Legal services – a perfectly designed system…

September 9, 2012

I am regularly asked to speak at partner conferences and in workshops on the theme of “what do clients really want?”…But faced with such a theme it is hard not to dive straight into the deep end of platitudes and banality.

A few years ago I attended two seminars given by an American consultant, Aubrey Daniels, on performance management. He coined a phrase I have never forgotten, that every process, system and relationship is perfectly designed to give the results that you can observe.

So rather than write a piece of platitudinous common sense on the theme of “what clients want” I will take the Daniels challenge, risk a Ratner-esque biting-the-hand-that-feeds-me reaction to comment on how some relationships sometimes seem perfectly designed to give perfectly dysfunctional results..

  1. In such a perfectly designed dysfunctional relationship, Law firms must demonstrate a complicit understanding that the inefficiency of process in the client, the muddle of instruction and a confusion of administration will not be criticised inside, and especially outside, of the legal team. In doing so the law firm’s pain will be compensated through higher fees. Inefficiency must be hidden from scrutiny, wrapped in a sympathetic blanket of goodwill because in-house lawyers are nice people, working hard and are clearly under-resourced.
  2. In such dysfunctional relationships Law firms should still show a serious commitment to pricing innovation and make a reasonable effort to come up with ideas on fees that are not based on hourly rates. However, provided these efforts look serious, the in-house team will not push very hard for innovation because frankly they do not have the data or the time to make a judgement about what is fair, reasonable or value for money. In the end all the lawyers (in the law firms and in-house) will revert to the comfort zone of hourly rates and gently conspire to “lock-out” non-lawyer colleagues with the alchemy of complexity that infuses the cleverness of their work…
  3. Furthermore in these dysfunctional relationships, the so called “value-add” services set out in detail and expansively in every tender response will result in a few half-hearted free seminars. The in-house team will default to acquiring free and unchallenging CPD because in the end they will not invest seriously in professional and personal development. Training is simply a tick-box administrative requirement.
  4. In the dysfunctional relationship vanity is a key differentiator. The big hitting General Counsel must be indulged, but not patronised. Law firms must not challenge for better process, press for more work or innovation, unless they have the clearest signal that the in-house team are happy to entertain such a dialogue. In return law firms should nominate their most valuable clients for awards and ensure that a charade of excellence is played out like an Emperor’s new wardrobe collection.(Incidentally, what a travesty this is for the great majority of hard working and brilliant teams nominated for awards that should rightly be recognised for outstanding achievement).
  5. …Of course the annual relationship review should be painless for all. So the ambition is to skip difficult questions, focus on positives, and provide a discreet nod and wink for the sustainability of the status quo. That said, every second or third year the review of the client’s law firm panel has to be conducted with the veneer of formality. The result is a ritually painful endeavour to make the law firm dance in a circle and end up at the same place; during which process the in-house team will fall out with their procurement colleagues and argue that relationships matter more than headline fees, but with no empirical evidence whatsoever to back up their assertions.

If all of this sounds bit harsh, it definitely is, the great majority of the lawyers we see have an honesty and integrity in their work that is inspiring, but there are a few danger signs in most relationships and it is always worth making the self-challenge to avoid common pitfalls if at all possible.

On this point I continue to be disappointed at the approach so many law firms adopt, although law firms are only behaving in their perceived self-interest. This is perhaps the key point for in-house teams to address.

The relationship between law firm and in-house team is in effect a negotiation. In negotiation strategy the mutual gains approach is rarely a genuine “win-win”. It is more often a case of one side getting what they want and the other side feeling they can live with it. Law Firms have been brilliant at getting what they want:

  • Time based charging,
  • A closed book on their costs
  • Charging for research and development
  • No transparent pricing as between clients
  • Value add that is rarely taken up
  • No incentive to help the client spend less

…And some in-house teams have felt able to live with this as a deal.

Any law firm faced with a fight for their status quo or, instead, a significant investment in restructuring their business model from top to bottom will, of course, fight for the status quo.

So, for all the talk of change in the profession there is a huge road-block. The road block has been built by law firms, but is preserved by dysfunctional relationships with some of their clients.

A few in-house teams have, in effect, contrived to accept emotional support at times of high stress instead of any significant investment in management information, process improvement and pricing certainty. This results in a dysfunctional dependency and is at the price of clients getting value for money and of driving competition through the profession.

In such instances the market reflects the unstated requirement for passive, sympathetic relationships that do not reveal weaknesses in return for high margin, time-based fees that fund short term goals and partner vanity.

The challenge therefore is not to tinker with questions of what clients want within the construct of a dysfunctional relationship, but to reset relationships so that they are perfectly designed to give more positive outcomes.

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