competing law firm business relationships
Most observers would agree that it makes sound business sense for law firms to establish strong and enduring relationships with the lawyers they hire and the clients they serve. But, what happens when one of these relationships is forged at the other’s expense? This is the scenario Gerry Riskin alludes to in a recent post titled “Genius” minus “empathy” equals “stupidity."
In it, Riskin cites the fallout that occurs when General Counsel are left out of the conversation about rising associate salaries in the law firms they use. He also directs us to a related post on Demand Destruction in which Patrick Lamb reports on GC’s negative responses to survey questions about law firm associate pay. While the survey results can be framed in terms of economic forces and market impact, Lamb astutely points out that law firms making such unilateral salary decisions “are putting their client relationships at risk”
And, so, firms are faced with competing -- instead of symbiotic -- business relationships.
On the one hand, they need to attract and retain top talent. Money, although not the only draw, still woos the best and brightest through a firm’s front door (whether it keeps them there is another story). On the other hand, a growing league of clients doesn’t want to foot the bill for law firm associate recruitment and retention initiatives.
It’s a conundrum.
Clients like the GC survey respondents have the choice to opt out and establish relationships with other (perhaps, smaller) firms or with alternative service providers like Axiom Legal. Beyond cutting back on lawyer pay increases and partner profits, law firms might do some relationship damage control by following Riskin’s advice to directly and candidly communicate with clients about associate compensation and other important issues.
Postscript: I finished writing this post late last night. This morning, law.com features a story about Sun Microsystem’s decision to reduce the number of law firms it uses as outside counsel. Although the company wouldn’t discuss the basis for its cuts, its General Counsel did share that Sun’s business interest in cost-cutting is at odds with the law firm “race to meet New York associate salary standards."
No other business I can think of goes to its clients to discuss the salaries of employees. The legal business is different because large firms all publish their salary information (most professional organizations consider this info private, but years ago law firms started to use salary as a recruiting tool, thus they now have this issue of everyone knowing how much their folks earn).
If I was a company and a law firm came to me to discuss the importance of paying 25 year olds HUGE salaries to help them recruit, and thus needing to raise fees...I would say "that is your problem!!!" However, as long as big companies are willing to accept the annual fee increases and have young assoicates on their account who make more than the GNP of some small countries....the current situation will continue.
I believe that companies are getting closer to saying "enough is enough". When this happens, firms will either need to lower fees and salaries (or find other cost cutting measures....sorry staff), or they will see smaller firms with lower fee structures getting more of the business from their cash cow clients. This could cause the collapse of more firms and a new paradigm for doing business.
But with record profits for big companies, the legal fees are just a drop in the bucket. When tough times arrive, law firms beware.