Monday, July 21, 2008

Why Do Law Firms Grow?

This blog is another in a series of blogs around the fringes of ACC’s Value Challenge. As I said in my Bio, one of my purposes in these blogs is to give you an opportunity to think outside the box, a luxury that your daily routine may not permit.

So why do law firms grow? If you go to a big firm what are you buying. The firm would tell you that you are getting a great array of services. So why do you need a great array of services? One of the reasons you exist is to provide your client access to the precise legal service it needs. Perhaps that means giving the advice yourself. Or it may mean finding the expertise that is more cost effective and better than the big firm.

Well, you say big firms grow because they have the best talent, attract lots of clients because of the quality of service they provide—wrong answer. They grow because they have to grow—it is genetic. To be sure, going beyond the demand for services or at least the ability to artificially create demand does have limits and portends change

In the Tournament of Lawyers; the Transformation of the the Big Firm, University of Chicago Press 1991, the authors describe the tournament to become partner, and the need to create partners to give legitimacy to the tournament as the reason large firms get bigger and they predicted a lot of the changes we have seen since the book was published.

However, there is one thing that can have a very dramatic impact on the existence of the big firm—a rigorous, objective standard to evaluate actual quality of service. The first thing you are probably buying at the big firm is prestige—because in an environment where the ability to evaluate quality is hard and the costs of misjudgments (as distinguished from wrong judgments) is high, prestige becomes a surrogate for judging quality, or at least a source of cover for you if you selected that firm over a small firm who might have gotten the same adverse result for the same reason.

Please note that when I said judging quality was hard—I did not say impossible. We will explore some options in later blogs to see exactly what you are buying.

-Larry Salibra
View Bio


DaeGunn Jei said...

What about relying on Zagat reviews in legal fields? like... Vault, Chambers, or AmLaw? Didn't those Zagat companies urge that they judge quality, not just prestige?

Steve Bokat said...

Implicit in Larry's entire blog is that corporations retain law firms and not lawyers. For example, he says that prestige is the first thing most corporations are buying. I think Larry has it entirely backwards. Most in-house counsel I know, hire specific outside counsel because of their expertise and track record. If they have an election law issue, they want an election law expert with a proven track record. Their primary concern is not the size of the firm or its prestige, but the capabilities of the individual lawyer. The lawyer may be with a small firm or a large firm.
Of course, for a very large litigation, you may need the capabilities of a large firm that can throw dozens of associates into reviewing thousands of documents.

Mark Kindt said...

Perhaps not expressed in LAS's blog entry, is the idea that corporate law departments have more choices than they perhaps fully realize and that there is an art of selection, choosing the right hammer so to speak.


Larry Salibra said...

daegunn jei,

Thank you for the interesting comment. I looked at Vault and Chambers. Chambers has the easiest methodology to ascertain, and it appears to be simply a survey of opinion.
They say that they”…talk to clients and find out which law firms they use and how they rate them for their legal ability and client service.” The first problem is statistical-- who do you talk to—I would guess that they do not have a random selection of all ranges of clients.
Second problem is that opinion is just that opinion—prestige is opinion.

I looked at their rankings in New Jersey. They list the usual big firm names you would expect. I actually switched local counsel from one of these firms to a single practitioner who primarily did criminal work, but was a really skilled trial lawyer and was great support to our department because we tried most of our cases in-house and big firms simply had very little real trial experience.

The descriptions are soft, opinion loaded and devoid of anything that even vaguely appears to be objective data subject to scientific controls. This is simply prestige repackage to appear to be objective data—it is not an objective measure of quality.

Opinion data can be very misleading. In the days of Civil Justice Reform, when judicial case management and ADR was the solution for the litigation crisis, aka high legal fees, one could find all sorts of claims and opinion studies touting the success of these two techniques. I was on the Committee for the ND of Ohio and as result of my nagging about the need to scientifically validate the claims people made I was given funding for a study. At the same time, although I did not know about this other study, nor did they know about ours, Rand was conducting a study for the Federal Judicial Center.

