See update below about 3M lawsuit against a re-seller of its N-95 masks alleging “price-gouging” filed April 10, 2020.*
1. Conventional law firms design waste into their work — charging by the hour, over-staffing, assigning inexperienced attorneys alongside qualified ones, and avoiding substantial technology adoption.
2. In-house counsel — whose number and influence have grown in the past 40 years — have not used their companies’ purchasing power to fix this problem. So it persists.
On March 28, in the anchor’s set-up to a business news show’s interview with Mark Cuban, I wondered if I’d heard it wrong:
Was Mark Cuban really criticizing 3M Company for price-gouging and the like on 3M’s N-95 surgical masks (“so-called because they block 95% of very small particles”)?
In the midst of the COVID-19 pandemic?
No — not 3M directly.
Mark Cuban was alleging that 3M had failed to use its influence to stop distributors and other third parties from price-gouging and the like on 3M-made N-95 surgical masks.
His point: 3M could use its purchasing power with respect to these distributors and other third parties to bring a stop to this problem … if it wanted to do so.
” … Up until recently they [3M] sell, as best as I can tell, exclusively through [third party] distributors ….
“They [3M] apparently have just let their distributors price the [N-95 surgical] mask at whatever price they [those distributors] want to ….
“In a lot of cases they [the distributors] are not selling them to health care providers. Those distributors are selling them to re-sellers and black marketers who are then trying to jack-up the prices even higher than the distributors did.
“And my point in all this was, there’s a contractual relationship between 3M’s licensed distributors and 3M corporate. It would be very easy for them [3M] to say very strongly [to the distributors]:
“If you don’t take the inventory we provide you and sell them to hospitals and health care providers that need the [N-95 surgical] masks, when your contract comes up, we’re going to end that contract ….
“But that’s not what [3M] did.”
Just last Friday, the Wall Street Journal (subscription required) reported that:
“Mark Cuban, in an interview with Bloomberg News, … criticized 3M’s distributors as ‘making as much money as they possibly can’ from selling the masks.”
Reports to similar effect kept coming: The Observer, March 3o — “Why are N95 Face Masks So Expensive and Hard to Find? Mark Cuban Blames 3M ; The Intercept, April 1 — “3M Faces Pressure to Prevent N95 Mask Distributors’ Price Gouging”; Fox News, April 2 — “Florida Emergency Management Official Says 3M Selling Masks to Foreign Countries: We’re Chasing Ghosts”.
I don’t know if Mark Cuban’s description of what 3M has done here is or is not correct. And, as of this posting, I don’t know whether 3M has implemented Mark Cuban’s advice with its distributors and other third parties or not.
But Mark Cuban’s business logic makes sense: A company is not helpless if its vendors refuse to meet its needs.
Unlike the critical shortage of N-95 surgical masks amidst the COVID-19 crisis, there is no shortage of business lawyers.
For those companies that have a single in-house counsel — or one thousand — on their payroll, it’s the in-house counsel’s job to negotiate what’s best for that company’s interest in pricing and in other terms of purchase.
But, for the most part and for over 40 years, in-house counsel have ignored the waste that conventional law firm have embedded on purpose into their services:
- Charging by the hour,
- Assigning inexperienced attorneys alongside qualified ones, and
- Avoiding substantial technology adoption.
In every company function — other than Legal — productivity is a ratio of value-produced-to-resources-consumed that places a searchlight on inefficiency, and thereby enables managers to create more with what they’ve got.
But today — in 2020 — the conventional law firm still defines “productivity” as “billable hours worked per lawyer” (2020 State of the Legal Market by Georgetown Law School and Thomson Reuters Peer Monitor, at P. 7 to 8).
In every other business function, productivity is a ratio — it’s how much output you get in return for an input — as in productivity of capital (return on equity), store profitability (earnings per square foot), etc.
As Mark Cuban reminds us, purchasing power means that companies aren’t helpless when service providers or other third parties ignore their needs.
Meanwhile, conventional law firms’ waste-by-design prevails largely because in-house counsel have not yet decided to use their purchasing power to get anything better for their companies.
* Update: On April 10, 2020 3m filed a lawsuit against a re-seller of its N-95 masks alleging “price-gouging”. Bloomberg Law story here; copy of complaint filed with the court here. My quick read of the 26-page complaint indicates that 3M does not allege that defendant re-seller had any contractual relationship with 3m as a distributor.