Change for Change’s Sake

Topics: Billing & Pricing, Business Development & Marketing Blog Posts, Client Relations, Corporate Legal, Law Firms, Leadership, Legal Innovation, Thomson Reuters

Small Law

A lot has been written about the recently released Law Firms in Transition survey from Altman Weil. If you haven’t given it a look yet, you really should. It has fascinating data points on a number of topics and covers a lot of ground.

But there was one statistic in particular that really caught my attention.

For a long time now, there has been a lot of discussion about the change in the legal industry: what’s changing, who’s driving the change, and how do law firms deal with this? But in the recent Transitions survey, I saw something that frankly took me by surprise. Nearly 63% of the survey’s respondents said that their firms were not doing more to change because “Clients aren’t asking for it.”

What is, perhaps, even more disturbing is the firmographic breakdown of the respondents. Firms with 50-500 attorneys were more likely to respond that their clients were not asking for change than were the largest law firms (1,000+ attorneys). On average, 66% of firms with 500 attorneys or less said they weren’t changing because clients weren’t asking, compared to only 25% of firms with 1,000 or more attorneys. The firms in the middle space of the market are the ones being squeezed from both sides by both larger and smaller firms. Hesitancy to innovate and change could have damaging consequences.

And it’s not that there isn’t evidence to suggest that clients are looking for something different. This same pool of respondents pointed out that 67% of their firms were losing business due to corporate counsel taking work in-house.

Think about that. A majority of respondents say that they are losing work because their clients are choosing to simply do the work themselves, while a nearly equal majority said that they aren’t changing how they do business because the clients aren’t asking them to.

The clients may not be overtly making a request to their counsel to “please do X differently.” But they’re voting with their feet. A little over a year ago, I wrote about firms being let go with “no chance to protest, argue, defend or negotiate.” That is exactly what is happening here.

So how can you stave off this sort of attrition in your firm’s potential client base? In a word, change. Not because someone is directly asking for it, but because it needs to happen.

The authors of the Altman Weil survey recognize this as well, which is shown when they write, “clients may not be asking for change—but they are showing law firms that they can and will take alternative measures themselves to achieve greater efficiency and economy. In other words, if clients can’t buy it from law firms, they’ll build it themselves.”

This also is occurring at a time when corporate counsel are making a major shift in how they deal with outside firms and the number of firms they’re willing to work with. As BTI Consulting reports, 60% of large clients have replaced at least one of their primary legal service providers.

The news is even worse if you’re not lucky enough to be one of the client’s primary law firms. Clients are now working with smaller stables of law firms: On average, clients are working with 36 law firms, down from 47 last year. This represents a 15-year low, and all signs point to this trend continuing.

So how can you stave off this sort of attrition in your firm’s potential client base?

In a word, change.

Not because someone is directly asking for it, but because it needs to happen.

There are examples out there of firms that are staying successful and winning new business, even in the face of a tightening market. The BTI article also shared some of these tips. These successful firms are shifting focus to client service and treating clients as unique assets. BTI calls it “a market of one.”

There are also innovative steps that can be taken with regard to pricing. Clients keep asking for more alternative or custom fee arrangements, but law firms remain hesitant to provide them. The Transitions survey shows that a minority of firms take a proactive approach to offering such fee arrangements. But those firms that are proactive were more likely to see those arrangements be profitable, even more so than matters done on an hourly basis.

I’ve recently had the chance to hear several General Counsel speak on the subject of custom fee arrangements. The biggest secret they shared is that they aren’t entirely certain about how to work with them either. But they are incredibly excited about firms that are willing to bring them to the table. So even if a firm isn’t 100% sure that a new approach to alternative pricing will be successful in the long term, it may be worth bringing to the table, if for no other reason than to set the firm apart from the competition and make the firm look like an innovator.