Make Your Company’s Law Firms Compete on Terms of Service (Part 1 of 2)

Competition creates the value that the customer gets. There’s no substitute for it.

Take a look at this morning’s Wall Street Journal (subscription required):

“Charles Schwab, Fidelity Escalate Brokerage Price War”.

Featuring a picture’s-worth-a-thousand-words chart showing Schwab’s average commission per trade going from $12 in 2015 down to a little more than $7 — along with similar moves over the same time frame by TD Ameritrade and E*Trade.

Here’s the kicker:

“Schwab kicked off the latest round of price cuts with an announcement Tuesday morning that it would double the number of ETFs [exchange-traded funds] that can be bought and sold at no cost on its platform. Fidelity followed within the hour saying its platform would likewise expand its commission-free lineup to include more than 500 ETFs.”

“Fidelity followed within the hour.”

Not so the marketplace for lawyers’ services to companies.

I am not saying that you should pick lawyers based on price. Picking the “low cost provider” when choosing your company’s lawyers is dumb.

What I am saying:

A company should be able to expect that its outside lawyers will compete based on non-price terms of service that meet basic management disciplines that owners and managers require in every other part of the business — other than legal. 

Terms of service — management disciplines — like these:

  1. Know what the price will be before you agree to pay it.
  2. Don’t accept assignment of two lawyers to do the work of one.
  3. Every lawyer your company pays should be fully qualified to do the work you pay them for; don’t pay apprentice-type junior lawyers for their on-the-job training.
  4. Avoid labor-intensive use of lawyers on routine tasks; automate what can be done by artificial intelligence and other tech-enabled solutions;

But the conventional business law firm does not compete on terms of service.

Consider a February 11, 2019 article in the Canadian Lawyer Magazine by Rob Miller, head of a Vancouver, B.C.-based firm of business lawyers called Miller Titerle + Company. By the way, when it comes to the four terms of service specified above, Canadian law firms and U.S. law firms are the same.

An excerpt:

“Law firms are failing. They are failing society and clients by not providing accessible and affordable legal services and by offering the wrong services. They are failing their internal stakeholders by assuming only senior lawyers contribute to law firm success.

“These shortcomings can’t be easily fixed with the latest technology or management practice trend. Instead, the future success of law firms requires a shift from short-term thinking to long-term thinking ….

“We [lawyers competing for business clients] know the problem: better and more affordable services are being developed by non-traditional providers. As a profession, we spend a lot of time wringing our hands (and writing) about the rise of our competitors, the growth of in-house capacity, the threat of automation, the success of big accounting firms and the rise of artificial intelligence. Yet we are not responding because … to do so requires long-term thinking — but law firms are driven to pursue short-term rewards.

“The roots of law firm short-termism are clear. Very few retiring lawyers are ‘bought out’ in a meaningful way; they simply withdraw their capital. Because they have little financial stake in the future of the firm, they are motivated to pull as much money as possible out of the firm while they are practicing. These senior partners often control the firm, leaving the people with the least interest in long-term results responsible for major decisions.

“The outcome is a misalignment between what motivates decision-makers (short-term profit-taking) and what is best for the enterprise (long-term strategic investment) …

“The implication of this deeply ingrained short-termism is that law firms are failing their stakeholders.”

Question: How can your company find law firms willing to work according to the terms of services listed above?

Answer: Find service providers who aren’t wedded to the legal profession’s prevailing business model — who don’t bill by the hour, who don’t throw multiple lawyers at projects in order to goose the fee, who don’t charge your company for “supervision” of lawyers getting on-the-job training at your expense, and who seek tech solutions rather than avoid tech solutions (avoid them because more efficiency means fewer hours to bill).

To be continued in Part 2.