Biggest factor making midsize firms attractive to corporate clients is the cost
By Pat Murphy
BridgeTower Media Newswires
BOSTON, MA - More and more, midsize law firms are finding themselves to be the better option for corporate clients that increasingly are questioning the value of paying big-firm rates for the handling of run-of-the-mill legal matters.
That conclusion is borne out in a recent study by the business consulting firm CEB, Inc. Released in November, the "CEB 2016 State of the Legal Function Survey" found that, from 2014 to 2016, there's been an 8 percent jump in the portion of outside counsel budgets allocated to midsize firms. In 2014, corporate legal departments used 32 percent of their outside counsel budgets on midsize firms. That number reached 40 percent last year.
That finding is consistent with what Paul L. Feldman is seeing in the local market. Feldman is the managing shareholder at Davis, Malm & D'Agostine, a 36-attorney general practice firm in Boston.
"Market forces in the last several years have driven companies to start diversifying their use of outside counsel," Feldman says.
According to Feldman, the 2008 recession forced companies to reexamine how they managed their legal services.
"Once they realized there were some alternatives, that became part of their norm of how they operated their legal departments," he says.
Francis A. Connor III, co-managing partner at the 30-attorney litigation firm Barton Gilman in Providence and Boston, agrees that corporate clients are seeing midsize firms as a viable alternative because of their lower rates. However, he suggests there's also a greater appreciation of the quality of work performed at midsize firms.
"Clients are not going to hire a lawyer for less money if they're sacrificing the subject-matter expertise they need," Connor says. "More information and transparency has allowed more clients to become very sophisticated consumers of legal services."
Controlling costs
Not surprisingly, the biggest factor making midsize firms a more attractive option for corporate client is cost, according to Jaclyn L. Kugell, managing partner of Morgan, Brown & Joy, a 32-attorney employment and labor boutique in Boston.
Kugell says larger firms are being squeezed on the one hand by the pressure exerted by corporate legal departments focused on tightening their belts in the wake of the recession. On the other hand, there are internal pressures to maximize revenues to pay for high overhead and the demands of partners to maintain the income levels to which they are accustomed.
Jeannette Riendeau, director of marketing and business development at 25-lawyer Bernkopf Goodman in Boston, says she expects Fortune 100 companies to continue to stick with the big law firms.
However, she also expects to see more opportunities to pick off big-firm clients in the future because corporate decision-makers have become savvy about the cost of legal services.
"They can look at a bill and see when they're getting billed by an associate at a $600-an-hour rate at a large firm," Riendeau says. "The thought process is, 'I am paying to train an associate how to do their job.' There's resentment that's starting to come from that."
Wellesley attorney Sheryl J. Dennis is skeptical that big law firms will adjust to the changing marketplace, equating them to ocean-liners unable to quickly change course.
"Part of it is they're stuck in their ways," Dennis says. "If they weren't stuck in their ways, would Bingham McCutchen have gone down? They have a mindset on how things are going to run. They're just not as agile or adaptable as a smaller firm can be."
As managing partner at Fields, Dennis & Cooper, a five-attorney family law and estate planning firm in Wellesley, Dennis says even a small firm like hers is benefiting from the competitive pressures facing big firms.
"Many of your large firms are phasing out their estate planning and probate practice because they don't feel it's bringing in enough money unless it includes money-management," Dennis says.
Kugell says midsize firms are well-situated to meet a corporate client's needs in terms of handling the "everyday business-of-law" type cases in a cost-effective manner. And while she accepts the fact that corporate America typically will turn to the big law firms in "bet-the-farm" cases, Kugell thinks corporate clients like the fact that her firm is open to alternative fee arrangements.
Of Morgan Brown's top 10 clients in terms of billing last year, half had alternative fee arrangements, Kugell reports.
"That makes the cost of doing business attractive for both them and us," she says.
Published: Mon, Feb 06, 2017
