Law firm competitors can work together happily
In the current month’s ABA Law Practice Journal, Susan Saltonstall Duncan of Rainmaking Oasis wrote a nice, concise commentary about Pfizer’s relatively new model for engaging outside counsel. While other corporate legal departments have branded their particular models for internal operations (DuPont) and engaging and paying for law firm representation (FMC Technologies’ ACES program), Pfizer seems uniquely committed to inter-firm collaboration. In multi-jurisdictional litigation, where poorly coordination between multiple local counsel can create enormous liability, all corporations naturally want this collaboration. But Pfizer seems to want it all the time, on a broad range of matter types.
Pfizer creates teams consisting of personnel from multiple firms. Pfizer appoints a senior in-house resource to manage the team. Regular light-medium-heavy meetings occur at weekly-monthly-yearly intervals, respectively. Everyone of the team gives 360-degree reviews of everyone else on the team. Everyone shares resources. Nobody keeps timesheets: firms are compensated on a retainer model (ostensibly, with some sort of overage calculation for out-of-scope work).
Unsurprisingly, Pfizer likes the model. Why? Well besides the usual suspects–lower costs, more predicable costs, etc.–by placing attorneys from multiple firms on the same team, Pfizer creates a array of less-quantifiable benefits: shared best practices, smoother hand-offs, and continuous I-can’t-let-that-guy-outperfom-me competitive benchmarking.
But according to Duncan, participating firms also see benefits (besides the obvious not-getting-fired-by-Pfizer one). And interestingly, the first two listed benefits are: (1) predictability of workflow, and (2) shedding the cost of serially pitching clients for new work.
This makes total sense.
The traditional law firm economic model suffers from what other businesses would call excessive inventory carrying costs. Because they each have their own idiosyncratic ways of performing work, and because they rely so heavily on highly skilled labor to do that work, firms can’t efficiently ramp-up and ramp-down capacity to meet the ebb and flow of demand cycles. They overhire and overfire associates, responding in gross to fine fluctuations.
That same economic model also suffers from a bad ratio of client acquisition costs to client switching costs. Think of all the things a firm does to bring in a client: discounted loss-leader work up front, websites, RFPs, CLE, whitepapers…not to mention the extremely expensive branding practices of hiring by pedigree (“She went to Princeton; he went to Michigan….please pay us $450 per hour for their time!!!”) and measuring your exclusivity by the fact that you pay as much to your first-year associates as the big firm in the next skyscraper.
Now think what it costs a client to bolt for another firm. Practically nothing.
So, maybe having a sigificant influx of predicable work–work that exposes you to best practices and insulates you somewhat from market demand fluctuations and requires little in the way of serial acquisition costs–maybe that’s worth the lower per-hour payment on that work.
Like we said above, it makes sense.