In an article in the January 18 2014 edition, the Economist reports that the general counsels of many large companies are now finding that they can negotiate discounts on hourly rates when working with large law firms. Some firms (particularly in the United States) have responded by raising their asking price.
The Economist suggests that:
…sophisticated legal services are somewhat like luxury cars and handbags, in that a high asking-price is taken as a sign of quality. No one wants to have hired the cheaper firm in a high-stakes lawsuit.
Is the comparison fair? When a company pays more for legal services, do they expect to get more accessories (the legal equivalent of leather seats or a sunroof), or do they expect to get an entirely different kind of car?
I don’t think it’s a fair comparison – so I don’t think there is a good answer to the question. Unlike luxury cars, getting real value out of a solicitor-client relationship involves more than getting a discount off the sticker price. A lawyer provides value to a client by building a relationship of trust. At the end of the day, the client needs to be confident that the lawyer they have hired is committed to advancing their interests.
The relationship (like many other relationships) has a number of different aspects – good communication, common values, and most importantly, a solid and well planned legal strategy – developed by the lawyer and the client together. Rates factor into the relationship at every stage – if implementing the strategy is cost-prohibitive, then both the lawyer and the client need to go back to the drawing board and consider their options.
As the Economist notes in the article (quoting Thomas Sager, the general counsel of DuPont), clients want to ensure that lawyers are as concerned about the client’s financial success as they are about their own. While the argues that large law firms may have gotten away from this principle in recent years (especially when working with large companies like DuPont), in my view the focus on the client’s financial success is critical when working for small and medium sized businesses.
If I don’t understand how the legal strategy is going to affect my client’s financial success, then I’m not going to be able to help my client make a well-informed business decision. That is why it is so important to take the time to understand a client’s financial situation, and their short and long term objectives. That context is necessary to ensure that the legal strategy can achieve the client’s goals.