A Financial Reality Corporate Law Functions Don’t Talk About: Variable Costs Should be Managed Differently from Fixed Costs

The Point

Over the past four decades, the constant law department refrain, in response to rising costs, has been: “bring more work in-house” (see here, here, and here). Swap out on-demand law firm specialists who charge (high) fees, for full-time in-house generalists who receive (lower) salaries and benefits.

This “cost-saving” method hasn’t worked — a consistent 50 to 60% of law function spending has long consisted of payments to law firms (see here). And, excepting the 2008 to 2009 Great Recession, companies’ legal spending has consistently spiraled upward.

This Matters 

Most industries charge more per unit for purchases made in small numbers, or only occasionally, than they charge for purchases made in bulk, or on a regular basis. But the waste that the legal profession’s hourly billing business model builds into law firm charges multiplies any variable cost premium to grossly excessive extremes.

So, to an extent not true of most other industries, the legal industry offers corporate law functions no economically viable way to manage their variable costs — at least when it comes to sourcing help from lawyers.

Because …

The cost of getting the specialist lawyer you want and need for an only-occasional-but-serious legal problem is to pay also for his or her “associates”, who add only marginal value (at best) to the legal representation you want and need from the real expert.

In contrasting the traditional law firm’s insertion of younger, trainee lawyers alongside the fully experienced attorney specialist that a serious legal problem calls for, Kevin Broyles, FisherBroyles’ co-founder, explains why his firm offers its clients only the latter:

“[The FisherBroyles framework] is just going to be more efficient … because you’re not going to have the pyramid structure where you have a first-year or second-year [associate], and then a seventh- or eighth-year [associate] reviewing that, and then a partner that’s been practicing 25 years looking at it. You’re just going to have the partner who’s been practicing 25 years looking at it.”

The legal profession’s unnecessary addition of those associates you don’t need — alongside the partner whom you do need — stymies effective law function management of variable costs. Management of variable costs versus fixed costs is second nature to the CFOs and other businesspeople who need to step in and insist on better cost management of the corporate law function. 





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