Thursday, 10 February 2011

DLA and the minimum spend: an investigation (sort of)

So this is an interesting one for any client.  Legal Week reports that DLA Piper are going to introduce minimum billing requirements which new clients must agree to before DLA will agree to act for them.

On the face of it, extraordinary and a bit of a client care own goal.  And if that's the approach DLA are taking with new clients, how long before a similar rule is introduced for existing clients?  There's a touch of the supermodel "won't get out of bed for less than" mentality about it.

I found this particularly interesting since I instruct DLA.   Not in a big way, generally for help where required on lowish level dispute work and we don't have much of that.  Not enough to move any of their internal financial needles one way or another.  Certainly not enough to feature for quite some time on their occasional nice lunch how is your business doing list.  So where might this strategy leave the FT?  Needing to go elsewhere at some point?  I hope not, because they help me out when I need it.

I also have friends and ex-colleagues in the firm, since the department I used to work in at Denton Hall back in the day all upped shop en masse to DLA in 2004.

So for these reasons, I wanted to tread carefully when writing this post.  Because, let's be honest, it would be easy to blast off a quick blog about an outhouse client care fail.  You can read a couple of blogs like that here and here.

Instead, I decided to become a "proper journalist" and emailed a couple of DLA partners some questions about the new guidelines, but explicitly in my capacity as a blogger, not a client.  I must be doing an okay job as a would-be journalist because said lawyers put me in touch with the firm's PRs (or maybe on second thoughts I'm doing a bad job as a fourth estater if I'm being palmed off to the PRs) who very helpfully set-up a call with me and even answered my questions, in detail, by email. 

So, what's the skinny?  Yes, partners have been issued with guidelines to consider about client spend when taking on new clients.  Yes, this issue featured heavily at a partner's conference held in London last Friday.  Yes, it is possible that similar guidelines could be applied to existing clients.  Yes, some partners won't like it but that's life.  And the guidelines suggest levels of between €25-€100k in fees for the first 12 months of any new relationship.  But these are guidelines, not rules.

Well, that's admirably honest and they were not off the record.

So, what's the rationale behind the skinny?  Well, more honesty here too.  Partners are being "encouraged" to consider the strategic direction of the firm when taking on new clients, rather than their individual practice areas.  The guidelines are there to assist them.  A key reason behind this is to avoid picking up clients which might cast large "conflict shadows" (nice term) and prevent the firm from winning future high profit work.  Another reason is the reality that all clients cost a certain amount of money to administer and that in certain cases it might not be worth the cost of the administration. That it's about treating the best clients in the best way, and that best will not necessarily mean biggest fee generators, for example the firm recognises the importance of clients with growth potential or (and maybe they had to say this because it was me on the phone) brand value.

Underlying it all is a stated desire to increasingly focus the majority of the firm's efforts on cross-border work for its global clients, rather than mess around too much in, say, the Sheffields or Istanbuls doing local work for local clients.  That, as the PR put it, it's about finding a balance between evolution and revolution.  Or as Sir Nige might put it, about finding a balance between that old small office near city hall on the Leeds Headrow and Wall Street domination.

So what to make of all the above?  I'd say it demonstrates great business judgement by the management at DLA.  Any non-lawyers or in-housers reading this, consider it from the perspective of your own business.  It makes sense in any business to focus your efforts on your key customers, to dedicate the resource there rather than allow that resource to get distracted by noise elsewhere.  Bluntly, to maximise profits.  And as law firms and their clients increasingly globalise, the risk of conflict shadows must increase, necessitating decisions like the one that has been made at DLA.  I mentioned this story to a west coast partner from a US firm I had lunch with this week.  He said that in the US it is quite the norm to "sack" clients who make no money and cause conflict issues (and even claimed to have "sacked" Apple and eBay from his firm's client roster because they spent next to nowt and conflicted out other work.  Brave man, if true).

Say what you like about DLA (and many commentators often do), they haven't got where they are today by pussy footing around.  I guess if you choose to work there, you know the culture and either embrace it or leave.  It's not for everyone, but it obviously works.  From a client perspective, they are by far the most (chooses word carefully) assertive firm I work with at billing on time every month and reminding you quite, erm, let's say regularly, if the bill has not been paid on time.  But from a business perspective, I bet their cash conversion rates are towards the top of the legal tree.

One of the biggest things I take from this is engagement.  I placed the firm in a potentially tricky position asking some hard questions as a client but with my blogging hat on.  And they responded, frankly and on-the-record.  I like that.  I think their only real mistake in this whole business has not been to assume that the minimum billing guidelines would get leaked and to have been on the back-foot PR wise from the get-go.

Looking after your best clients?  Hard to argue with that.  Trying to avoid a situation where earning £10k from Client X prevents you from earning £50k from Client Y?  Hard to argue with that too.

In case anyone thinks I've gone a bit native with ex-colleagues from my old shop in writing this piece, I haven't, in fact I rarely see many of them.  It's an effort to look at the strategy objectively.  And my general approval of the strategy (not, by the way, that I think anyone at DLA remotely cares what I think about this) is subject to the following caveat: the in-house community (including me) and many legal commentators like to talk about how law firms need to change, to get better at client care, to be more innovative on billing, to get better at adding value and all the rest.  And they do need to get better at that stuff.  But in order to do that, something has to give, the firm needs to maintain profitabiliy whilst enabling the change that the market demands.

If the FT was a big DLA client, I would therefore be hoping, if not expecting, this focussed approach on working with the best clients to result in something for my business, something tangible for those best clients, and not just increased PEP for the partners who find themselves "encouraged" to follow the new guidelines.  Let's see.  What next for me and DLA?  Business-as-usual I expect, although maybe we'll have that lunch now. Unless, of course, they take me off the client roster first :-)

A small disclaimer: it's a difficult one writing about a firm you do business with where there are rightfully expectations of confidentiality on both sides.  Apart from my comments about billing frequency and lunch (which I don't regard as confidential info), the views in this blog are based on my on-the-record chat with DLA about the subject of this post and my general industry knowledge, and are not based on confidential information I may have learnt as a client which I would not comment on in a blog post.  I've also made it clear to DLA that they are very welcome to post a response in the comments section, notwithstanding the client relationship issue.

1 comment:

  1. Thanks for the note Tim. As a client, as you mention, you would expect to see what benefits you could expect (beyond "better service"), if any.

    It also seems that it would be harder to become a partner unless you are capable of bringing potential clients that are ready to commit to above the threshold expenditure. It also hints about profit redistribution at the top of the law firm chain.

    Finally, should this model further develop into a standard industry practice, it would make for an interesting antitrust case.

    Best regards,

    ReplyDelete