There’s a New Sheriff in Town: Clients Are Driving Greater Law Firm Productivity

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Over the past year, a perfect storm of events has brought legal fees under scrutiny like never before, affecting both law firms with skyrocketing new associate salaries (some reaching $160,000 per year) and clients facing hourly attorney rates as high as $1,000. At the same time, in-house counsel are eyeing their legal fees more closely, looking for flat-fee billing options, better case management tools, and more diligent reporting on legal bills.

And finally, legal work at law firms has decreased substantially over the past 6-12 months. This is a direct result of the economic downturn, led by declining activity in real estate, lending and corporate transactions. The combination of these factors has contributed to the recent spate of attorney and staff layoffs at law firms across the country.

In a Boston Business Journal (BBJ) article entitled “In-House Counsel Pay Closer Attention to the Bottom Line” (Feb. 15, 2008), Fred Krebs, President of the Association of Corporate Counsel (ACC), said: “In-house counsel are taking note of the rise in hourly rates and associate salaries and are holding their outside firms accountable.” The article points out that according to a survey by ACC and Serengeti Law, “half of the respondents terminated a relationship with outside counsel during the prior year for failing to perform according to client expectations, high costs, and poor work product or results.”

In a follow-up BBJ piece entitled “In-House Counsels Push Back on Large Legal Bills” (July 18, 2008), a number of attorneys noted that in-house counsel are looking for discounted rates, volume discounts, flat fees, and project pricing. Local firms are getting the message: Gerald Hendrick, the partner-in-charge of the Boston office of Edwards Angell Palmer & Dodge LLP, says that his firm now offers some of these options to its clients.

And just as there appears to be greater scrutiny of legal fees, the market falls out for some of the most lucrative legal work: corporate transactions. As noted in the Oct. 3-9, 2008 issue of Mass High Tech, the number of corporate transactions in 2008 is far down, emphasized by the September arrival of the “financial crisis.” The numbers paint a grim picture: in the first half of 2008, seven New England venture capital funds closed funds totaling $1.6 billion, down from 11 firms that raised $2.8 billion in the same period in 2007, according to Dow Jones VentureSource.

The Good News

So what’s the silver lining to be found in all of this bad news? It’s the fact that the current marketplace shakeup gives the best law firms—those that emphasize efficiency, productivity and client service— the opportunity to rise above the fray. Clients are generally willing to pay for high-quality legal advice. But to survive in today’s tough economy, law firms must be able to deliver it in the most efficient manner possible and work to drive every dollar of waste out of their systems.

The ultimate goal, law firms will eventually realize, is to make clients themselves more productive through self-service and collaborative technologies. Why shouldn’t clients also have access to any client information that the attorney would use? Say, for example, that a law firm’s CFO client wanted to know what percentage of stock ownership an employee had in the company. That CFO would be much happier if he could log in at 8pm on a Wednesday night to get the answer, as opposed to e-mailing his attorney and waiting for a response, which he may not get until Thursday morning (if he was lucky).

Likewise, imagine if an attorney’s access to information was like Google so that all client data could be obtained instantaneously. Instead of racking up billable hours searching for records and making calculations, all of that attorney’s time and energy could be devoted to legal analysis, negotiation, and advice. Thus saving the client significant money and improving their satisfaction.

In both scenarios, the client wins. As clients demand increasingly stellar service and more reasonable fees from their legal counsel, law firms must make productivity a top priority. Without a doubt, those that can rise to the occasion will rise to the top.

Gary D. Levine, President and CEO
Two Step Software, Inc.

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