In-house legal departments are “crying out for a more sophisticated and data-driven approach” to finding and managing their outside counsel—and they’re looking to work more closely with smaller, innovative firms. That’s the take-away from the new Global Trends in Hiring Outside Counsel report. The report, produced by the B2B and legal services marketplace Globality and the British legal magazine The Lawyer, surveyed more than 300 general counsel at large, international businesses with more than $1 billion in annual revenue.
The report is good news for small and mid-sized firms looking to land sizable clients, the kind of boutique shops with deep subject-area and industry expertise plus the nimbleness to adopt innovative techniques more quickly than their Big Law counterparts.
GCs Have Their Eyes on Smaller Firms
So, what’s making smaller firms so desirable in the eyes of big corporate clients? They simply provide better service. Nineteen percent of Global Trends respondents were either unsatisified or very unsatisfied with the services provided by firms with 500 lawyers or more. Less than a quarter are very satisfied with large firms.
In contrast, only six percent of CGs said they were unhappy with smaller firms, defined as those with 500 lawyers or fewer. Nearly 40 percent were very satisfied with their smaller firms.
What makes these firms stand out? More than 60 percent said that smaller firms provide better client services, while over 40 percent said they are more innovative than their behemoth competitors. Having better expertise and being quicker and easier to vet were also ranked as top reasons to choose smaller firms. The Global Trends report elaborates:
Of course, good client service encompasses a variety of different practices. Interviewees frequently mentioned that in addition to possessing specific areas of expertise that larger firms do not, lawyers at smaller firms are much more likely to go the extra mile to serve their clients.
That could be because these larger businesses benefit from being the biggest fish in a smaller pond, as Ben Woolf, GC EMEA at Tate & Lyle explains:
We get better client service from smaller firms. We have 4,000 employees and £4bn in turnover. When we instruct a Linklaters we are probably one of their smaller customers and just another customer in the long list they already have. If you go to a smaller firm, even with a fairly small legal spend, we can be an important customer to them.
That sentiment was echoed by a GC at a Japanese industrial company:
If you are a smaller firm working for us you drop everything and work for us because we are probably one of your biggest clients. You don’t get the same level of dedication and speed of handling things from big law firms. Smaller law firms will prioritise the work and will place a greater emphasis on being there for you.
Some GC’s pro-small-firm attitudes are belied in part by their actions, though. When it comes to hiring outside law firms, established relationships still win, for now. Sixty-eight percent of GCs, or more than two out of every three respondents, rely on their pre-existing networks and referrals when sourcing legal providers, according to the report. Only 20 percent employ methods to look at firms outside of their existing networks.
But they’re willing, even eager, to find more options. Eighty-six percent of the survey respondents reported being most excited by technologies that would allow them to source legal services outside of their existing networks.
What Sets Smaller Competitors Apart
It’s not just the ability to throw one’s weight around that attracts large corporations to smaller law firms, either. In an interview with Legaltech News, Alex Reynolds, director of legal practice at Globality, explained that many smaller firms have caught up with their bigger counterparts, benefiting from innovations like case and project management, electronic billing, and new discovery technologies. They’ve also managed to adopt this innovations more easily.
“There are less levels of bureaucracy in these firms, they tend to be more agile,” Reynolds explains. “So what this means is that they are able to introduce change quicker and implement this change much more effectively.” Collaboration and idea sharing between teams also made innovation easier, according to Reynolds.
In the Global Trends report, GCs expressed significant frustrations with larger law firms, particularly around issues of cost and innovation. Over 80 percent of respondents told researchers that cost was one of their biggest gripes with big law firms, with more than 50 percent listing it as their primary complaint. Pricing transparency followed close behind, while a third of respondents cited lack of innovation as well.
These GCs are echoing concerns that have long vexed the legal industry. For a decade, demand for legal services has remained flat, while lawyer productivity has dropped significantly. Over the past ten years, firms have lost a total of $74,100 a year per lawyer due to productivity declines. Many have responded by raising their standard rates, a strategy that’s undermined by ever-declining realization rates. Despite years of stagnation, some of the biggest firms still refuse to adjust their strategies or embrace innovation. They’re hanging on to a Blockbuster model in the age of Netflix.
Their competitors are not. As smaller firms continue to explore better, more efficient ways to serve their clients, more and more big clients will be waiting to take them on.