You could be working for the wrong clients!
Working with lawyers on a daily basis, we know that ‘an empty desk’ is what many lawyers fear most. Those who are working as a partner in a law firm are under constant pressure to perform. Partners have to meet certain revenue targets, have to produce a minimum number of billable hours and keep their associates fully occupied at the same time. Every matter whether big or small will come to and end and then the lawyer will need a new matter to keep himself and his team occupied. As a consequence I’d say that a majority of lawyers will accept any new matter in order to avoid the risk of idle time. Understandable as it may be, this is probably not a smart thing to do. This article will give you five reasons why you might want to turn some clients down, even at the risk of ending up with an empty desk.
1. Clients not prepared to pay your normal rates Certain clients tend to always complain about your rates while others have no problem at all. Assuming that your rates are fair and realistic, there is no apparent reason to accept clients that demand a discount. Obviously it is not uncommon for lawyers to give discounts, but these need to be reserved for your best clients that have been loyal to the firm for a long time and/or clients that bring a guaranteed substantial volume of work. Nevertheless, I see lawyers accepting to work for low fees for new clients all the time. The reason is ‘fear of an empty desk’. But even if there is not enough work it is probably better to not take on the clients demanding huge discounts. Lawyers can only sell their time once and it will likely be more profitable to skip the client and look for the next one who is willing to pay the rates.
2. Clients or matters that will get you conflicted for big ticket matters There are strict regulations governing what constitutes ‘conflict of interest’ for a lawyer. In general if a lawyer takes on a matter for a client, however small, the whole law firm will not be allowed to act against that client. This something that should be carefully considered before accepting a small matter for an new client. Even if this client is a reputable brand that you very much would like to work for. If one of your partners accepts to handle some employment matters for company A, it would prevent the whole M&A team one week later to represent company B in its the takeover of company A. Thus accepting a 25.000 Euro file could potentially stand in the way of a 500.000 Euro M&A matter. This applies also to accepting a small role in a big matter to soon. If one of your partners gets hired as counsel to the board in a merger, the firm as a whole is prevented from representing the buyer or the target in this acquisition. The firm would miss a large amount of revenue. If you accept to have the government as a client, your firm will likely not be able ta act against the government which might be far more lucrative.
The fear of an empty desk does affect your judgement
3. Clients that want you to accept a non-compete Big companies that have a lot of legal work tend to only use law firm that have been admitted to their legal panel. In order to become part of such panel multiple law firms are invited to pitch. The firms who have submitted the most competitive offers in terms of value will be appointed in the panel. Usually for a period of several years. What most law firms, eager to get on the panel, do not realize is that being on the panel does not guarantee any volume of work. It just means that the client’s various departments are allowed to work with the firm if they want to. No obligation, client is totally free to give all or most of the work to one of the other law firms on the panel. Keeping this in mind, law firms are advised to carefully read the ‘terms & conditions’ the client has for its panel firms. In many cases being on the panel will exclude a firm from representing companies that the client sees as competition. Being on a panel for 3 years might not get you any meaningful work but will prevent any partner within your firm to take on lucrative work for any of the companies that operate in the same arena as the client. Not only are panel firms prevented from acting against the client (even if there is no conflict of interest and even if the panel firm has never got any work), but the firm would also be prevented from acting for any of the client’s competitors in matters where the client is not at all involved. All this could be perfectly reasonable if the firm gets a substantial amount of work from the client, but if not it might cost you a fortune.
4. Clients that might damage your firm’s reputation in the market. Every law firms should have proper and adequate compliance procedures that will help prevent taking on clients or matters that involve illegal or criminal elements or constitute a breach of international sanctions. Even if perfectly legal, this type of matters or clients could seriously harm your firm’s reputation. This is an obvious reason why you should avoid certain clients. There are however also other situations where you might want to stop and think before accepting the mandate. The best known example is the pharmaceutical industry. Law firms that represent manufacturers of generic medicines will have a hard time getting hired by the big pharmaceutical companies. Reputational damage however comes in many forms and shapes. A law firm that consistently represents hedge funds in their often aggressive attacks on large corporates will probably drop of the corporates’ shortlist as they do not like being attacked for no other reason than manipulating the share price upwards. Equally representing ‘patent trolls’ will also not help your firm to become the corporates’ darling. The clients you choose to represent should be subject to strategic considerations. Choosing one direction might cut off another perhaps more lucrative market.
5. Matters that harm your positioning with the client’s in-house team. Most lawyers are most eager to work for large companies that have a strong reputation in the market. Not only do these companies have a substantial budget for external legal counsel, they also have some of the most interesting and profitable legal matters to hand out. Working for this type of clients could propel your practice forward. No surprise lawyers are eager to jump at the first opportunity. No matter how eager you are and how tempting the prospect, it might be a smart thing to first consider how your first mandate will shape the image the in-house legal team is going to get from your firm. Lawyers that are hired to do small matters will brand themselves forever as being the perfect firm for small matters. No matter how satisfied the client is with your service, you will never get big ticket work. Big ticket work goes to firms that do big ticket and not to firms that have built a strong reputation on small matters. Even if the matter is not small from a monetary point of view, the matters you are dealing with might harm your future prospects. The firms that capably handles all real estate rental and leasing matters is unlikely to get M&A or big ticket litigation, even if the firm would have all the required experience and skills to do so. It is extremely difficult to convince the client that you are capable of handling matters that are more strategic than those you have built your internal reputation on. The other way around is mostly not a problem. Aim high, not low if you are planning to build a profitable relationship with a large corporate.
The clients you accept should be part of the firm strategy!
There obviously is a lot more to say on this topic and yes, there are lots of nuances that I did not cover. However it is not the purpose of the article to be exhaustive or overly nuanced. My message is that the type of matters and clients you take should be part of the strategy of your firm. There should be a clear and well defined shared vision among all partners on what this strategy and policy is. If your firm has such strategy, great! If not, you might have some work to do. It will come as no surprise that we would be happy to help :-)