Corporate clients are reshaping big law firms

Every client wants something.

The demands being made by corporate executives and legal departments are forcing law firms to change not only how they do business but also how they run their business.

More companies are pressuring their in-house counsel to increase efficiency and, in turn, those attorneys are demanding that outside law firms provide their services quickly, with high quality and at a low cost.

“I think that’s the new era of the legal industry,” said Keith Bice, corporate transactional practice group co-chair at Bingham Greenebaum Doll LLP. “Clients are looking for a very high level of service, but they are also looking for it to be delivered in an efficient way.”

Bice

The era of long lunches, unlimited billable hours and two-week turnarounds are going into the history books. Now, law firm attorneys say, corporate clients expect an answer by the end of the day or the next day, at the latest. They want reasonable prices and not to be billed for every minute. They also look for their outside firms to use cutting-edge technology and produce work that meets a high level of excellence.

These trends were documented in a 2014 survey of corporate counsel by the Indiana Lawyer, in partnership with Benesch. Of the in-house attorneys who participated, 88 percent said responsiveness and communication was one of the “top three” qualities they wanted in an outside law firm. Fifty-six percent put pricing predictability or alternative fee arrangements in this category, and 40 percent ranked a reasonable hourly rate in their trio of most important hiring criteria.

Hicks

The legal marketplace is “highly competitive,” said Robert Hicks, partner-in-charge at the Indianapolis office of Taft Stettinius & Hollister LLP.

Big firms are attracting and retaining corporate clients because these firms are full service, Hicks said. They offer expertise in multiple practice areas. Meanwhile small- and mid-size firms are getting squeezed and likely will not survive unless they become a boutique firm.

And big firms are competing among themselves as corporate clients rethink their own operations. Corporate legal departments are pulling more work in-house and reducing the number of outside law firms being used.

A key to keeping corporate clients and getting more work is relationships. Outside firms have to be a true partner and not just another vendor.

In the Indiana Lawyer/Benesch survey, 26 percent of the respondents said the most irritating aspect of their relationships with their most valued law firms was a firm’s inability to consider business objectives when presenting legal solutions. Corporate clients become frustrated with firms that do not act as strategic business partners.

Firms can meet this demand by investing time to learn about the corporate client’s business, said Ken Yerkes, management committee member at Barnes & Thornburg LLP. Outside attorneys have to show clients they understand the business and its challenges. As a consequence, the firms will be able to give better advice.

Cost is king

Price continues to be a top concern for corporate clients. The 2014 Chief Legal Officer Survey by Altman Weil Inc. found the majority of respondents – 62 percent – controlled costs by receiving price reductions from outside counsel. This was followed by 60 percent using alternative or fixed fee arrangements.

Providing high-end services at discount prices is creating a challenge for big firms.

Law firms can no longer concentrate solely on the work product, said Jeffrey Abrams, partner-in-charge of Benesch’s Indianapolis office. They also have to keep watch over the bill. Clients are being given cost estimates or even fixed pricing for projects, and associates are being told how many hours they have to finish the work.

However, firms still have to do good work. The need to maintain a reputation for excellence could translate into work being done off the clock.

“I don’t think we can sacrifice quality because that’s going to lose clients,” Abrams said. “We have to figure out how to operate our legal practice more efficiently than we have in the past.”

Taking care of clients

Bingham Greenebaum Doll recently invited in-house counsel and corporate clients to their Indianapolis office for an update on changes in business law. A panel of attorneys led the audience through PowerPoint presentations on employment law, taxation and intellectual property law. Afterward, clients and attorneys mingled over drinks.

The seminar was part of the firm’s effort to serve its customers, Bice said. Business owners and company attorneys were invited to get some practical advice and learn what issues they should be following.

In a competitive market with “a lot of very fine law firms in town,” Bice said BGD must be sure it is delivering the highest level of service in every category.

To help with this push, the firm will periodically bring in consultants to run surveys of corporate clients to spotlight the areas where the BGD attorneys may need to improve. The consultants hold training sessions for the lawyers, presenting them with different mock scenarios so the attorneys can build their client service skills.

Cambridge Capital Management Corp.’s executive vice president, Charles Kennedy, and corporate counsel, Amy Thurmond, attended the seminar. They said programs like this help them to stay current and better alert their own clients to issues or changes to watch.

“It’s very helpful because these attorneys work with it day in and day out,” Thurmond said of the seminar. She noted the BGD lawyers disseminate the information in a format that is easy to use, which is especially helpful for her company because it does not have a big legal department.

Hiring practices

The demands and needs of corporate clients and in-house counsel are rippling into law firms’ employee counts.

Technology has reduced the need for administrative help. Firms have become leaner. Clients are hiring other vendors to do discovery instead of turning the labor-intensive task over to their lawyers.

Business clients are increasingly setting the conditions on who can handle their legal work. Some do not want first- and second-year associates, and they require the billing rates of the third- and fourth-year associates be frozen for five years.

In response, Abrams said, bigger firms in metropolitan areas, including Indianapolis, are considering no longer hiring lawyers fresh from law school. Instead, they would focus on making lateral hires of attorneys who have gained experience elsewhere.

Law firms not hiring first-year associates would be catastrophic for the legal industry, Abrams said. And if one firm makes that move, others will follow.

Yerkes

New lawyers will not have the opportunity to get the training they often receive in big firms, so they will be more likely to open their own practice or leave the legal industry altogether. In addition, firms that still take on recent law school graduates will worry once the new hires get experience, other firms will poach.

At the same time, businesses are asking their attorneys to become more diverse, Yerkes said.

This has law firms competing for the top minority graduates. Some are trying to lure these lawyers by lowering billable hour requirements and increasing salary offers.

The current environment is not likely to change. Corporate clients will continue to expect a certain level of service and firms will continue to deliver.

“I think the push for efficiency is here to stay,” Bice said.•