Hi there,
ICYMI, last week the Wall Street Journal (front page, weekend edition 😉 ) profiled our happy PERSUIT customers — JLL, BASF, Shell, Heineken, and Anglo-American — on how they are innovating their approach to working with law firms.
(I’ve been thinking about how I can subtly mention that PERSUIT gets a shout-out in the article. Haven’t come up with anything yet 🏌️.)
Now we all know that controversy sells. 🌶️
So I wasn’t at all surprised at how the piece pitted firms as the “bad guys” in this story:
“Rock-Star Law Firms Are Billing Up to $2,500 per Hour. Clients are Indignant.”
As the piece goes on to explain, top firms are consolidating superstar expertise in certain corporate practice areas, luring them with $15-20M annual salaries. 😲
And then passing those costs along to their clients.
But if any of us were in their shoes, wouldn’t we be doing exactly the same thing?
As one article commenter put it:
“Taylor Swift gets paid $14 million per concert. People make what their customers/clients/fans are willing to pay.”
(As a self-outed Swiftie, I can hardly blame Taylor here 🤷🏽♂️ .)
In the article, Alan Tse, Global CLO of JLL, summed up the situation in legal just about perfectly:
“The market is driven by the top end. The top firms are spending money to compete for the best rock-star talent. That’s what is driving this.
"Obviously not enough of us are saying no. Clients are part of the problem.”
It’s a hard truth for clients to face, but they ARE part of the problem.
“It’s been this way for 40 years. We’ll be reading the same story in another 5 years, just citing higher rates.”
“We can’t risk pushing back on our relationship firms. And when things go sideways, no one can argue with hiring [insert favorite Global 50 firm], even if they do charge astronomical rates.”
But what we hear over and over is that passing these costs of recruiting rockstar legal talent on to clients isn’t sustainable for in-house teams.
Especially when clients only need rockstar talent for a fraction of their matters (if at all).
More and more, we see enterprise companies turning to a new operating model for their legal teams.
In short, that new operating model consists of:
✅ Using top firms (and paying top firm rates) only for bet-the-company matters or high-value matters that require certain expertise.
✅ Turning to boutique and mid-sized firms and ALSPs to handle the majority of their matters.
✅ Increasingly using fixed fees and competitive sourcing when engaging their law firms/ALSPs.
✅ Using tech solutions (like yours truly) to enable front-of-matter sourcing and work-in-progress disciplines to proactively manage external legal spend.
✅ Harnessing the data from these disciplines to incrementally (or even exponentially) become smarter buyers of legal services.
As companies like Shell, JLL, Wells Fargo, Heineken, BASF, and Anglo-American have demonstrated:
💡Expectations in legal ARE changing.
💡There IS room to negotiate with firms without sacrificing quality or relationships.
💡There are better ways to work with firms that can benefit both parties in the equation — although firms might not happily sign on to the new operating model at the start, they are often happy to later find they can win more wallet share and realize bigger margins using AFAs and competitive sourcing.
And as more teams learn from their example, we will start to see rate increases eventually slow, perhaps even decrease.
We’ll never entirely be rid of billable hours. ⏳
But that system won’t continue to dominate the industry as long and pervasively as it has done to date.
That transformation will empower in-house teams to become the agile, strategic, value-driving advisors to the business that they can and should be — and to pull their firms along with them in this journey.
But I’m curious to hear your thoughts on the topic.
And in the meantime, I’ll be saving my pennies for Taylor’s next world tour. 😉
Cheers,
Jim
