Sunday, 29 April 2012
Are commercial law departments in law firms at a tipping point?
When talking recently with the out-house community, I’ve discussed the old chestnut of law firm billing (a chat with me is a guaranteed riot). I'll start at the end of the conversation. We discussed that the current law firm model is in rude health for corporate transactions, but has a challenging future for run-of-the-mill commercial work. The outlook is sunny for the corporate rainmakers but cloudy for those who don't know an SPA from a TSA.
Well the out-house theory is thus: clients who five years ago had no in-house lawyers now have one or two. Clients who five years ago had one or two in-housers now have six or seven. Clients therefore keep most regular commercial work in-house and even when they do outsource it, clients want expert advice but don't want to pay much for it. They don't value it because they can do it themselves if they have to. Contrast this with corporate work which clients (generally) can't handle in-house and which they are happy to pay a handsome fee for.
This chimes with a point made to me recently by the MD of one of the newish "alternative" providers of legal services. When I asked him who his competitors were, he said "You".
Certainly the above theory is borne out in practice in my experience. When I joined my employer many light years ago, the bigger ticket more complex commercial work was outsourced regularly, if not as a matter of course. This was no-one's fault, it just reflected the size and specialisms of the team at the time. Fast forward ten years or so and outsourcing commercial work is the exception in our team rather than the rule. Without realising it we have as an in-house team been competing successfully for that work with the outside lawyers we would once-upon-a-time have sent it to.
The fees aspect to this subject is also important. It is correct that clients do not want to pay (much) when they send commercial work out the door, whatever the rights and wrongs of that. I have a rough idea of what a first draft of a contract should cost for what I'd define as a medium sized project with a few bells and whistles but which is not too complex. I price that at around £2-3k, give or take (preferably, take). Most firms, and I'm thinking non-Magic Circle, will do it for that price and as you would expect will do a very good job. Thing is though, as a partner or associate you need a lot of those £3k projects to meet your billable hours target. You need a whole lot more of them to get your billings anything close to the corporate lawyers upstairs who can rack up a six figure bill faster than you can say the words "share purchase agreement" (okay, slight exaggeration, but certainly faster than you can conclude negotiating one).
The tipping point from out-house to in-house for this kind of commercial work is only going to tip further towards more work going in-house (or to alternative providers) away from law firms. Whereas in my view, the corporate rainmakers can continue as is for quite some time yet.
Where then does this leave the leaders of commercial teams in City firms?
Needing to re-invent the service they provide I think. Rather than re-actively wait for decreasing levels of contract monkey drafting instructions to come in, how about pro-actively selling some new services. Here is a potential menu:
1. Access to firm precedents - £20k per annum.
2. Access to precedents plus 2 hours consultation on any first drafts produced in-house using firm precedent - £30k per annum.
3. Provision of first draft agreements for twenty unspecified agreements over the next 12 months - £30k per annum.
4. Quality assurance audit of 15 random contracts produced by in-house team - £5k per annum.
5. Intensive training over the year for an in-house team to obtain an accredited qualification in a specialist subject (e.g. copyright) - £10k per annum.
No doubt some law firms are offering aspects of this service already to their more valued clients. But I recommend they make it a ratecard product which is sold on a standard t&c basis by proper sales-people, not by lawyers who also have to do a bit of sales.
After previous blog posts looking at law firm models, a couple of people have commented that I should concentrate on looking at how in-housers function rather than concerning myself with how law firms operate. I disagree. I'm not writing this to try and help law firms. I'm writing it to try and make the point that what clients want is changing.
Firms who are serious about the long-term future of their commercial practices need to incentivise portions of their partnership to think innovatively in these changing times. Because if the entire partnership remains incentivised to keep on billing for this year's targets, then we have a turkeys’ voting for Christmas scenario for any partner who goes out on a limb in the way I'm suggesting. Point is, law firms incentivise their staff for the here and now. Not for the there and future.
Due to the growth in numbers and excellence in the in-house side of the profession, without a sea change in product offerings the seesaw will continue to tip and commercial teams in law firms will continue to become the ever poorer cousins of the corporate powerhouse departments. They will be stuck at the top of the seesaw, unable to get off without jumping. The landing may not be soft if their corporate law colleagues do not feel like catching them.
Wednesday, 11 April 2012
Last week The Lawyer published a front page photo of a female lawyer with the eye catching headline that "65 per cent of you want to be her". That was one of several intriguiging statistics arising from research compiled by The Lawyer into the attitudes of private practice lawyers to theirin-house cousins, and specifically whether private practice lawyers would like to work in-house instead of in a firm.
