Are GCs Shifting The Balance of BigLaw Power?

Scarface (1983 film)
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Tony Montana: In this country, you gotta make the money first. Then when you get the money, you get the power. Then when you get the power, then you get the women. Scarface (Universal Pictures (US), 1983)

Perhaps not necessarily women, but General Counsels (GCs) certainly control the money and wield the power over law firms and lawyers elbowing each other to win tenders for their coveted corporate client retainers.

“‘I’m Law Firms’ Biggest Competitor,’ GC, reads today’s ABA Journal In-House Counsel column headline.

Fed-up with “sky-high” fees at outside firms, Jones Lang LaSalle general counsel Mark J. Ohringer says he now spends 75 percent of his budget on non-law firm resources.

“I’m law firms’ biggest competitor,” Ohringer said during a program at the 2011 Futures Conference on Friday, “and I don’t think they see it that way.”

Jones Lang, a global real estate and investment management firm, has boosted its in-house capabilities by 60 lawyers in the past few years, and Ohringer says he won’t hesitate to add more as the company’s needs increase. Speaking at the conference held at Chicago-Kent Law School on the future of the legal profession, he noted the average cost to employ an experienced in-house lawyer—easy to come by these days given the tough legal job market—is $125 an hour, a bargain compared to many firm rates.

In fact, if were up to Ohringer, his company would keep all its legal budget out of the coffers of outside firms.

“If I could have 100 percent of the work not done by law firms, I would,” says Ohringer, who currently keeps 75 percent of his corporation’s legal work in-house or sends it to non-firm vendors. He is executive vice president, global general counsel and corporate secretary at Jones Lang.

In a similar vein, Gavin Birer at slaw.ca writes that “GC’s Have the Power“:

It should come as no surprise that in-house legal functions are transforming legal practice and in particular the nature of the relationship between corporations and law firms. The 2008 financial crisis seems to have intensified the drive for optimization of legal resources (internally and externally), cost effectiveness and efficiency. If the state of the current global economy is anything to go by, this trend is going to continue. ‘In one case,’ wrote Sako, ‘the GC of a divisionalised company stated, “Our legal department is a planned economy”, and pointed to a performance “dashboard” that the legal department at each operating business unit was required to submit on a monthly basis. At another company, the GC introduced a central approval system for legal fees above a certain sum. This led in-house lawyers to think twice about the necessity of putting work out to external lawyers.’

The work of lawyers today may be on the verge of transformation due to technology, globalization and new entrants. Cost pressures have led many GCs to consider (and implement) a production-line approach – involving disaggregation of work, standardization, process management and project management. Although some GCs have not adopted this approach, other GCs have taken the lead and have made significant efficiency gains.

Neither of these stories should come as a surprise, GC’s have always kept their friends close and law firms even closer. GC’s are corporate drill sergeants: demanding law firms do extra push-ups and running the extra mile, both ways, uphill; all the while expecting fee reductions nearing law clerk fee rates. For anyone who practices corporate commercial litigation, this is par for the course.

Of course, if you ask any GCs whether they retain small firms or solo practitioners because of their competitive rates, they will say “Sure, as long as they have the experience, talent and resources,< nudge nudge, wink wink>”

Then again, most business clients tend to retain BigLaw firms for the simple reason that the opposing side has hired “Dewey, Sueham and Howe LLP”.

Does this mean that BigLaw will start cutting their hourly rates to regain their traditional foothold in the corporate law world? Perhaps in the short-term. I remain skeptical, however, that GCs will start knocking down the doors of some lawyer with an office in his parents’ basement who is willing to work for $130 an hour just to snag Compu-Global-Hyper-Mega-Net as a client.

Beyond this, there is the inherent conflict-of-interest problem facing in-house counsel dealing with issues of corporate governance, litigation risk management and litigation proper. The intangible value of retaining external counsel is minimizing the risk of confirmation bias and group think. Representing corporate clients is more than merely doing it on the cheap. Litigation management advice, trial strategy and tactics, negotiation and mediation skills, and a trusted source of professional ethics are what experienced trial lawyers bring to the table.

No one can accurately predict what the legal future will be, but there is one constant in the legal universe: In the capitalist free market, you usually get what you pay for and litigation is the cost of doing business.

I leave you with a final thought from another Scarface quote:

Frank Lopez: Lesson number one: Don’t underestimate the other guy’s greed!
[laughing]
Elvira Hancock: Lesson number two: Don’t get high on your own supply.

3 Responses to “Are GCs Shifting The Balance of BigLaw Power?”

  1. Inside & Outside Counsel Playing “Chicken” re: Young Talent | RainmakerVT Says:

    [...] Are GCs Shifting The Balance of BigLaw Power? (thetrialwarrior.com) [...]

  2. Your real competition: In-house legal spend up 6%; outside spend down 3% | RainmakerVT Says:

    [...] Are GCs Shifting The Balance of BigLaw Power? (thetrialwarrior.com) [...]

  3. Who is your client? The Law Dept? Or the company? Says:

    [...] Are GCs Shifting The Balance of BigLaw Power? (thetrialwarrior.com) [...]

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