on the link above to read the full article.
I've been preaching to the business community for years that small to midsize businesses should replace their well known, brand name, large law firm with a small law firm with very experienced attorneys (like mine). After all, this is what many large businesses are doing.
Smaller law firms tend to be leaner and offer better prices by leveraging technology rather than a pyramid structure of hourly billers. Attorneys at smaller law firms also tend to be more responsive to their clients because they directly manage the client relationship, and they tend to be more entrepreneurial and creative than large law firm attorneys.
At least this is what I hear from our clients.
There has been quite a few news reports on this trend of businesses moving to smaller law firms. Here is a sampling:
Forbes: (July 2014): Big Law, Big Problems: The Bright Future For Small Firms
Harvard Business Review (Oct. 2013): Why Law Firm Pedigree May Be a Thing of the Past
Wall Street Journal (Oct. 2013): Smaller Law Firms Grab Big Slice of Corporate Legal Work
Above the Law Blog (Oct. 2013): General Counsel Increasingly Dumping the Top BigLaw Firms
Mark D. Walters
Contact Mark D. Walters