Cost of Legal Services, Value and Compensation

In my last post, I took issue with the conventional wisdom that the future of the legal profession is dependent upon increasing profit per partner by inicreasing leverage ratios and increasing associate salaries.

More conventional wisdom that should be questioned: companies don't want to pay for legal services and are seeking to reduce the amount of their legal spending. That's why they pit law firms against one another in 'dog and pony' shows.

While it may be true that corporate and other clients are seeking to reduce their legal spending, chances are that the real issue isn't the amount of legal spending isn't really the issue. The issue is that they see the law firms and legal services as commodities because the lawyers have failed to establish value with the client and have failed to differentiate their services.

The perception of the client is paramount. Lawyers must take the time to establish the value to the client up front and discuss the client's expectations - as one of my clients said recently, even though he's a litigator, not all of his clients have the same mix of desires. Some clients may be seeking their day in court, some may be seeking to maximize their recovery, some may be seeking to minimize legal costs, or to send a message to the other party.

The key to establishing value is to get to the root of what the client really wants, the challenge that they're facing, and the costs (which are often well beyond financial costs) involved in not hiring a lawyer - or not hiring the right lawyer.

In actuality, in-house counsel, just like the rest of the market, would probably be willing to pay even more than they are paying now for legal services if they perceived that they were receiving value for what they are spending. But in order for clients to perceive value, lawyers have to be able to communicate value. And it means that law firms need to compensate their lawyers for value and not just hours worked.

When compensation is based on billable hours, the focus becomes the amount of time spent, not the service that is actually provided, the result, or the change in the client's position as a result of the lawyer's services. That means lawyers aren't looking for or communicating value to clients, which leaves clients no choice but to look at hours.