An Open Letter to GCs and Law Firms
Law firms are facing challenges that would have been unimaginable when I started my legal career more than 30 years ago. Today, the combined force of a challenging economic climate, a changing environment and slow economic growth is severely testing the creativity of the managing partner and practice group leaders who make up a law firm's leadership team.
The speed of these changes has accelerated, mostly after the 2008 crisis. While many in the profession predicted, or hoped, that legal practice would return to the pre-recession status quo, this has not turned out to be the case. We've hit the tipping point. Consequently, dramatic changes will continue to occur. How are law firms adapting to this new norm?
In my opinion, many law firm leadership teams do understand that the current law firm model needs to change. They understand the need to respond to the market demands of lower-cost services, more predictability and improved efficiency, as well as the value and service expectations of their customers.
As a result, they are taking steps to achieve these goals. They're doing more project management, utilizing more legal process outsourcing, and realigning their models to be more in tune with client needs. These are positive steps. But will the changes being made be enough for subsequent challenges coming down the line? I believe the answer is no.
With this in mind, how can we, the general counsel (GCs) of law firms' existing clients, help in effecting those changes?
Moving forward, I would like to suggest an important component in a law firm's journey of transformation that may not be known, nor perceived: It's that the best allies for the leadership team in driving the transformation of its firm are the GCs of its core clients, who, in many ways, are facing the same challenges.
To my way of thinking, law firms and their corporate clients are in business. We share most, if not all, of the following priorities: customer satisfaction and flawless execution, strong financial discipline and risk management, alongside a solid talent management program viewed as a key asset for long-term growth.
However, historically, law firms have not viewed themselves as a business to the same extent as other profit-making organizations. As a result, they have not adopted basic tools used by effective businesses, such as strong unified leadership structures and rigorous analysis to improve efficiency and profitability, and sophisticated strategic planning.
To succeed in today's business environment, law firms have little choice but to push the envelope on their governance and development model. I believe law firms are losing many opportunities by not looking at themselves as a true business.
And so, if you will permit me, I would like to share with you some of the ideas I have formulated through working in the business world. I think all GCs should encourage the transformation of our law firms. To see them succeed, we must engage with our law firms and open the door to a new dialogue.
Lay of the land
Law firms must adapt their service delivery to the reality of their customers. In-house legal departments have transformed themselves over the past 20 years, with GCs working to become more efficient in the delivery of their own legal services.
As a consequence, there's been a fundamental shift in the law firm/client relationship. Today, that relationship rests with the in-house legal department and not, as formerly, with the executives or other corporate departments. Certainly, there are long-standing relationships between managing partners and CEOs, but even in these cases, in-house lawyers are managing the services provided by the external law firms. This evolution has dramatically changed the way in-house legal departments procure external legal services and the nature of the services being provided.
To begin, the amount of work being insourced has accelerated, with the key legal services requiring the most day-to-day support to the core operations of the corporation most likely to be insourced. By building from the ground up, many legal departments now function as a law firm of their own. This allows them to provide the bulk of the legal services needed by the corporations they serve.
For example, at Bombardier, we have insourced the expertise of selling trains and planes and negotiating with customers from all over the world. We excel at negotiating the procurement of our supply chain. We provide risk-based advice, well tailored to the nature of the business we serve. This advice is integrated within the risk management of the overall corporation. I believe there's no law firm that can match our law department's expertise and experience in selling trains and planes. Our approach is not unique. Serving the core needs of your organization through the insourcing of specialized legal expertise is mirrored at other major corporations.
This notable and growing shift toward insourcing is dramatically altering the nature of the legal work being outsourced. More often these days, outsourced work tends to be at one end of the scale or the other: Either the work is of lower perceived value and treated as a commodity, or it is significantly strategic that it requires the support of key partners and specialists. Therefore, law firms are often asked to provide legal support on a purely transactional basis, often procured through RFPs.
In addition, as many corporations expand nationally or internationally, in-house legal departments are adjusting their external legal spend. Often, their spend in foreign jurisdictions is increasing. The challenge for law firms is this: Should they decide to remain relevant locally or should they expand nationally or internationally to follow their clients, all the while not losing ground on cost and efficiency?
Taken together, the globalization of legal services, the emergence of the in-house law department as the manager of core legal services, and the insourcing of legal work have significant and serious consequences for law firms.
These evolutions in the law firm/corporate client relationship give rise to a growing — and legitimate — tension between law firms and their corporate clients. On the one hand, clients rely more and more on their law firms on a purely transactional basis. On the other hand, many still adhere to the concept of developing long-term relationships with their law firms.
One challenge that both law firms and businesses face is deciding when, and if, to respond to the increasing number of RFPs from potential clients. At Bombardier, for example, we submit at least one bid every single business day. Like our law firms, we need to decide where our energies and resources are best allocated. Where is the line where our resources are so stretched that we lose quality in the RFPs we do choose to pursue? Based on their experience, I think core clients could be of assistance to their law firms in formulating strategies with respect to RFPs.
Moreover, how much time and resources should be spent on servicing and solidifying the relationship with existing clients, as opposed to trying to attract new clients? This is an important question when creating strategic policies and processes for handling RFPs, especially since an organization's core base of clients often account for the majority of revenues year in and year out.
A strategy and a solid action plan to understand the needs of clients that is well implemented would serve to solidify and deepen the existing and current relationship, as well as achieve the necessary financial results for the law firm. It would also allow the firm to better match and plan its own resources to meet the client needs, whether for today or the medium term. This, in turn, would drive a better talent management plan by having the skills and expertise needed to again meet the needs of the customer not only for today, but also by allowing the firm the ability to follow its clients as their businesses evolve and change.
