In House Counsel And The Selection Of Law Firms

Over at What About Clients, Dan Hull wonders whether an overwhelming portion of large corporation legal work could be handled as well by small boutiques as by the mega firms that typically garner such business. Quoting Paul Clifford, a law firm consultant, he suggests that only 10% of these clients’ work qualifies as “bet-the-firm” material – matters that you cannot trust to anyone but the biggest and most sophisticated shop. The rest, he hopes, is up for grabs.

Dan poses the question in terms of quality: can small firms handle sophisticated corporate matters on par with the biggies. The answer is clearly yes. Excluding particular cases – not only bet-the-firm matters, but ones that require serious resources due to size or speed – I imagine that high quality mid-size and boutiques have the capacity to do much work that currently lands in large firms. The question, then, is why the big firms so often get this business. There are lots of reasons, but in many cases they start here: the in-house counsel.

What motivates the work distribution decisions of in-house counsel? They are supposed to maximize the quality of outcomes in cases. And they have to stick to a budget. When a case is really important, fidelity to both the company and their own personal buttocks requires bringing in a top-flight firm. In lesser cases, one might expect counsel to be more cost conscious – and thus more open to smaller firms. But two factors cut the other way. First, if the attorney came from a big firm – as so many in-house counsel do – he or she may have personal connections that bias the decision. These connections aren’t just friendly; in some cases an attorney is looking to maintain the option of returning to the private sector. In addition, in certain cases – particularly ones that he or she sees as losers – counsel may be motivated to send the case to a pricier shop simply so that he or she can say “we lost, but it wasn’t my fault. I sent it Cravath.”

So a small firm looking to lasso corporate business needs competitive pricing. But because the hiring process is driven not only by price and corporate risk, but also by personal concerns of in-house counsel, small firms will always have more difficulty piercing the corporate market. That may not be best for business, but it certainly conforms to human nature.

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5 Responses

  1. Dave! says:

    Well, the “biggest and most sophisticated shop” are not necessarily the same thing. I would love to see an empirical study of results (if such a thing could be quantified easily) of boutique firms vs. similar practice areas at BIGLAW. I would wager that clients are paying a lot of over-head for practice areas they aren’t using at BIGLAW firms, and could save $$$ by outsourcing different matters to different, smaller, specialty firms.

    But I think you hit the nail on the head with in-house… since most came from big firms, there’s a big firm bias, along with the other relationship building/maintaining reasons you listed. But that street works two ways… perhaps smaller firms would get more business by not worrying as much about pricing, but building those same in-house relationships, to the extent possible.

  2. Dan says:

    Another in-house counsel might return to BIGLAW with their sky-high fees may be that, to increase their stature in the organization, they may benefit from having a bigger budget to control and the high fees charged by large law firms help justify larger budgets.

    I completely agree with Dan and with Dave that developing and maintaining friendships is a big factor that motivates in-house attorneys to choose an outside counsel. Given that lawyers tend to hire their friends, I wonder why more BIGLAW lawyers who have reliable in-house buddies to feed them work do not leave BIGLAW to set up small firms, with lower overhead, where they can capture more of the profit and make more money. I don’t know the answer, but one reason could be that being ensconced in a big law firm helps masks the fact that lawyers are chosen more for their relationships and friendships than for their skill and competence, qualities which, in litigation anyway, are exceedingly difficult to measure and compare.

  3. Dan says:

    Oops…I omitted the word “reason” in the first sentence of my post. The sentence was supposed to read: “Another reason in-house counsel might return to BIGLAW with their sky-high fees may be that, to increase their stature in the organization, they may benefit from having a bigger budget to control and the high fees charged by large law firms help justify larger budgets.” Sorry!

  4. Ken Grady says:

    First, my disclaimer. I was a partner in a BIGLAW firm. I also have been in-house counsel at four Fortune 1000 corporations, and general counsel for two of the four. Now, I have my own, solo practice law firm providing services to corporations. All of the comments have some truth to them. But one of the biggest challenges comes from the specialization of legal services. Most in-house counsel have been trained to believe they need (or at least must hire) specialists for each matter. Though many in-house counsel are now generalists, when they send work out, even if it was work they would do time permitting, they go to a specialist. Obviously, most small law firms don’t have lots of specialists and since in-house counsel prefer to keep the number of law firms they use small, they revert to using firms which have larger numbers of specialists. The urge for specialization overcomes the incentive to save money, even as much as 50% versus what a larger firm charges.

  5. Dan Hull says:

    Thanks for the mention of the WAC? post. Normally I don’t join in on the comments on my own posts–but the subject really interests me, mainly because I don’t know why great lawyers in smaller firms (less than 150) eagerly keep bottom-feeding like smart but poor 14th century peasants, thankful someone threw food their way during one of the bad years. It’s very mysterious. So here are 7 things, all just the facts, ma’am:

    1. I used to be a “BigLaw” partner and 10 years ago or so started my own firm;

    2. the lawyers at the firm I helped start at Hull McGuire can work at any law firm they want, but they choose to work at a boutique;

    3. 95% of our revenues clients come from “BigLaw” clients, and they always have been from those clients;

    4. there are LOTS of firms around these days like Hull McGuire, in US, Latin America and western Europe–for reasons which amaze me, they choose to bottom-feed rather than try to compete with “BigLaw” (there’s something timid about even the most talented in our profession, litigators included–go figure);

    5. “BigLaw” overall lawyer quality is not what it used to be–lots of people who are way less than average plague large firms because of the way “BigLaw” got big and a greater emphasis on marketing (the latter not a bad thing itself);

    6. many Fortune 500 firms prefer boutiques; and

    7. GCs are way smarter and bolder than 20 years ago–they know good lawyers when they see them, in any size firm.

    Dan Hull

    P.S. Oh yeah, if you are going to compete with “BigLaw”, do it on service, which you can easily do, because “BigLaw service” is generally really awful. (So is everyone else’s service for that matter.) So RAISE your rates and, in any event, NEVER lower them. For bet-the-company work, which boutiques can also do, raise them even higher. It works. You can trust me. I’m a lawyer. Be bold, all you high-end lawyers everywhere…and get off your damn knees.