“We’ll have a chat at the end” – a $20B black hole

 

We will do anything we can to avoid it and for many years, until regulation intervened, we could get away without much of a pricing conversation at the outset or at best, a very vague and abstruse one that kept all our options open.

Most Western legal jurisdictions now have regulatory regimes that require a comprehensive level of engagement with clients around cost at the outset of the matter. Consequently, there has been improvement, although rightly or wrongly, many still hold the view that lawyers approach to pricing remains unacceptably opaque.

Notwithstanding the progress that has been made towards price transparency (the numbers) and pricing transparency (the methodology), the profession continues to let itself down in relation to the ongoing pricing conversation. Pricing should never leave the table as a topic but unfortunatel,y the price conversation is often seen as a box to be checked at the outset and not something that needs to be revisited on a regular basis.

So how is it that we have come to make an art form out of procrastination when we know that this abdication of responsibility is the genesis of the sort of dynamics that we are all familiar with…

(a) shock and awe when you get a time print out at the end of the job (“good grief, that got away from us!”),

(b) difficult conversations with clients (“I’m sorry to be the bearer of bad tidings but…”),

(c) difficult conversations internally (“look I know we said we were going to clamp down on this sort of thing but this really is a good client of mine and we need to take a view on the write-off…”)

(d) “Hey, I’ve got a solution. We have £20,000 on the clock over what we told the client so let’s split the difference and knock off £10,000?”

And there you have it. The largest single reason why the default setting for most firms is broad satisfaction with a realisation rate of 85% to 90%.

Let’s look at the implications of this a little further. Obviously, the net write-off across a firm is never wholly attributable to the dynamics referred to above. But let’s say half of it (7.5%) is. The legal market in the UK is worth approximately £26 billion. That means that perhaps £2 billion is squandered in the fashion described.

A $20B black hole – or more!

Apply this same reasoning to the US market which is worth approximately US$260 billion and you’re talking something in the order of US$20 billion going down the gurgler for no good reason.

I’m sure there will be finance directors who take umbrage with some of my figures and assumptions. I certainly don’t pretend to have brought scientific rigour to the exercise but taking a broad brush view, I imagine we can all agree that we are talking a shed load of money.

Why have a difficult conversation now when we can have it later? This approach is delusional. The conversation isn’t going to go away. There is going to be a conversation and it beggars belief that anyone would seriously think that the conversation is going to go markedly better at the end than a timely intervention when, at an intellectual level anyway, most partners know a discussion should occur.

Nonetheless, our inner voice rationalises and justifies a deferral of the conversation with sage insights such as, “things are developing so quickly, there is just no time to deal with it now”, or how about “the client won’t appreciate being forced to have another pricing conversation mid deal. In fact, they’ll think I’m just taking advantage of them.”

And so, comes the punchline – “we’ll have a chat at the end!”. The problem is that even leaving aside for a moment the regulatory imperative to keep the client informed, the public relations and relationship upside of doing so, the fact that we know clients always appreciate an early heads-up on bad news and conversely hate unpleasant surprises, keeping our powder dry until the end isn’t smart from a negotiation perspective.

In short, renegotiating the price after the event with a client who has already had from you everything that they need, is never going to find you in a particularly robust position.

All of which screams the question, Why? We can wrap it up in all manner of packaging and justification but I am sorry to have to report that it is by and large nothing more than unmitigated cowardice.

If we are brutally honest with ourselves and we ask at a time and in a place that we would never share with our colleagues or anyone else why we are not having the conversation now, when we know we need to, the answer is simple and primal. Fear.

Fear of upsetting the client, fear of losing the client, fear that the client will say uncomplimentary things about us, fear that the client will no longer like and respect us, fear of how things will look internally, fear borne of our own lack of confidence and self-belief, fear borne of our belated recognition that we have done a sloppy job of scoping, fear borne of our suspicion that we may just not handle the conversation particularly well.

And so, we look for the line of least resistance. Say nothing when it needs to be said, have the conversation as late as possible and produce whatever financial mea culpa is required to make the problem go away.

As The Donald would say in erudite and eloquent fashion, ‘bad, very bad’.