11/15/16

Clients Confirm: We Don't Ask Law Firms To Change

I entitled an ACC guidebook Unless You Ask. The title refers to a finding from a series of Altman Weil surveys on why law firms aren't doing more to change the way they deliver legal services. "Client's aren't asking for it" is always a top response from the managing partners. My impression is that the managing partners are correct in their observation that most clients don't ask. I am working to change that.

So kudos to Altman Weil for confirming with the clients themselves. Their 2016 Chief Legal Officer Survey included a stellar bonus question:

Reorganizing those numbers a bit, only 30.8% of CLOs rate themselves satisfied because they generally are (17.4%) or because they are pleased with their results from asking for change (13.4%). Of 69.2% who are not satisfied, the vast majority have not exercised their inherent authority to ask for change because they are focused only on outcomes/don't think it is their job to ask (43.2%) or have simply taken their business elsewhere (11.7%). The remaining 14.5% asked for change but did not get it.

This is what one might call an impasse:
  • Law firms are waiting on clients to make them change
  • Clients are waiting on law firms to be proactive or change in response to market pressure
In the long run, market pressure should prevail with client exit playing an important signaling role. But you know what they say about the long run. As discussed previously, the pace of exit is slow, and there is a lot of noise obscuring its signaling function. That is, to return to a framework I deployed in a prior post, loyalty continues to dominate (repackaging the numbers above):


The Voice share is higher than I would have predicted. Though it is about where I would have guessed (10-15%) with the success rate factored in. That 13.4% of in-house departments are effecting change in the way outside counsel deliver legal services seems about right to me.

I am unsurprised by the failure rate. It is innovation. Innovation means different. Different entails risk. My fear, however, is that not much of anything was actually tried by those who now may be discouraged.

My friend Jeff Carr often refers to "massive passive resistance." Jeff was in the subset of GCs who regularly made public pronouncements of the need for the legal market to fundamentally change (i.e., discounts don't count). While that chorus became louder after the Great Recession, Jeff was still in the vanguard of an elite subgroup: those GCs who genuinely meant it.

We are all tempted to engage in virtue signalingsaying that which makes us appear virtuous without any real intention of attendant action. As in-house counsel, you may feel compelled to say you are interested in, for example, controlling costs. But, depending on the environment, you may not be compelled to actually pursue cost control. Instead, you focus exclusively on the substantive legal matters in your portfolio (the stuff you went to law school for). There is not necessarily a tradeoff between cost and quality. But there could be. And you'd rather direct your finite attention to your area of interest and accountability. This acute focus also leaves your powder dry for when the real dictate to cut costs arrives. The loosely run law department has a much easier time finding savings than the already lean machine.

As a result, GCs say many things that their departments do not take seriously. Law departments and their individual constituents say much that their law firms can dismiss as theater. Managing partners say all sorts of things that....Well, all of us are more talk than action (though degrees vary). A key to survival is knowing when people with power are serious. The remainder is subject to passive resistance.

I am not surprised then that some law firms were less than responsive to some law departments. Moreover, I suspect that some law departments had a hard time communicating what they wanted. It is reasonable to want your law firms to be more effective, cost conscious, innovative, efficient, etc. But these are nebulous demands. The conversation around service delivery is relatively new. Most in-house teams aren't quite sure what they want. They are just want more of it. And knowing what you want differs from articulating it in a way that is digestible by someone who has no frame of reference. Someone really ought to write a guide to such conversations.

And even if the communication from the law department was crystal clear, change is still hard and takes time. Maybe the law firm didn't know how to change. Maybe the client didn't have enough leverage with the subject firm. Maybe the person to whom the request was communicated did not have the authority/pull to make it happen.

Law departments should pursue concentrated, calculated, and and clearly articulated change initiatives supported by sustained attention (not the same as constant attention). Even then, some efforts will still fail. Such is the nature of experimentation. If guaranteed results are more important to you than improved results, keep doing the same thing you've always done for as long as it is sustainable, at which point you will have no option but to experiment and far less room for error.

The Exit share in the chart above is much lower than I would have anticipated. Moreover, the results of the bonus question above do not seem to square with other data in the report:


So 53% of clients have switched firms on the basis of "client service" while only 4.4% of clients have dropped firms due to "unsatisfactory service delivery?" There must be some critical semantic distinction I am missing. The higher exit number is consistent with general industry trends, including the survey's own findings on insourcing (which still remains less prevalent than discounts and AFAs):


I am fine with exit as a general concept/approach. But I continue to wonder how well it alone addresses the problem. What makes a law department believe that switching firms will fix the client service problem as opposed to just relocate it? The answer I usually get (anecdote warning) is that service delivery is explicitly included in the dialogue with the new firm as part of the retention process. That is, the law department is combining exit with voice.

