‘Tis the Season for Law Firm Rate Increases: Respond Emotionally? Tactically? Or Strategically?


The Point

From a November 28 report in American Lawyer Media / Law.com (subscription required):

“‘Surprised, Angry, Dismayed’: Legal Departments Vow to Fight Law Firms’ Rate-Hike Plans … The in-house legal community is expressing outrage that law firms will be pressing for aggressive rate hikes in 2023, even though they know that legal departments are under extraordinary pressure as the economic outlook sours”.

C-Suites and business owners concerned about their Legal functions have three options here:

1. The emotional option: Whine about frustrations,

2. The tactical option: Make do the best they can without challenging law firms’ status quo for hiring specialist attorneys, and

3. The strategic option: Take charge, using the same management disciplines by which other corporate functions and business units achieve operational effectiveness.

This Matters to Your Business

The emotional option: Of course, however widespread and outspoken the complaints among in-house counsel, anger alone is unlikely to yield the results a company needs from Legal.

The tactical option: This is the majority view.

It’s based on acceptance of the law firm status quo, and involves near-term moves limited within the legal profession’s traditional constraints. First, it means accepting billable hours pricing. Second, it means accepting recent law graduates for hundreds per hour as the price of getting the seasoned attorneys whose proven expertise the company actually needs.

It consists largely of benchmarking hourly billing rates against those of other companies similarly bound to the law firm status quo. And it features timid moves that mostly leave intact the waste embedded in the legal profession’s business model: Detailed billing guidelines for law firms hired; creation of law firm committees, or panels, from whom to hire outside counsel for most of a company’s legal specialists, and ad hoc demands for discounts.

These efforts are widely viewed as unsuccessful. See recent piece by law practice expert Casey Flaherty. Trust Fall: the limits of discounts, panels, billing guidelines, etc. December 5, 2022.

The strategic option: This is a minority view.

It requires bold, long-term rethinking of the law firm status quo. Unsurprisingly, the conventional wisdom, among the lawyers who run corporate law functions, rejects the strategic option.

Yet, given the legal system’s relentless demands, and Legal’s continuing inability to scale its capabilities to keep pace, it’s worth asking if adhering to the conventional wisdom is sustainable.

Because …

Oversimplifying a bit, the strategic option consists of two elements:

1. Dividing legal tasks into categories that can be more readily handled by the most efficient providers:

  • The right people outside: Advice and representation that requires professional judgment of the expert, distinguished lawyers that can be found pretty much only in law firms (but not junior, attorneys-in-training associate lawyers inserted into teams to boost hourly billings),
  • The right people inside: Advice and representation on matters that can be mastered by in-house counsel (who are either legal generalists, or who have particularized, law-relevant knowledge of the business that the company will call on regularly), and
  • The right systems: Process-based systems, some tech-enabled, that can perform routine, repetitive tasks more cheaply, more accurately, and more quickly than people can do them (e.g., of the sort alternative legal service providers outside the company and legal operations professionals inside the company can provide).

2. What Casey Flaherty has called “compliance by design”, which consists of, “embedding legal knowledge in business processes.”

Oversimplifying, again, this simply means proactive avoidance of legal problems. Build legal insight into recurring, daily operations; don’t wait to clean up until after a compliance mishap has already occurred.

Corporate Legal can negotiate confidently with its law firms, but only after it has identified what it truly needs law firms for, and only after it replaces cap-in-hand deference to law firms with confidence in its own purchasing power. 

Contact Information