Law firms: Produce value or perish

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For the past two decades, according to the Association of Corporate Counsel, there has been an unrelenting drive by companies and their suppliers to reduce costs while increasing quality and value in their products and services. The only outlier seems to be law firms.

This observation seemingly is confirmed in a recent issue of the California Bar Journal, which contained a survey by the Corporate Executive Board that found “while non-law firm costs increased by 20 percent over the past 10 years, large law firm prices jumped almost 75 percent in the same period.”

Without question, significant pressure on law firms to produce more value for less cost has only strengthened with the recent economic downturn. Indicators point to continued pressure as companies strive to recover losses as this recession ebbs. And it’s anyone’s guess as to how long this reticence toward paying extraordinary fees will last.

But one thing is certain for the foreseeable future, predicts attorney Tom Hofbauer of Waukesha-based McCoy & Hofbauer S.C.

“Most, if not all, general counsel will continue to give substantial weight to billable hour rates when selecting outside counsel,” said Hofbauer, whose firm specializes in catastrophic and complex civil litigation cases across the country.

Milton Regan, law professor and co-director of the Center for the Study of the Legal Profession at Georgetown Law Center, shed more light on the drive to control legal costs.

During an interview posted on the website of The Hildebrandt Institute, which counsels law firm leaders on pressing issues confronting the profession, Regan cites global mining behemoth Rio Tinto’s decision to engage CPA Global (an international legal process outsourcing company) to help control expenditures.

The impact of which, Regan said, “forces law firms to think carefully about their value proposition.” And the value proposition is the very foundation of a firm’s ability to market itself. With this in mind, law firms have at least three choices:

• Change fee structures for services while attempting to maintain attorney realization rates, which likely will not be as high in terms of fees collected versus hours billed. (Essentially an atmosphere of doing more with less while maintaining quality.)
• Throw caution to the wind and continue to charge a premium for services without demonstrated greater efficiency and value while ignoring the coming commoditization of some legal services.
• Develop and strengthen your brand so clients will pay a premium for the trust instilled by a brand where the firm also shows improvements to efficiency and value, helping prevent a major firm overhaul.

For law firms large to small, there seems some momentum behind the last option. Chicago-based marketing consultant Donna L.G. Shaft, whose national client experience includes Foley & Lardner LLP and Michael Best & Friedrich LLP, said firm management has become more enlightened about what it takes to be profitable as a professional service partnership in the next decade. “It involves hiring and retaining smart marketing and business development skills that are not taught in law school nor naturally possessed by most managing partners,” said Shaft, who is a past president of the Legal Marketing Association. “The outlook for 2011 is brighter, but firms are working more efficiently in response to the Association of Corporate Counsel’s Value Challenge and stiffer competition.”

Sheila Curran Sheley, a legal marketing consultant to small- and medium-sized firms in the Dallas-Ft. Worth area, concurs with Shaft’s assessment.

“There is a significant increase in law firm marketing activity and spending over the past five months,” Sheley said. “All my clients are spending more on marketing than they did in 2009, and some are spending more than they ever have.”

Sheley attributes the uptick in marketing to what she describes as a wake-up call for smaller firms generated by the recent recession.

“Firms began to realize they didn’t have the brand awareness and name recognition they needed to compete for business in a harsh economic climate,” Sheley said. “Once things began to pick up earlier this year many firms invested in marketing, trying to claim a larger share of new opportunities created by the rebounding economy.”

Regardless of whether firms are riding an economic wave of prosperity or skidding along the doldrums of economic recession, firm leaders should invest only in marketing that delivers desired results. Outside pressures on firms to refocus attention on producing value versus billable hours alone will provide a stronger foundation for firms to build trust among clients and prospects. With trust comes brand loyalty.

Karl Robe, APR, counsels attorneys and executives on communications strategies that support achievement of growth objectives and overcome business challenges. Contact him at Karl James & Company LLC by emailing [email protected].