The Lawyer already did a deep dive on those statistics so there is no merit in repeating them all here. But it was the headline statistics in particular which caught my eye and which I think merit further attention. First, The Lawyer's survey found that 68 per cent of all private practice lawyers "would consider taking an in-house role". Second, the survey found that 80 per cent of all associates "would consider taking an in-house role".
What does this all mean?
Well it is easy to jump to the obvious conclusion that the private pratice business model is bust and associates now realise that. I admit to partially jumping to that conclusion myself at first and it reminded me of one of my early blog posts where I wrote about my experience interviewing associates looking for an in-house role in New York, just under 18 months ago.
Maybe there is a grain of truth in that, but that argument is too simplistic. The truth is not that the model is bust, because it's not. But that as the gateway to partnership, let alone the hallowed equity, narrows year on year, I am willing to punt (this is not an evidence led argument for all you evidencists out there) it is true to say that associate dissatisfaction is pretty high.
But alongside that conclusion, one also has to look at the question which was asked, and a hat tip is due to solicitor Ian Tucker and Richard Moorhead of Cardiff Law School for causing me to pause for thought a bit on this. The words "would consider" in the question are important and arguably undermine the ability to rely on any conclusions drawn from the survey data. I suppose I "would consider" any number of things suggested to me, but I might well decline to press ahead with most of them being a cautious lawyer type. I think The Lawyer could improve on an already fascinating study by making the question more specific in any repeat survey.
I'd also be interested in the answer to a different but possibly the same question. How many private practice lawyers (associates in particular) "would consider" leaving the profession entirely? Or even more stark, how many private practice lawyers "sometimes wish" they had never become a lawyer in the first place? Again in the interests of a lack of evidence based analysis, I'd punt that the answer to my first question would be similar to The Lawyer's magical 68 per cent figure and that the answer to my second question might not be too far behind.
If I am right about the likely answers to my made-up questions, and I acknowledge that is a big if, then I would be very interested in the motivations of those private practice lawyers who expressed an interest in the in-house side of the profession. Set aside the "I want to be involved in the business" cliché, why is this army of well paid (I'm assuming most respondents worked for large practices) professionals so keen to look over the other side of the garden fence? Admittedly, the private practice lawyers interviewed for The Lawyer piece made the right noises about how they think life is actually more difficult in-house, its no longer for those who can't hack it in practice and even - gasp - that you even find lawyers in-house who once worked for top City firms blah blah. So are lawyers in firms looking over the fence because they genuinely believe it is more difficult and challenging? Or is the reality that unhappy private practice denizens perhaps in reality think that the “pat on the head” sentiments expressed in The Lawyer are a load of old guff and that life in-house offers a more pleasant and easier lifestyle than the one they are currently (not) enjoying? Because if not, what is the point of considering a move in the first place?
Two final thoughts.
First, a whopping 53 per cent of the partners surveyed "would consider an in-house role”. This statistic in itself possibly deserves a separate blog post. It certainly went contrary to my theory that the point of slaving for ten years as an associate is that although you still have to slave for a further ten years or more as a partner the rewards warrant it in the way they do not necessarily do so for associates (disclaimer: do not think that last statement runs contrary to mytheory in this earlier blog post!). Again, motivation here would be fascinating. Have these partners earnt enough to pay off the mortgage and school fees and are they willing to take a pay cut to try something else out in the last chunk of their career? Or is the reality that life at the top of the firm does not quite match the hedonistic promise it has before you get there so they want to get out?
Second, if the fact that 80 per cent of associates "would consider" moving in-house does equate to at least some degree of disatisfaction at life in private practice, is that a problem? Yes, it is for me. Not just for the altruistic reason that we don't want a profession full of unhappy lawyers. But because more importantly, as any decent in-house lawyer knows, we need excellent private practice lawyers and as I think I've said before, an unhappy lawyer does not usually make a good lawyer, or at least does not make a good lawyer a great lawyer. And we in-housers need great private practice lawyers for the reasons stated at the end of The Lawyer article – that the relationship between in-house and private practice lawyers “ is a partnership in the truest sense”.
Congratulations must go to The Lawyer who put together what I considered a really decent bit of research that has provided me and I am sure others with food for thought. I would like to see that research go further and ask more binary questions and delve into the motivations for the answers given.
But what does it all mean? Well, you will have to draw your own conclusions and throw in some assumptions like I have done. But at a minimum I think it shows - yet again - that those at the top of the law firm tree still have work to do to ensure that their future – and more surprisingly their existing - partners are as happy as they might be.