8/15/16

Exit Not Voice: Law Firms Don't Change Because Clients Aren't Asking

Actions are supposed to speak louder than words. And the direction of client action seems fairly unambiguous:
Managing partners are well aware of these broad trends. Yet they still claim that clients aren't asking for change:



I tackled those pesky partners last post. Not only is the net impact less than dire--erosion, not extinction--but it is also not evenly distributed. The pain just isn't that acute for most rainmakers who can point to decades of empirical evidence that suggests they will be just fine. Given their stature, relationships, and time horizons, many of them are probably right.

In addition to robust data, they can probably offer a fair amount of anecdotal evidence, or the absence thereof, about clients' supposed interest in change. The top partners probably don't hear much about change from clients. And if they do, it is probably while trying to quickly get past the annual unpleasantness of rack-rate kabuki theater--where the two sides keeping using the word "discount" but are actually dickering over just how much to raise rates.

This does not mean that clients are content or passive. It just means they are bad at articulating their concerns or do not consider it worth the effort. Very few firms know they've been fired. The phone just stops ringing. Even fewer know why they've been fired. Or why they didn't win the RFP. Or why their work from the client was down 2% instead of up 2%. Or....It can be a very slow bleed. There are many ways to lose business that do not involve a formal "you're fired." And there are just as many possible explanations for the loss. Client dissatisfaction with service delivery is only one of them.

In short, clients are using exit, not voice. In the classic treatise Exit, Voice, and Loyalty, the economist Albert O. Hirschman outlined a client's options when quality declines (or fails to keep pace with what is available elsewhere).

Clients can be loyal--i.e., they just keep returning to the firm because of relationships, complacency, lack of alternatives, high switching costs, devil-you-know conservatism, etc. Loyalty is major part of the legal market, in part, because there are genuine advantages to incumbency. Loyalty continues to be the most important aspect of the client/firm relationship. We're witnessing a steady accumulation of minor paroxysms, not a mass exodus.

Clients, however, can and do exit. They take their business elsewhere. Alternative destinations include other firms, in-house, and managed service providers. As the headlines above demonstrate, exit is becoming a more prominent part of the legal landscape.   

Or clients can exercise voice. They can express their dissatisfaction but still afford the firm an opportunity to course correct. The managing partners' "clients aren't asking" response suggests that clients rarely do this. Clients choose exit instead.

Voice is critical. Loyalty signals acceptance of the status quo. Exit signals dissatisfaction and decline. Voice is the informative middle ground that demonstrates loyalty, raises the spectre of exit, and provides the path forward to bolster the former while avoiding the latter.

There is a vital difference between asking for a manager and just leaving the store to shop elsewhere. So why don't sophisticated corporate clients exercise voice? My friend Connie Brenton of NetApp/CLOC provided part of an explanation in a piece we co-authored on the topic:
Client preference for exit over voice has much to do with resource constraints. We need results now, innovation now, efficiencies now. We haven't the time to wait for our firms to catch up. There are also an increasing multitude of accessible alternative solutions and technologies that were not previously available, making the exit not only easy but the responsible decision for our businesses. Organizations such as the Corporate Legal Operations Consortium (CLOC) provide a forum to share best practices including how to better in-source legal work or move day-to-day work to lower cost alternatives.
Frankly, as Ron Friedmann has observed, it is often easier and quicker to start from scratch than to try to retool. Not only are established processes resource intensive to amend, but interpersonal dynamics also consistently fall back into familiar patterns. If the inside lawyer and outside lawyer are accustomed to resolving every hiccup with a discount, it may feel unnatural to have any other conversation, especially when there is 'real' work that needs to get done.

In the short term, it is simple to show ROI on moving to a firm with lower rates, bringing work in-house, or diverting work to a managed-service provider. Each option can be far less daunting than asking a long-time incumbent to cut their rates in half, let alone make an abrupt move to value fees (which Pat Lamb compares to reciting the alphabet backwards). You don't necessarily let the incumbent go immediately. You just start to taper their work, which subtly moves from increasing to flattening to declining as the new resources come online. Indeed, by keeping the incumbent around, you get to have a control to validate your ROI calculation.

The right question may not be why clients don't use voice but, instead, why they should even bother. Since I wrote a guidebook entitled Unless You Ask, I feel compelled to try to answer in my next post.

_______________________________________
D. Casey Flaherty is a consultant who worked as both outside and inside counsel and serves on the advisory board of Nextlaw Labs. Find more of his writing here. Connect with Casey on Twitter and LinkedIn. Or email casey@procertas.com.

Bookmark and Share

4 comments:

Toby Brown said...

As a counter point - I refer to the ghost of Jeff Carr (the ghost of when he was in-house). After using "exit" for years, he realized all he was doing was trading problems. He decided it was far more productive to engage with his firms so they would get better at solving his problems. The result was his feedback / scoring system. The outcome was holding the line on legal costs while his company grew dramatically - and delivering superior service and outcomes to his internal clients.

I understand Connie's point about not having time, but taking the time to shift to a new firm is still ... time. It's the old, old story of giving a (wo)man a fish or teaching her to fish. You can catch the fish quickly and solve the immediate problem, or you can take the time to teach her to fish and solve the long term challenge.

D. Casey Flaherty said...

"The right question may not be why clients don't use voice but, instead, why they should even bother. Since I wrote a guidebook entitled Unless You Ask, I feel compelled to try to answer in my NEXT POST."

Spoiler Alert: I agree with much of what Toby says.

Jeffrey Carr said...

FIrst, thanks for the shout out Toby.

Second, like Toby, I too understand Connie's point, but believe that exiting is more often caused by the intrinsically introverted attorney, whether in or out house. Feedback, or Voice, is the quintessential intimate conversation. As introverts we attorneys are bad at giving or receiving meaningful feedback -- it's hard, it hurts our feelings (yes, we do have them), and it undermines our egos (and boy do we have those!). But if we don't tell our counsel what we want, what we expect, and what we value, meeting those expectations occurs by happenstance if at all. And if we don't tell our counsel how they're doing, whether we're happy, and if they delivered value, then they blissfully wallow in self-delusional pride of great client service. No, just as our companies have learned that it's far better to give feedback and guidance to develop an employee, and that dismissal shoudl indeed be the last resort, we need to do the same with our service providers. That's not because of wrongful termination suits (although many lawyers do, indeed think it's about them), it's because it's expensive to on-board new employees and new providers. While it may be "comfortable" to move the problem down the road, it's far better for the enterprise to recognize and address expectations and their satisfaction. That's what healthy and sustainable organizations do -- and that's what's so sorely lacking in today's legal ecosystem.

Third, I'm looking forward to your answer Casey!

David Bjornson said...

Loyalty is major part of the legal market.

 

© 2014, All Rights Reserved.