Guest post by Philip Price, group general counsel of TP ICAP
This is a companion piece to the blog published in July, What does 21st century client service mean to the client?, written by John Reynolds, head of disputes at Avonhurst
Price: Clients want value in the context of an ongoing relationship
While superficially attractive, the role of a company’s general counsel (GC) can be difficult – and not a little lonely.
Aside from managing the wide range of legal risks and staying on top of technical legal issues affecting the company’s business activities, the additional demands of internal and external stakeholders can mean that – almost without thinking – the GC can over-rely on external counsel.
But what should the external counsel relationship look like in 2022? Clearly, GCs want a level of service from their legal advisers that extends well beyond technical legal advice and support. The question is, are law firms really ready to meet such client demands?
My view is that, in general, the law firm approach to client delivery in the UK has only marginally changed over the last 20 years and the reason for that lies as much with clients as it does with the law firms themselves.
As a result, and in terms of the approach to client service and innovation, the UK’s law firms on the whole risk trailing a poor third behind accountants/auditors and financial advisers in anticipating and supporting their clients.
It does not need to be like this. To paraphrase the old joke involving psychiatrists changing a light bulb, the law firms can change their approach to client service but only if they really want to.
Unless clients agitate for a rebased relationship, I believe that the approach of law firms to client service is unlikely to change. In order to address this problem, I have tried to summarise below a number of factors that both a GC and a law firm would do well to consider when refining their relationship.
My suggestions are not exhaustive – there are clearly other more specific factors that are relevant to GCs in particular business sectors. However, many of the ideas below are of general relevance to the relationship between a GC and a law firm and should serve to provoke a debate between clients and their external counsel.
Speed of response
In order to be effective, internal counsel are under enormous pressure to deliver advice to stakeholders immediately – it’s just how life in-house is.
This in turn requires law firms to support clients in very swift time frames, regardless of matter complexity. Anything less just will not work.
Law firms need to understand that, in many cases, a client’s request for advice is frequently a matter of last resort (clients having exhausted their own knowledge) and law firms need to prioritise their response accordingly.
Of course, clients need to be very clear as to their expectations when instructing external counsel to avoid any misunderstandings but – as much as internal counsel are required to focus and prioritise their responses – external counsel need to be extremely reactive, rather than dealing with clients’ concerns in their own time frame.
To anticipate client demands, law firms need to staff and organise themselves accordingly.
Know my business
This is frequently cited by in-house counsel as a key factor when appointing external lawyers. In parallel, a law firm pitch will always explain that the adviser is intimately familiar with the client’s activities. Yet how frequently do lawyers really show an understanding of the client’s business and are therefore able to contextualise their advice?
Perhaps law firms do not feel the need to do so because so much work is commoditised and therefore not sector specific. Litigation, mergers and acquisitions, tax and general corporate are practice areas where law firms can broadly offer broadly generic advice regardless of the client’s sector – and trim and tack that advice to address sector specifics only at the margins.
In contrast, specific advice tailored to client needs is more frequently required in employment, regulation and anti-trust matters.
Of course, there are exceptions where sector understanding is key and there are some specialist practice areas within law firms that work hand in glove with clients but perhaps law firms need to do much more to truly understand a client’s business.
At TP ICAP, having facilitated associate secondments in the past, we are now starting to pilot senior-level secondments and training on our business with our relationship law firms.
We view that this is of supreme benefit to a law firm and believe that a law firm that can pro-actively advise a client not just of new changes in law and regulation but can also articulate how to translate those changes for the client’s business – based on personal experience of working and sitting alongside internal counsel – will differentiate itself from competitors and win more instructions as a result.
Communication
Communication between clients and law firms needs to be clear concise and practical. However, at worst, law firms can still deliver a rambling, complex and largely impenetrable discourse masquerading as advice.
Law firms’ audiences are not always internal lawyers (the advice may end up in front of the board, for example) and for in-house counsel to “translate” technical advice into a digestible advice for the board is hugely inefficient.
All forms of jargon (and especially Latin phrases) need to be avoided at all costs in delivering pragmatic advice with legal justification. The most useful form of advice should contain a hard recommendation by the law firm rather than a series of options forcing clients to (ultimately) decide.
A client may disregard the law firm’s advice in whole or part (and may choose to do so for good commercial reasons) but there can be no excuse for external lawyers not being definitive in their recommendation.
The relationship partner
In many ways, the role of a law firm relationship partner should mirror that of the client’s GC. The relationship partner should know enough about the client’s business to be able to spot and navigate round issues in advising the client promptly.
While it would be unrealistic for the relationship partner to know as much about the client as the GC, he or she should be at ease with credibly discussing the client’s business and sector with the GC’s executive colleagues and other client advisers.
The relationship partner should be sufficiently experienced in legal practice areas outside his or her own expertise to give the client an immediate view without deferring to colleagues (and the concomitant time delay).
Some firms are advanced in terms of holistic training for relationship partners but all too often the training stops at cross-selling other practice areas rather than giving law firm partners refreshers on the law outside of their areas of expertise.
Equally, the relationship partner’s knowledge of a client could be improved if they asked the client to explain areas of the business that are unfamiliar to them. While the relationship partner may be the ‘gateway’ to the firm, from the client’s perspective the role needs to be deeper than that and relationship partners need to make more effort to understand the role of the GC.
Think of the future
As clients become increasingly sophisticated buyers of legal services and prioritise value from advisers, law firms continue to nurture excellent lawyers who during their careers will need to provide legal and commercial advice that clients will value and are willing to pay a premium to receive.
