'We don’t want to talk to clients - they’ll ask for lower fees': time to get intimate with clients

When I was in college in the late 1970s, I had a close friend whose grandfather (let's call him 'John'") was a retired partner at White & Case. John had a number of outstanding traits, not the least of which was that his father-in-law had been the chief executive of one of White & Case's largest clients, Banker's Trust, and his brother-in-law was the chairman of another major client, Mellon Bank.

We can celebrate or mourn the passing of that clubby world of legal practice, but it defined a period of intimacy between law firm and client, the breakdown of which is at the heart of the challenges that firms now face.

I recently talked about law moving to a New Normal, with six emerging themes: client intimacy, predictable pricing, alternate staffing, technology-enhanced services, defined quality, and process innovation. I now want to focus on client intimacy, which is critical to three aspects of the relationship between firms and clients:

• The firm's ability to deliver superior value;
• The professional satisfaction of the lawyers involved; and
• The firm's ability to compete against other firms for the work it wants.

In John's heyday, important clients had nothing you could call an in-house legal department, and in the case of Bankers Trust, White & Case got the bulk of the bank's legal spending. Today, Banker's Trust is part of the vastly larger global enterprise Deutsche Bank, which may generate 20 times the fees for White & Case it did in John's day, but everything else about the relationship has changed.

Deutsche Bank has a large and sophisticated legal department no longer staffed primarily with White & Case alums, and much of the control has shifted outside the US. There are many law firm relationships, and I suspect none are the same sort of intimate, familial relationships that support a presumption of alignment of interests, so the relationship is inherently more fragile.

The decline in intimacy has coincided with the explosion in demand for legal services, so firms have generally not noticed how fundamental the shift has been. Today, few outside lawyers participate in board meetings as corporate secretary, and fewer still are on boards. Most major companies send out no more than half their work, and no global top 200 company sends more than one-fifth of its work to any one firm.

As large firms have migrated from general practitioners to brain surgeons, the in-house function has displaced them as the general, trusted consigliere, and the firms' interests are often seen as divergent from the client's (pretty much unimaginable in John's day).

These issues were front and centre last week at Georgetown Law School's conference "Law Firm Evolution: Brave New World or Business as Usual" where intimacy was the subtext for the majority of speakers. As Cisco general counsel Mark Chandler said: "Law firm partners calling me to 'cross-sell' is the bane of my existence... it is designed to win my business without the ability to make assessments."

Ernst & Young general counsel Trevor Faure summarised the new model of the global, data-driven legal department, telling the audience of law firm managing partners that while "we (clients) have understood that when we lose, you (law firms) win," it was now time to move toward "win-win" - a world that largely hearkens back to John's.

Tom Yannucci, the former chair of Kirkland & Ellis, said that his firm was staying close to its clients and responding to their changing requirements. Pretty much every general counsel described law firms as valued specialists, but no more, and managing partners suggested clients should want to be closer to their firms, but usually weren't.

Jeff Carr from FMC Technologies surprised the audience by saying he had offered firms to take summer associates on secondment, but none had accepted. And away from the conference, but linked to the conversation on Twitter, Altman Weil consultant Tom Corcoran quoted a law firm partner as saying, "But we don't WANT better communication with clients, because they'll just ask for lower fees!"

So what it is to be done?

Let me suggest that, counterintuitively to the thinking of many firms, Web 2.0 technologies actually offer the best way to reestablish intimacy. Clients are already using Web 2.0 systems to share profiles and playbooks, to access and comment on law firm memos and alerts, and to get away from email and attachment overload in large matters, in both privileged and non-privileged modes of communication. These systems combine the serendipitous communication of the water cooler with the formal structure of the database. Wikis, blogs, profiles, Twitter and other similar tools can be used to share existing knowledge or collaborate on new work, both high-volume work like commercial contracts and high-complexity work like major case litigation. As Chandler discussed, Cisco uses Web 2.0 to reduce costs and improve quality of services, and integrates law firms into that work seamlessly.

Notwithstanding Corcoran's colleague's preference for a world of less communication and higher fees, clients are inexorably leading the way back to a technology-enabled 'JohnWorld' that firms ignore at their own peril.

David Wilkins from Harvard Law School reported that clients are increasingly communicating directly with each other via networks, reducing their dependence on firms. Richard Susskind predicted that even the most elite firms will "break ranks" with their historically 'cartel-ised' peers by offering superior value, so no firm will want to wake up to find its key competitor handing out the doughnuts at its major client's water cooler. And new competitors for the intimacy of clients are emerging.

While most major clients have at least four to six 'strategic' relationships with law firms, they are most likely 'sole-sourced' with only one legal processing outsourcing (LPO) vendor. In all likelihood, the LPO vendors will move aggressively to build on that close relationship, establish real intimacy, enhance their strategic position - and threaten to take work away from the incumbent law firms.

Intimacy, of course, can take many forms. The recent news that Thames Water is 'lifting out' its legal department and turning it over to Berwin Leighton Paisner, represents the ultimate in intimacy. Most client-firm relationship won't go that far. And a return to John's golden age of practice and relationships doesn't seem likely. But the need and desire, by clients and firms, for tight and trusting ties are not disappearing. The future will belong to those who can build them.

Paul Lippe is the founder of Legal OnRamp. He can be reached at paullippe@legalonramp.com.