What is the point of law firm panels? There are, of course, several obvious reasons for their existence; among them handing clients more leverage to manage adviser relationships. Usually this occurs by handing out more work to a smaller number of larger firms. Whether panels have achieved this aim is debatable. But what is becoming harder to sustain is the view that the panel system has ushered in another of its supposed benefits: securing value for money and containing legal services inflation.
After all, as Legal Week recently noted with regard to the current inflation-busting pay round at City law firms, junior solicitors at large commercial firms will this year earn around twice what their equivalents did in 1999. This year’s financial results will show that equity partners, likewise, can expect to take home double what a similar partner at a top 50
Even allowing for annual wage inflation of 4% and increases in efficiency and market consolidation, sharp rises in charge-out rates have been the biggest single factor in this increase in profitability. And yet, this has happened during the period when the panel system has taken hold of the
Does it matter? On one level, not at all. Markets are interactions between buyers and sellers and, in this case, the sellers have proved adept at pricing their services advantageously, either because of cultural factors or structural shortages in the legal services market.
But panels have also helped to introduce other far-from-ideal developments. Broadly, they have contributed to the breakdown in loyalty between clients and law firms. Specifically, the shift from relationship-lawyering to something closer to mandate-chasing that happened in investment banking has resulted in ethical compromises. Certainly, once clients started to actively manage their counsel, law firms started to manage the clients — it is simply that they proved better at it than the clients. Other trends such as liability capping, client dumping, non-exclusive engagements and rows over conflicts of interest rules are linked to the panel system, or at least the broader shifts in adviser/client relationships. You could argue that such changes were inevitable in a rapidly-growing and modernising market. But that assumption was surely based on panels securing better value for money for clients, an assumption that has proved to be wishful thinking. What once looked, in professional terms, to be a necessary evil is starting to look just plain bad. Time for a rethink.
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