Hi there,
In our last fortnightly newsletter, I painted a picture of the new operating model for legal — an outcomes-based mindset to resourcing matters, together with alternative fee arrangements and competition, that dozens of enterprise in-house teams are now using to:
- Find their best-fit firm partners for each matter.
- Give new transparency and cost certainty to the business.
- Save millions and reinvest those savings to deliver more value and strategic impact to the business — without asking for more budget.
(I dive into more detail on how all of this works here.)
But what do firms think about the new operating model for legal?
“Make firms compete for my matters? We can’t do that to our firms! That will damage our relationship, cause firms to deliver sub-par work by supplying their ‘B’ team, and ultimately hurt our outcomes.”
The new operating model sounds great in theory. 💡
But what do firms think — and how do they respond — when you:
- Start using a more disciplined RFP and scoping process to define your matters and the outcomes you’re looking to achieve.
- Ask firms to price their work according to a clearly defined scope and your goals for the matter and to sharpen their pencil on price in line with the market.
- Possibly begin moving some of your work to other better-suited firms, including mid-sized firms and ALSPs, rather than paying the firm’s top rates for run-of-the-mill matters.
What every firm ultimately wants to know is what makes them better or worse than the others — and more likely to win more of your business. 💰
Here’s the hard truth that firms need to hear — and that their clients need to tell them.
In-house teams aren't trying to punish their firms or ruin relationships by moving to a new operating model.
If clients were getting everything they needed from their firms, there would be little incentive to change how they’ve always done things (because we all know how much lawyers love change 😣 ).
But they’re not.
Here’s how Hiro Oshima, DGC at SMBC, told me he recently explained it to one of his panel firms.
The demands on the in-house legal function have changed over time.
As a strategic advisor to the business, the in-house team is increasingly held to the same rigor and transparency as the rest of the business.
It’s no longer enough for in-house legal teams to just provide sound legal advice to the business.
They must also show that they are expert buyers of legal services — demonstrating cost consciousness and discipline, and increasing ROI and impact for their outside counsel spend.
This means two things for firms.
1. “It depends” isn’t good enough.
With a changed focus on how legal adds value to the business, providing a legally correct answer doesn’t necessarily mean it’s the right one.
In-house teams need their firms to provide more than mere legal advice; they need them to provide solutions with practical, real-world applicability.
For firms, that includes:
- Moving away from “it depends” to “here’s how.”
- Helping clients understand the consequences of "getting it wrong" for a given risk.
- Leveraging their experience and breadth of practice with other clients to help the business see around corners.
- Translating their advice in a way that is easily understood by the rest of the business.
2. Your client is the business enterprise, not the deal or transaction, or the business people at the client institution.
The in-house counsels must balance the objectives of the business holistically, not simply achieve a favorable outcome in any specific transaction.
Firms might not like it, but that means they aren’t just "deal lawyers" anymore.
They must still deliver on outcomes but also understand that the interests of the broader client enterprise must be balanced in any matter or transaction.
Getting the deal done isn't the objective; doing so in the context of the client's sustainable and strategic plans is.
To that end, understanding the client's business and needs — to be able to say, "This doesn't sound like something your legal team would agree with" — is the value-add that distinguishes true partner firms from others. 🥇
The new operating model isn’t a choice.
For GCs today, there’s simply no other way to sustainably meet the changed demands of the business without adopting a new operating model to do it.
And rather than worry about what your firms will think about it, GCs should embrace the opportunity to invite their firms into a conversation about their role in their client's decision to move to a new operating model in the first place.
🎯 Where have they been falling short?
🎯 What do they need to change or do more of?
🎯 And how can they approach this new reality more proactively to be part of the solution?
How did Hiro’s panel firm partner react to hearing all of this?
He said it was undoubtedly one of the most painful things he’s had to hear.
And one of the best. 🤝
Cheers,
Jim
