Managing Legal
One of this blog’s goals is to help business owners and managers understand why their lawyers act the way they do.
My question in this two-part series: Why don’t more law firms treat the businesses that pay their bills like customers?
In my post a week ago I quoted Forbes’ legal commentator Mark Cohen:
“There is unambiguous evidence of a significant and persistent disconnect between law firms and their clients. Only 25% of corporate legal buyers said they would recommend their ‘go-to’ law firm.”
A business owner or manager might ask: Why can’t law firms treat my business with the same care and attention with which Southwest Airlines, Starbucks, the Cleveland Clinic — or my local dry cleaners — treats me?
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Law firms are rarely managed the way that you run your business. To move toward a relationship with them that better serves your interests, it would help to understand how certain perverse incentives in the law firm world work.
The way law firms handle internal issues — like the two addressed below — creates perverse incentives. And those perverse incentives make law firm leadership more responsive to its partners — its owners — than to the organizations who pay their fees.
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In Part 1 of this two-part series I introduced the above question as posed by lawyer and law firm consultant Bruce MacEwen.
In making his case that too many law firms treat the service-provider — i.e., their partners — as the real client, MacEwen begins on an aspirational high note on which he bases his consulting practice:
“Client first, firm second, self third.”
But — in actual practice — too many law firms lose their way from this “splendid adage”. They stand client service on its head to keep partners happy — or to attract new talent in a frenzied law practice merger market.
The result:
“… Clients’ role is to keep the firm in business, and the firm exists to serve the preferences of its lawyers.”
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How do law firms get it so wrong?
MacEwen cites two issues of law firm management that drive these organizations away from true client focus:
Issue #1:
Who among the law firm’s partners gets credit for bringing in work from a particular client (“origination credit”)?
“One of the leading causes of malpractice claims against firms is partners’ practicing outside their area of expertise because they can earn origination credit for a matter that they’ll forfeit if they let their colleagues who actually know the area take control. Self>firm>client.
“An almost universal objective of re-examining partner compensation systems is to increase cross-firm collaboration. Shared origination credit would presumably help, but the menace is in the details. For example, is the ‘default’–the rebuttable presumption–that credit is shared unless someone provides good reason otherwise, or the reverse. It’s often the reverse: Management/the partner who wants credit/the office head/someone else has to ask for credit to be shared, and if and only if they can exercise sufficient powers of moral and formal suasion will they prevail. Self>firm>client.”
Issue #2:
Inertia that keeps a large law firm together — regardless of consequences to the client.
“… The firm (… in the upper reaches of the AmLaw 200 [200 highest grossing U.S. firms]), had grown … into one large group of lawyers pursuing a high rate, high realization [most clients paid their bills] practice operating in a national marketplace, and a comparably sized group specializing in a low-rate, price-challenged practice ….”
“Quite predictably, reality on the ground for this firm … was that of two very distinct businesses … client bases and target markets …. Need we add that compensation season was hell? ….
“We suggested a spin-off: Break the firm in two … Everyone would be happier … and, most important of all, liberated to serve clients.
“… We did not win the assignment.
“It’s impossible to square this decision with client first, firm second, self third … The firm, or the two firms under one roof, were doing a suboptimal job of serving clients (firm>client) because….? Because, we can only surmise, the individuals preferred not to upset the established order. So self>firm.”
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Law firms have created barriers between themselves and those companies who pay their bills — to benefit their partners and not their real customers.
This, I believe, explains the problem I stated in Part 1 of this series:
“For too many law firms, the companies that pay their fees aren’t really their customers or client — they’re inventory.”