The Economics of Loyalty: Why In-House Legal Departments Can’t Afford To Be Nice All The Time

economics

I turned 51 today.  So I consider myself  a Tweener when it comes to the practice of law:  I am not so old yet to be considered one of the Old Guard Traditionalists, but I am too old to be considered New Blood.  This  gives me a unique perspective of both traditional thinking  about the relationships between law firms and in-house legal departments, and the new reality which doesn’t seem as friendly as collegial as the Old Guard Traditionalists remember it.

I confess I lean a little toward the Old Guard Traditionalists, because I can recall a time when in house legal departments for insurance companies and corporate clients, after a law firm delivered them a defense verdict or a well below case authority settlement, would complain that the bills were not sufficiently large in comparison to the result which was obtained.   Admittedly, this is a distant memory, but it is a memory just the same.

But because I  know and recognize this as a distant memory, I recognize the current reality younger lawyers in outside firms face in working for in house legal departments, and in desperately try to retain work from those departments, and to keep those departments satisfied.

It can become circular discussion.  The Old Guard Traditionalists in  outside firms bemoan the lack of loyalty from clients, some of them previously long-standing ones.  For their part, the in house legal departments bemoan the lack of efficiency and responsiveness of their roster of outside law firms in a patently changing marketplace.  The New Blood wonders which came first in this dialogue, the chicken or the egg?

My perspective as a Tweener is that the latter question doesn’t matter, and the former confidence of the Old Guard Traditionalists in the virtue of their position  about the decline in client loyalty is just as irrelevant.

Which comes first, the chicken or the egg?  The Client.

In house legal departments have always had purchasing power.  They have in the distant past simply not used this lever, a lever they have had all along.  They could afford the luxury of loyalty.  Today, however, in the pressure of the marketplace from both without and within, General Counsel’s offices simply cannot afford to ignore efficiency, responsiveness, and cost – effectiveness.

They will always like you if you have had a good relationship with them.  That is not the question any longer.  The question is can they afford to do business with you?  Do you provide them value over and above the value they give to you in the form of fees?  Are you responsive to requests for alternative fee arrangements, volume discounts, and adherence to budgets and litigation management plans?  Do you give them a straight line plan to their result, or are you simply going to follow a litigation script by rote?

I have spent more than 25 years in an outside law firm, so what I am about to say is at most an educated guess.  I would wager that if in house legal departments could , they would simply operate on the principle of loyalty also.  After all, it is easier for them too, to work with lawyers they have used for a long time, and whom they like.  But they can no longer afford to measure suitability and to  do things that way, and neither can the outside law firms who work for them.  Efficiency and value must be delivered.  Those benchmarks will be rewarded with client loyalty.  Length of service is no longer the metric.

Those are the Economics of Loyalty in today’s legal marketplace.

For more information on how to deliver efficient, and cost-effective service to  your in house legal department, reach  me at chaddick@dmclaw.com or 717-731-4800.

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Author: CJ Haddick

C.J. Haddick is a Director with the law firm of Dickie, McCamey, & Chilcote, PC, based in Pittsburgh, Pa. He has advised and represented insurers in insurance coverage and bad faith litigation for more than a quarter of a century, and written and spoken throughout the United States on insurance coverage and bad faith prevention and litigation. He is Managing Director of the firm's Harrisburg, Pa. office. Reach him at chaddick@dmclaw.com or 717-731-4800.

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