This prompts the question as to why they didn't try voice with their existing firm first. Responses tend to suggest that it is easier to shape a new dynamic than reform an existing one. This strikes me as a fair point. But it becomes problematic when path dependence makes exit really hard.

The best read of the data tends to suggest that a majority of clients switch firms. But it does not follow that a majority of their firms feel the impact (only 13.7% instituted a convergence program). Most incumbents retain their privileged status while insulated from the voice of the customer.

Loyalty. I don't know how I feel about 17.4% of chief legal officers reporting satisfaction.
There is nothing wrong with being "generally satisfied." While I am a continuous improvement zealot (never totally satisfied), I had the pleasure of working with phenomenal outside counsel. I always wanted them (and us and me) to get better. But this desire did not obscure the fact that they were already exceptionally good. As strange as it may seem, I would have likely ended up in the "generally satisfied" or "got the changes we asked for" buckets.

Likewise, I am sympathetic to those CLOs who are outcome oriented or feel law firms should be proactive. Few CLOs have the time to worry about service delivery. And law firms should be proactive.

That said, I submit that it is the responsibility of the legal department as a whole to behave like sophisticated consumers of legal services. The fact remains that ours is a buyers' market, and the buyers cannot abdicate responsibility for how legal services are delivered. Silence is taken as assent to the status quo.

Accepting that the CLOs do not have time for the details is different than thinking that service delivery should not fall within the ambit of someone's (or someones') job description. For me, this responsibility grows with the size of the department.

A solo GC or a few lawyers just trying to keep their head above water absolutely need to triage. But specialization accompanies scale, as does the professionalization of management. In the survey, 77.6% of law departments with 50 lawyers or more report having one or more people dedicated to "law department administration" with 15.9% of their time (6 weeks per year) focused on outside counsel spend tracking and analysis. Since service delivery has an appreciable impact on spend (as well as quality and speed), it seems reasonable to suggest that a few of those days should be directed towards the subject.

Frankly, I've probably spent too much time thinking about legal supply chains. To me, the law department is not the retail customer (end user of the car, phone, etc.) but the manufacturer/distributor who should absolutely take an interest in how component parts are produced (i.e., responsibility for the entire value chain). Deep supplier relationships are central to my worldview. And I am probably missing something about what seems to me a facile approach to driving change—i.e., expecting instead of demanding.

It would be a completely different story if most in-house counsel were satisfied with their outside counsel. They aren't. It would be a completely different story if the pace of exit were enough to cause immediate modifications in behavior. It isn't. It would be a completely different story if the outcomes-only mindset were enough to close the gap between expectations and performance. It isn't.

We now have years of data on the CLOs' perception of how much pressure they believe they are putting on law firms and how serious they believe the law firms are about changing. There has been essentially no movement. In particular, the delta between the two has returned to pre-Recession levels:


I would wager that the gap will never fully disappear. Law departments are never going to believe that law firms are as serious about change as they should be. But look at what a low opinion corporate clients have of themselves. They only cracked six on the pressure scale once in last eight years. Clients seem to know that the outcomes-only mindset is not getting them the outcomes they want. Why not try a different approach? If it fails, the status quo continues just as it would have under the current regime. If it works....well, that's when things become really interesting.
_______________________________________
D. Casey Flaherty is a legal operations consultant and the founder of Procertas. He is Of Counsel and Director of Client Value at Haight Brown & Bonesteel. He serves on the advisory board of Nextlaw Labs. He is the primary author of Unless You Ask: A Guide for Law Departments to Get More from External Relationships, written and published in partnership with the ACC Legal Operations Section. Find more of his writing here. Connect with Casey on Twitter and LinkedIn. Or email casey@procertas.com.

Bookmark and Share

2 comments:

Patrick Lamb said...

Clients don't need to believe "law firms" are open to change, they simply need to find the few that are and work with them. Imitation will follow success of those firms.

D. Casey Flaherty said...

Pat,

Like I said, I have no problem with exit as a general concept. And it is absolutely happening. But the pace is painfully slow and the signal is obscured by the noise (i.e., most firms don't know they've been fired, let alone why).

 

© 2014, All Rights Reserved.