Rarely are clients asked to identify the skills and attributes of future law firm partners. Technical legal skills are a given but what makes a good, client-focused lawyer? Diversity and inclusion have, of course, been largely embraced in law firm promotions over the last five to 10 years but in order to address clients’ ESG (environmental, social and governance) obligations, I would suggest that law firms should ask clients what they want from partners of the future as opposed to producing simply (very) good lawyers.
Fees
Today GCs are focused on fees like never before. A law firm that fails to institutionalise processes to address this concern will find itself marginalised in relation to future client instructions.
Despite much publicity and discussion between law firms and clients on both sides of the Atlantic, the concept of time-based billing has endured and has not been eradicated.
Its continued use by firms – coupled, it must be said, with a reluctance by many clients to reject it – has placed associates and partners under stress related pressure and caused much consternation among clients, management teams and boardrooms.
Law firms have historically relied on the hourly rate as a device to deliver multiple data points: it drives productivity (although not efficiency) of fee-earners and provides a basis for revenue targets and budgets. Charging by the hour has historically forced law firm management teams to value those fee-earners who bill the most.
Perhaps an undesirable by-product of the hourly rate is the god complex – the more a partner or associate bills, the more the individual is deemed to be worth to the firm (and obviously to that firm’s competitors).
While this creates resentment among other partners – not to mention clients – the high billing lawyer is valued by law firm management and revered by associates. Surely this is an anachronism in 2022?
In contrast, other professional services firms (eg, accountants, actuaries, investment banks, corporate communications specialists) are all much more likely to provide services based on fixed fees than hourly rates – even though some of those professionals use hourly rates for budgeting purposes. So why should law firms be so different?
It cannot be that the pricing of a particular piece of work on a fixed fee is unknown; many law firms frequently undertake commoditised work for clients where it is relatively clear what is required and the law firm will be able to price for that work (plus margin) very precisely.
Of course, some legal work is innovative, technically complex and may involve advice from other jurisdictions, and therefore is much more difficult to accurately price at the outset. But in relative terms, such work is rarely undertaken by clients and when it is, it should trigger a more nuanced discussion around fee structures, assumptions, risks, etc.
It is not unknown for other advisers – particularly accountants and banks – to undertake work on a possible corporate transaction on a contingent basis for which they will only receive payment in the event a deal happens. The effect is that the adviser carries a significant amount of work in progress for that transaction which may or may not be recovered.
Law firms seem reluctant to embrace such a model and instead seek to swiftly capture time cost from clients where they can. This raises the risk that clients perceive the law firm relationship to be more transactional rather than long-term, such that the law firm may take a short-term loss on one matter in the hope of a long-term gain on others.
Without law firms offering this flexibility of approach, GCs cannot be criticised for wanting to drive fees down to the lowest level as possible.
But if a client and a law firm have a true relationship where the client feels that it has received value and has paid fairly for it and the law firm believes it has recovered its operating costs plus a reasonable margin, then the relationship should be able to bear the ups and downs of commercial life.
Absent this flexibility, the client may justifiably feel that in instructing a law firm is a bit like entering a casino – it may be rewarding in the short term but ultimately the ‘house’ (law firm) always wins.
Get focused on legal operations
Clients are increasingly looking to spend time with the heads of finance and IT at law firms. Why? Because clients have figured out that addressing billing queries and engagement terms is best done through specialists rather than trying to contact a relationship partner who is in court on a trial or up all night on a deal for other clients.
The issue is compounded with global law firms, where a client’s matters may stretch across countries and time zones leading to multiple discussions with different internal stakeholders at the law firm.
Perhaps law firms could look at the role of an account manager – somebody who can be the client’s interface on everything that does not relate to the provision of legal advice (a law firm concierge, if you will), who can help clients navigate around the law firm to address operational issues.
I am sure this investment by law firms in parallel with clients building out operations teams would promote a smoother relationship – it would certainly allow partners to focus on client activities and business as noted above.
Embrace technology
While law firm economics are underpinned by the billable hour, the effective use of technology should allow clients to reap benefits.
Artificial intelligence (AI) solutions such as Lex Machina can help litigators to predict matter outcome by looking at previous judgments and spotting trends dependent on the success or failure of certain claims. Such tools will inform decision making and litigation strategies in the future.
In parallel, AI can assist with contract review and negotiation using tools to update drafting and clauses in a fraction of the time that would otherwise be spent on a manual review.
While there is no prospect of law firms employing the technology equivalent of HAL from 2001: A Space Odyssey to deal with clients any time soon, it is certain that predictive and work tool technology will become an increasingly important part of law firm offerings to clients.
Perhaps (more) law firms need to add data scientists to their payroll?
Conclusion
The above observations are merely intended to generate a debate between clients and their legal advisers. There is no single template for the ‘best’ relationship, but my overall point is that iteration should define how clients and their legal advisers interact.
A firm that fails to heed this concept is likely to find itself at the back of the queue when it comes to new instructions and, if it is not, then clients need to ask themselves are they getting the best level of service from their external lawyers.
Of course, cost is a factor in obtaining legal services but perhaps the cost is being decoupled from its intrinsic value – as a result both client and adviser need to have clear conversation around what they need the relationship to produce.
We have to recognise that law firms are businesses that need to make a profit but clients need to feel that they can demand value in the context of an ongoing relationship.
Without the latter component, legal advice becomes transactional and dominated by pricing rather than a broader value discussion. Perhaps managing partners need to encourage more of their law firm colleagues to want to change the light bulb?
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