"I have been skeptical that the global megafirms, in fact, provide the claimed superior service, quality or price. Indeed, the relationship between the big law departments and big firms is often bedeviled by prickly issues relating to power, money, culture, and, ultimately, the foundational question of who controls the corporation’s legal matters. These questions have become more salient as the global economy turns down, but big firms’ expenses and rates continue to rise."
This sounds like it was written by a recently laid-off partner from a large firm, looking to exact a measure of retribution against his former firm. You wouldn’t be surprised if it was. But these are the words of Ben W. Heineman, Jr., the renowned former General Counsel of General Electric. In that context, these words read as an indictment instead of mere grousing. American Lawyer, November 2008, "Bigger Isn’t Better," by Ben W. Heineman, Jr.
"…and, ultimately, the foundational question of who controls the corporation’s legal matters." Think about that for a minute! It is an incredible claim by a man well-known for extraordinary care in his wordsmithing.
But this is just the beginning. Heineman dissects arguments made by proponents of BigLaw and lays waste to the notion that BigLaw is the smart money, particularly in these tough economic times:
My GE meetings with big-firm leaders usually began with a stark comparison of differing economic imperatives and worldviews. I had to operate the legal department within a budget; they had to bill and collect like crazy for almost two-thirds of the year to feed all the mouths before they made any profit.
Yet year after year, firms raise their rates. As noted in a recent post, industry leaders are predicting increases, albeit smaller ones, this year. Heineman then address (much more articulately) the productivity issue I have addressed in the past:
Why do law firms take such a narrow view of "productivity"? In simplest terms, a total productivity increase in business is defined as more output with less input. To maintain margins in fierce global competition, the corporation has to lower costs along with price. But for law firms, "productivity increases" mean leverage–more lawyers per partner or matter–or more hours billed per lawyer. Both of these measurements speak to increases in firm hours and revenues. But, with rising compensation and operating expenses, they do not, in and of themselves, remotely speak to more product for clients with less cost and less price. For the largest firms, with their cost problems and billing pressures, this "productivity disconnect" with clients can be acute.
Indeed. Heineman goes to conclude that "at GE, I came to believe generally that small was beautiful and big was wasteful." The fact of the matter is that as more BigLaw refugees follow the Valorem approach, the options offered to clients secure the same or better service, the same or better results at a much better price are even greater today that when Heineman reached his conclusion. The lingering issue is whether economic hard times will prompt more inside lawyers to reach the conclusion reached by the old master.