The tension between law firms and their in-house clients isn’t often talked about publicly. But Ernst & Young partner and global leader of legal services, Trevor Faure, says it’s one of the most common concerns he comes across when speaking to in-house lawyers.
However, Faure, who spoke on the subject at last week’s CLANZ conference in Dunedin, also believes there’s a simple solution: End the ‘zero-sum game’, whereby firms appear to benefit from the misfortunes of their clients.
“Imagine I’m selling fake watches,” says Faure. “Their actual value is $10 but I’m charging $100. When I sell one to you, I gain $90 and you lose $90 – the balanced sum equals zero.”
Faure says in-house lawyers often accuse law firms of billing unreasonably, billing for more hours than necessary and maintaining the attitude that “a client’s misfortune creates work for us”. On the other hand, he says, firms often accuse their clients of demanding unsustainably-low rates and expecting fewer billable hours than practically necessary.
“I was at a dinner in the UK not long ago,” Fauer says. “Two chairmen of large magic circle firms were at my table and…were badmouthing a client they had in common, which was a very well-known company. Not long after, I was asked to do a speech for a company’s in-house team and I told them this story. At the end, I said, ‘…and that client was you!’.”
The client’s response to finding out that their external counsel “hated” them?
“They said, ‘Good! That means we’re doing our job!’,” says Fauer. “This is a zero-sum game.”
The solution, he believes, is for clients to offer law firms incentives to make a profit. A win/win full service fee structure is a viable solution, he says, with a number of practices overseas already utilising variations of the below example.
Faure’s proposed ideal full service fee structure:
- Fixed fee of X,000 hours = $ break-even rate
- If hours are below X, the firm keeps 50% of savings
- Each hour above X is below break-even rate
- Up/Downshifts for pre-agreed litigation success/failure
What are your thoughts? Is this a practical and viable solution for New Zealand law firms and their clients? Give us your opinions in the comment box below.