Both studies reached similar conclusions, neither validating the effectiveness of the claims being made. The most controversy arose over the conclusion that ADR did not reduce costs. Numerous articles were being published prior to the release of the studies touting the effectives of ADR. The reality was that when the post ADR data and settlement rates were subjected to a comparison to rates prior to ADR there were no statistically significant differences. None-the less many clung to the prior opinion that ADR was a great cost saver. Similarly, there are no doubt many of these highly rated firms whose performance maybe sub par, but buyers cling to their view of quality of service.

Even if a large prestigious firm demonstrates utter incompetence, it will take an unusual lawyer to admit it. First, he would have to be critical of his own judgment in hiring them and supervising their work in the first instance. Second, he would have to be sure that the criticism would be believed—remember there is considerable power in prestige. The strong pressure forces one to say great firm, did a great job; it was a bad judge or bad luck or something. That is exactly what many people did in face of the clear, objective scientifically controlled and statistically evaluated evidence on ADR—they simply refused to accept the results.

Even the legal consulting firms offer little that is different. Their bench marking techniques do little to promote significant change, but tend to reinforce the status quo.
In future blogs, I will explore different ways to operationalize parameters of legal performance that can be subjected to scientifically valid analysis and give purchasers better data on which to base choices. If you cannot wait, you can read about some of these ideas in some articles I have written. “Using Economic and Mathematical Models in Law Firm Marketing”, Strategies: The Journal of Legal Marketing, March 2003, Volume 5, Number 3 and “Debunking The Civil Justice Reform Myth”, Judges Journal, ABA, 1998, (Special Issue)

Thank you again for your comment.


Larry Salibra said...

Reply to Steve

Steve Bokat’s comment states that my blog implies that corporations make purchasing decisions based on firm reputation when in fact decisions are made on individual lawyers' experience and track record. What I have suggested is that association with a firm and its prestige is a surrogate for those factors, because hard objective data on those topics is not easy to come by.

If you go to Chambers as I discussed in the last response, you are going to get nothing more than a repackaged version of prestige that focuses primarily on the firm as the primary object, although it lists the lawyers all of whom appear great. There is simply nothing in Chambers that gives you a sound reference to make an objective critique on quality. In fact, there is no statistical data on cases tried to verdict, average adverse verdict judgments by case type, and legal fees as a per cent of average settlement amounts. It is in fact, the very absence of the type of data Steve suggests lawyers base their decisions on that make prestige of the firm the only viable alternative as Galanter and Paley suggest in their book.

The fact that buyers make decisions based on firm reputation is not as rare as Steve would suggest. Legal marketers spend a good deal of time, money and effort trying to break the prestige hold first tier firms have on the market. Moreover, second tier firms, would I think, would take issue with the claim that it is their lower experience and skill rather than a head wind of prestige that keeps them from more competitive access to the market. In fact, the article I did(reference in previous comment) on using economic and mathematical models to design marketing programs to break this prestige was solicited and published in the Journal of Legal Marketing because they recognized the reality of how significant firm prestige is on purchasing decisions .

One in-house lawyer in a Counsel to Counsel program is referenced in the article because she candidly admitted upon questioning from a lawyer in a second tier firm, that even though she might believe that a second tier firm might be as capable or more so than a first tier, firm, she would spend more money for the first tier firm on a big case simply because she wanted to avoid criticism if things did not turn out well.

All lawyers claim they hire on track record and expertise; the question is what data do you use to reach that conclusion? There is not much more than firm prestige available in any organized and reasonably accessible format and when stakes are high firm prestige appears to trump cost and competence

Steve Bokat said...

In a 30 year career with the U.S. Chamber where I oversaw hundreds, not thousands, of hiring decisions (we hired many counsel to prepare amicus briefs among other things), I cannot think of a single time I relied on Chambers or Martindale Hubbell to hire an attorney. Did I check these resources to learn about an attorney's background? Of course. In hiring counsel we relied on recommendations of persons we knew, references given by the counsel we thought of hiring, and when that was not available, sources like counsel to counsel. We (my staff and myself) rarely considered the size or "prestige" of the law firm.

sexy said...