That said, as corporations rely more often on procuring legal services through RFPs, how can we expect our law firms to make the proper and necessary investments to make that relationship work? How can I, as a GC, expect my law firm to build its infrastructure, invest in internal talent and devote time to the learning curve of my corporation's needs? All this, while at the same time delivering low-cost services more efficiently? How do you square that with the investment and time that's going to be required from a law firm?
I suggest a law firm's existing clients are its best allies in helping to lower these tensions. In this respect, the leadership teams of law firms have at their fingertips a massive brain trust in the relationships they have created over the years with the GCs of the corporations they serve.
I would also suggest this brain trust extends much further — encompassing the CEOs and CFOs of large, sophisticated corporations, as well as the law firm's many talented entrepreneurial clients who enrich the business fabric.
Existing clients are your best allies
Faced with so many challenges, law firms and their leadership teams are working hard to respond to the changing environment. Some are doing better than others, and as recent history demonstrates, some have failed to adapt and ceased to exist.
Let me be clear: In my conversations with the leadership teams of law firms, I find many of them have, or are now, investing in new tools, such as project management, litigation management or the use of LPOs. They are integrating the in-house lawyer into the legal team, for example, in litigation and transactions. They are listening and responding to client demands in order to reduce cost and bring predictability in fees.
Both law firms and businesses share the need for a clear and ambitious vision, accompanied by a crisp and equally clear strategy of where we see our organizations over the long term. We need to articulate and drive this vision through solid detailed plans implemented with rigor, discipline, and open and candid communication.
As part of the C-Suite, GCs are involved, at the highest level, in the vision and strategic planning process of their corporations. We are also the leaders in driving these plans, as we implement the unique strategy and vision for our own legal departments. As a lawyer, I was fortunate to learn so much from my CEO and colleagues at Bombardier, and to have been able to build a strong legal department based on solid values — in tune with the business needs.
Extend the conversation
In my opinion and experience, law firms could benefit greatly by discussing their vision and strategy with trusted GCs and other senior business executives, thus benefiting from the business experience of these clients.
Vision and strategies are not designed in a vacuum, but by seeking the input of many stakeholders, including our own clients. For all of us, client satisfaction and flawless execution are driven by client needs, and the business understanding those needs, whether short or long term. The time spent by the corporations and their executives in meeting with and listening to clients is invaluable in shaping vision and strategy.
The same applies to GCs: We spend countless hours with the heads of our business units and corporate functions to ensure the delivery of in-house legal services will meet their individual needs. This is critical, as these needs change over time in accordance with the overall vision and strategic plan of our corporations.
Brain trust as informal advisors
In contrast, the structure of the law firm has not encouraged it to learn from its customers. Historically, the emphasis has always been on seeking to learn about its customer's business to understand and serve the client better, which is right and good. The focus has been, for example, "You tell us about your planes and trains." In addition, too often, this is left to individual partner initiatives rather than being a process developed by the partners and, thereafter, coordinated and orchestrated by the overall organization.
I suggest we extend the conversation much further to make it a two-way discussion. While law firms do need to understand their client's business, they can also benefit from asking existing core clients about their experiences, processes and policies. Where appropriate, these can be adapted and applied to the law firm.
As example, if a law firm is considering an expansion into a specific country, the leadership team could ask existing clients who are already operating there about their experience.
The feedback I'm getting from other GCs is that most often, listening to clients has been done on an ad-hoc basis, as opposed to a rigorous and steady fashion. To my way of thinking, however, the kind of two-way discussions I'm advocating should be more structured. This could even extend to the creation of an informal advisory board composed of a small group of key clients who meet with the leadership team once or twice a year, on specific issues as they arise, or to discuss the core strategy and long-term vision of the firm.
In many ways, this advisory role undertaken by law firm clients mirrors the governance undertaken by large corporations, entrepreneurs, investment funds and pension funds. The law firm could put its ideas to the board, whether they be strategies for growth, talent management, developing a new practice group or other initiative, and receive feedback from persons they trust and whose opinions they value.
Businesses and law firms understand the need for a clear and compelling vision. Further, they understand how powerful a solid set of common goals and values can be in order to create an environment that fosters a high level of engagement and enablement around which all employees will rally.
But, of necessity, given the many and ongoing challenges law firm leadership teams face, much of their time is taken up in managing day-to-day operations. They spend many hours looking inward for their evolution. I would suggest, while the time invested in meeting with the brain trust on a regular basis is invaluable in understanding core clients, it is equally invaluable in formulating and implementing the law firm's vision and strategies, and encouraging the firms to look outward.
Clear and compelling vision
So why can corporations and businesses achieve these goals, while it seems to be so difficult for many law firms? What will be the effect of the introduction of different business models, for example, in the UK and Australia? We should monitor the changes in governance that will arise in the firms that adopt this new capital structure.
There's no doubt that, utilizing the existing law firm model, it's not easy to achieve a solid strategic development plan built on a clear and challenging vision that has the buy-in of key partners. In building this vision, law firms should consider revisiting their compensation systems. There is great value in retaining and satisfying a law firm's existing clients. Partners who devote time to improving those relationships are as valuable as partners who develop business with new clients.
In addition, too many law firms have a compensation system that does not encourage some partners, and sometimes even the leadership team, to spend time on managing the long-term development of the firm. But if the law firm shifts its focus to regard itself as more of a business, it becomes clear that the challenges in creating a compelling vision are similar to the corporations and businesses they serve. In coming full circle, this is where core clients can assist their law firms in their necessary transformation.
And, law firms could transform more quickly, and be more successful I believe, if they would empower their managing partner and the leadership team with more decision-making ability.
For more information about reconnecting the value and cost of legal services, check out the ACC Value Challenge.