Many lawyers aren’t yet ready to concede that the legal profession is indeed a business, and the ecosystem of law firms, in-house counsel, business clients and service providers supporting the profession is itself an industry segment. The many changes taking place in the marketplace are, to some, a disaster of epic proportions. We may all feel free to declare that the hurricane may not come ashore, but the hurricane isn’t subject to our whims. So call it what you will, but the evolving landscape was the focus of the recent Futures conference hosted by the College of Law Practice Management.
A key theme was the migration from a seller’s market, one in which law firms primarily hold pricing leverage, to a buyer’s market, one in which clients, typically corporate counsel, have taken the reigns. Clients have complained for years about the inefficiencies perpetuated by the billable hour, but few had the initiative or incentive to drive substantive change. It took a global economic meltdown to bring the issues into stark relief for corporate C-level executives, and the pace of change has accelerated since.
Every business function in a corporation is required to adhere to some basic principles: revenue centers are asked to grow revenue and continually seek new sources of revenue; cost centers are asked to continually reduce costs, whether through innovation or technology or process efficiencies. Above all else, in many cases, is the compelling need for predictability. Business leaders in both public and private companies are perpetually identifying and measuring investment opportunities, and it’s critical to know, often to the penny, the working capital available for allocation.
One sustainable change brought about by the great recession is that CEOs and CFOs stepped from the sidelines and insisted that the legal departments operate more in this fashion, rather than treating legal costs as a complete unknown from year to year. And to help matters along, many in-house legal budgets were slashed. The new normal for in-house counsel: do more with less, maintain or improve quality, maintain or improve throughput, and don’t increase the organization’s risk profile by neglecting matters.
Part of the disconnect stems from different perceptions of the nature of predictability. For risk-averse outside counsel, a client who demands a matter budget before even awarding the engagement is asking for the impossible. For the client, however, creating such a budget is an exercise in the probable. Said another way, clients neither seek nor expect mystical predictions of uncanny accuracy based on reading tea leaves or the movement of the planets. They expect their lawyers to rely on past history to develop decision trees of likely outcomes, informing the branches and probabilities with experience gained over time.
If meteorologists had the same risk aversion as lawyers, the nightly weather forecast on your local news might sound like this: “Yesterday the sun rose at 7:04 AM and set at 8:32 PM and the temperature was an average of 72 degrees in our viewing area. Of this we are certain. We cannot reliably provide insight into tomorrow’s weather forecast but we will provide an accurate recap of the day’s weather at this time tomorrow evening.” The local independent station which must assume an aggressive posture to compete with the networks might go even further: “We expect the sun to rise at or near 7 AM, unless other circumstances as yet unspecified accelerate or delay this event. Throughout the day we expect sunny skies in some regions, cloudy skies in others, precipitation in various forms and in variable quantities throughout the viewing area, temperatures ranging from below-average to above-average except where unforeseen conditions create unusual weather patterns. The sun will set tomorrow evening at or near 8:30 unless other circumstances accelerate or delay this event.”
The recent Hurricane Sandy may serve as a good illustration of these concepts. When the hurricane reached my home in central New Jersey, I was away delivering a keynote address at a summit organized by a corporation for its outside counsel. I mentioned my concerns about my home during my remarks, and at the session breaks the parallels between the hurricane-related comments and the feedback on my talk were uncannily similar, except the lawyers believed the weather was far more predictable than even routine legal costs.
It’s often impossible to aver with unerring accuracy where a hurricane will come ashore and with what force it will land. But based on past experience, meteorologists were able to offer informed predictions and those of us in the path of Sandy were able to make informed decisions. This is, at its core, what corporations look for with legal budgets. Clients don’t typically expect absolute certainty, but informed counsel on the magnitude of risk posed by different potential paths, so they can then make informed business decisions. The failure to adapt to the client’s way of thinking may not put lives at risk in the same way that a surprise hurricane might, but change-resistant lawyers might find their livelihoods at stake.
Timothy B. Corcoran advises law firm leaders, in-house counsel and legal service providers on how to profit in a time of great change. A noted veteran of the legal marketplace, with experience gained from a variety of perspectives, Tim shares his views at law firm and corporate retreats, as a columnist in two publications, and online at the CounselLink blog and at Corcoran’s Business of Law blog. He can be reached at email@example.com or +1.609.557.7311. Follow him on Twitter at @tcorcoran.