Actions are supposed to speak louder than words. And the direction of client action seems fairly unambiguous:
well aware of these broad trends. Yet they still claim that clients aren't asking for change:
- Warning Signs for Big Firms as Report Sees Demand Drop-Off
- The Am Law 100: Signs of a Slowdown
- Global 100: Hitting the wall
- Spending in Law Departments is Rising, But the Money Isn't Going to Law Firms
- Corporate Lawyers Say They Are Spending More In-House
- Survey: Most Law Firms Losing Business to Corporate Legal Departments
- Law Firms Risking Obsolescence, Report Says
- Is Big Law Havings Its Kodak Moment?
- 80% of BigLaw firms say their nonequity partners aren't busy enough
- Business is Great for Big Law. Wait.
- The Smart Money Is Not Following Traditional Law Firms
- GCs Willing To Use Nontraditional Law Firms, Study Says
- BigLaw's Struggle To Profit Is Here To Stay, Survey Says
- BigLaw Firms Must Conduct More Layoffs, Before It's Too Late
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 isn't that acute for most rainmakers who can point to decades of empirical evidence that suggests they will be 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 how much to raise rates.
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 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 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 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 firstname.lastname@example.org.