Is Big Law being slowly devoured by Small Law? Maybe not, but a new LexisNexis report about to be released indicates just how much work the smaller firms (201-500) lawyers are being fed by clients tired of the fees charged by the larger firms – among other things.
The Wall Street Journal carries a report about the LN findings, showing that this group have extended their “big ticket” litigation from 22 per cent to 41 per cent in the work generating over $1 million in fees.
The biggest firms—with more than 750 lawyers—are losing ground. During the same time period, their share of overall legal billings dropped to 20% from 26%, while midsize firms increased their market share to 22% from 18%. The figures are based on an analysis of $10 billion in legal fees by CounselLink, a legal software provider and a division of LexisNexis.
That shift spotlights how clients’ relentless hunt for savings continues to upend a profession in which marquee firms have long dominated lucrative corporate work.
“The larger the firm the higher the cost,” said Don H. Liu, general counsel for Xerox Corp. While he uses elite law firms for critical transactions, he helps keep the company’s legal bills in check by sending other work to smaller law firms in St. Louis and other low-cost locations. “Big law firms don’t have a monopoly on talent,” he says.
General counsel at many companies have become smarter shoppers since the economic downturn in 2008, when clamping down on legal costs became a necessity.
Corporate law departments face continued pressure to keep the bills down. Switching from a big firm with expensive offices in New York or Los Angeles to a midsize shop with 500 or fewer lawyers can yield significant savings, in-house lawyers say.
A partner who specializes in mergers and acquisitions might cost anywhere from $700 to $1,000 an hour in New York or London to “around $500 an hour” in the Midwest, according to Nick Sayeedi, the general counsel for Blockbuster LLC. “And many of these people have come from the big firms and have similar expertise.”
He added that some in-house lawyers resent having big law firms continue to boost their hourly rates 5% to 10% at a time when some companies are struggling, with revenue growing at a slower rate.
But quality matters too. “This is an art, and you can’t just treat obtaining legal services like you’re going to the lowest common denominator,” said Brackett Denniston, general counsel at General Electric Co., which has long evaluated law firms by looking at both quality and price.
Indeed, corporations still hire name-brand firms for the most crucial matters—a multibillion-dollar acquisition, for example, or a class-action lawsuit that puts a company’s reputation on the line.
Many of the largest U.S. law firms also remain the most profitable, despite the incursions into market share. Losing out on some lower-end work isn’t necessarily a big blow to elite New York firms or those with armies of lawyers in major U.S. cities—as long as they continue to land the most sophisticated and lucrative assignments. “The losers are the big firms that aren’t migrating to high-rate work,” said legal consultant Kent Zimmermann, who is based in Chicago.
But the pool of such work is shrinking as clients grow increasingly comfortable with sending complex work to smaller or lesser-known firms. “Firms further down the food chain are getting more of that high-rate work than they used to,” Mr. Zimmermann said. “That’s the result of a chain reaction that started in 2008 and continues today.”
Small and medium-size firms face their own competitive pressures. Despite the increased flow of work down market, many of them have opted to grow through mergers with other firms. Such combinations can increase a firm’s reach and, potentially, its revenue if existing clients opt to send more business its way. Big firms also enjoy some economies of scale and can offer bigger paychecks to lure talented lawyers from smaller shops.
Many companies like to hire a mix, retaining big international firms for complex, cross-border work but hiring small firms and even solo practitioners for matters such as patent prosecution that don’t require such a deep bench.