Straight talk between corporate clients and their law firms: Inaction has consequences

In today’s post on Dialogue, Ralph Baxter writes about a significant conversation that occurred at a ground-breaking BigLaw forum in San Francisco recently. The occasion was the first annual institute of a prominent new organization, the Corporate Legal Operations Consortium. The conversation was about the importance of straight talk between corporate clients and their law firms about the imperative for change.

The conversation sparked headlines in the legal trades and lots of activity on Twitter. As a participant in the conversation, I want to provide more detail about its context and content. I also want to emphasize the importance of the forum in which it occurred.

The CLOC Forum

The conversation occurred at the first annual Corporate Legal Operations Institute (CLOC). The Institute was important for a number of reasons. Here are two:

• First, it was sponsored by CLOC, which is quickly becoming one of the most influential players in legal service delivery. CLOC is a membership organization for the professionals in corporate law departments — for example, Chief Legal Officers (CLOs) — who are responsible for seeing to it that the companies’ legal service needs are met in an optimal way. These professionals are, quite literally, responsible for executing the oft-discussed mandate that legal service be delivered “better, faster, and cheaper.” They are the people Richard Susskind has been writing and talking about.
• Second, the Institute was open to all participants in the legal ecosystem. Unlike most meetings of in-house law groups, this one welcomed law firms, new entrants like legal process outsourcing (LPO) firms and legal technology companies, academics, and everyone else. About 500 people attended, including 300 CLOC members (representing 130 corporations) and 200 other prominent participants in legal service. The exchange of ideas on the subjects that matter most to CLOC members was robust throughout the 2½ days of the Institute.

In subsequent posts, I will write more about the Institute and the significance of CLOC.

The CLOC Conversation 

The conversation occurred on the morning of the final day of the Institute. Dubbed “The Big Thinkers Session,” it brought together diverse perspectives to address why law firms are not responding faster and more fully to their clients’ needs and demands for improved legal service at more reasonable fees. The participants included two corporate CLOs, two representatives from large law firms, two LPOs, one advisor, one Harvard Fellow, and me.

While the media shorthanded the conversation the next day by attributing to me an admonition to law firms that they “cost too much” (close to accurate) and advice to clients that they should “drop their law firms” (not accurate), the actual conversation was about how clients can achieve the change they need from their law firms, not in spite of them. Still, the media’s use of these provocative snippets ensured the story was widely republished on Twitter and elsewhere.

But in truth, clients would prefer to use their incumbent law firms, if those firms would make the changes the clients need.

Context

The conversation occurred before an audience all of whom knew that clients need more, that fundamental change is required, and that the pace of change is painfully slow. The audience also knew, to a person, that the participants have it within their grasp to do better, but lack the motivation and resolve to do so.

Content

Moderator Jeff Franke, the Director of Legal Operations at Yahoo, asked me to open the conversation. I made two simple points.

1. First, that CLOC members have an unprecedented opportunity to accelerate change. Their roles have emerged precisely to address this very question. They have the mandate, they have the motivation and they have the buyers’ power. And, thanks to CLOC, they are organized.
2. Second, to achieve real change, CLOC members need to engage their law firms more directly about the true imperative for change.

The panel then proceeded with an interesting, granular, and pragmatic discussion.

Changes around the edges will not meet the real needs of corporate clients. Discounts and bans on first year associates will only go so far. Law firms are unnecessarily expensive because they spend too much on their infrastructure (personnel, space, and process design). They could dramatically reduce their costs and fees by making changes that modern process design, technology, and social change make possible. Law firms, however, lack the intrinsic motivation to do the hard work of making those changes in light of their continued financial success and the continued positive results they achieve for their clients (for the very high fees they charge).

Panellists drilled down on the real-world issues:

• The clients need for progress is intense;
• Clients like their law firms and would prefer to continue to use them;
• Engaging new providers involves transaction costs;
• But persuading law firms to change their ways has proven elusive;
• Consequently, clients are compelled to move work in house (37% of the market is now in-house) and to other law firms and new providers to achieve their goals.

Ultimately, the conversation turned to whether it was realistic for in-house counsel to persuade their outside law firms to expedite fundamental change. After hearing several anecdotes indicating that most pleas for progress go unheeded, I suggested that clients need to engage with more candor.

As I have written before, I believe that in-house counsel should embrace the responsibility to engage with their outside counsel; it is not enough to simply move work. In-house counsel should be direct with their law firms about how the client will respond to the firms’ failure to change.

Clients are switching the work away from incumbent firms, but without impact on their behavior. Law firms, aided by the media and their consultants, continue to operate within the traditional model, comforting themselves that “demand is flat” when demand is actually increasing. If law firms do not see what is actually happening, clients should connect the dots for them.

No one at the conference suggested that clients “drop” their law firms. To the contrary, the conversation was about how to maintain relationships with law firms while getting the desired improvement in service and reduced fees.

The answer: Straight talk.