THE client does not exist.
Updated: Oct 19, 2018
Hardly a day goes by in the legal sector without the publication of an article on ‘what clients want’. Literally the past decade thousands of conferences around the world have had panel discussions where ‘General Counsel’ told lawyers what they wanted out of the relationship with law firms. Looking at it from a distance it seems as if General Counsel are at the center of the universe. These General Counsel keep repeating that they want prices to go down and that law firms should make an effort to get to know the clients’ business. When you Google “what general counsel want from outside counsel” you get no less than 33 million results. Diving deeper into these millions search results leads to the same conclusion: clients demand better value and want lawyers to understand the client’s business. So if everyone is saying this, it must be true? Maybe not…
Google “what general counsel want from outside counsel” and you get 33 million results.
There is no ‘THE client’ When we start zooming in at law firm clients a more fuzzy picture emerges. Clients come in every conceivable shape and form. Some companies have sizable well organized and highly professional legal departments. These are typically the large multi-nationals and the banks. This however is a minority. Many companies that deal with law firms only have a small team of in-house lawyers or sometimes even only one person who then might also be the company secretary. This in reality forms the majority of all business law firm clients. Looking at businesses in general: most companies do not have an in-house legal function. So certainly from this perspective alone it would be false to make general statements on ‘what clients want’. There is no such thing as ‘the client’.
Ultimately the client is not the in-house lawyer but the shareholders
Another aspect we need to analyze is the role of legal within a company. Businesses are focused on creating products and bringing them to market. The primary process of any business is to create ever increasing shareholder value. Business operate in an ambiguous and competitive world and are invariably under a lot of pressure to deliver. Doing business is ultimately about making money. From this perspective legal is important to help enable and protect, but it is by no means essential to the business. In-house legal staff is support staff, just like facilities, finance, HR and IT. The implication of this is that, although in-house legal might be the primary gateway for the law firm, it is only an intermediary. The ultimate client are the shareholders. So the question ‘what do clients want’ should actually be rephrased as ‘how to help increase shareholder value’.
Knowing your clients’ business We at TGO Consulting work with in-house legal teams across the globe on a regular basis. So far, without exception, we got to know in-house attorneys as extremely committed to provide the best possible service to the company that employs them. Every in-house legal team consciously makes a permanent effort to work integrated with ‘the business’.
Truth is that in most cases in-house lawyers themselves only marginally understand the business of the company in which they operate. In-house attorneys are lawyers in the first place. They are in general running all day to keep up with request from ‘the business’ and at the same time monitor every relevant legal development. So maybe, when ‘clients’ state that lawyers should understand the client’s business they might just be echoing what their CEO is telling to them.
Reducing legal spend will hardly be the first priority for a CFO
We want more value Ever since the financial crisis ‘General Counsel’ have been hammering on how they wanted law firms to deliver value at a lower price. Over that same 10 year period of time law firm revenues and profits have kept growing year-by-year. Clients have been paying for this of course. Despite the obligatory on stage statements demanding better value, the overwhelming majority of clients remain very satisfied with the products and service they get form their law firms. Relationships between clients and law firms remain strong and are often personal. In general a law firm must behave very badly before the client leaves.
Clients want law firms to solve problems for them. In-house attorneys are often swamped with requests. When they turn to outside counsel they are looking for ‘aspirin’, not for a ‘headache’. As long as outside counsel provides adequate service and solutions, the in-house lawyer will be happy. As long as the price does not contain any nasty surprises, price will not be an important issue. In general companies, depending on geographical location and industry sector, spend between 0.23 and 1% of their total budget on legal. This figure immediately shows that reducing legal spend will hardly be the first priority for a CFO.
The relationship is about dialogue, transparency and alignment
The emperor’s clothes So there we have it. The whole legal industry is talking about ‘what the client wants’ while THE client does not exist. General Counsel who are supposed to speak on behalf of THE client are not representative for the vast majority of businesses that have little or no in-house legal function. When THE client states that law firms should understand the client’s business, they might merely be reiterating what their leadership has been telling them. After a decade of stressing that prices must go down, clients have steadily been paying more. Maybe this is all about the emperor’s clothes. Maybe there is actually nothing there.
Please take note that by no means I am saying that there is no room for improvement in the relationship between law firms and their clients. There are plenty of great opportunities for both parties to improve the relationship and create more value. As I have written before, time based billing is an inadequate measure for value delivered. In the future we might see the industry move away from this.
Both external counsel and in-house attorneys need to make an effort to understand the business of the company and the market dynamics that come with it. Law firms and their clients should not communicate on stage but enter into a permanent dialogue. They should speak up as it comes to their goals and expectations. Dialogue, transparency and alignment needs to take place. This will be very much different of each individual lawyer-client relationship. Ultimately the client is not the in-house lawyer but it's company's shareholders.