Brave new world?

As the vaccination programme rolls out at impressive speed across the UK, a return to historical normal is on the horizon, albeit in a world in all probability changed for ever by COVID-19. What will the new normal look like for law firms? And in my area of special interest, what does that mean for pricing legal services? Let’s consider these questions and offer an answer or two along the way.

GFC

We saw in the GFC (global financial crisis) how an event of some magnitude served to accelerate pre-existing trends. For example, globalization of law firms, consolidation of client panels and the rise of alternative service providers were all clear to see pre-2008. The events in 2008 changed, arguably forever, the way legal services markets worked. Cost-conscious and savvy clients began to push back on their law firms’ pricing models. Law firms also had to reckon with new entrants, a changing regulatory framework, and rapid advances in technology – in any other decade, each of these might have produced seismic changes in the sector on their own. The GFC saw the balance of power shift substantially in the client’s favour. Discounting became the order of the day, as did client demand for firms to move away from hourly billing and offer alternative fee arrangements. What we learned then will stand us in good stead for the post-pandemic challenges ahead.

Tipping Point

In the decade that followed the GFC, some law firms (but I would argue, nowhere near as many as should have) began to acknowledge the growing importance of process improvement, of technology, of value pricing and of meeting changing client needs and expectations. What these trends and pressures together amount to, I’d suggest, is an irreversible drive towards more efficient models for the delivery of legal services. Models in which clients don’t see themselves paying for process, or file ‘admin’, but for true legal value added.

In their 2021 ‘Report on the State of the Legal Market’ the Center on Ethics and the Legal Profession at Georgetown University and Thomson Reuters question whether 2020 will be seen in hindsight to have been an inflection point for the redesign of the delivery of legal services. Taking their cue from Malcolm Gladwell’s book (The Tipping Point – How Little Things Can Make a Difference [2000]), they note that while people commonly assume change takes place slowly over an extended period of time, Gladwell argued ‘with a metaphor eerily appropriate for our present circumstances – that, in many cases, change happens more like an epidemic’. Gladwell says the process of change begins with ‘clear examples of contagious behaviour’. The authors of the Report explain: once these ideas and activities begin to move in a certain direction, change can happen very quickly.

“The name given to that one dramatic moment in an epidemic when everything can change all at once is the Tipping Point” says Gladwell. The ‘clear examples of contagious behaviour’ that the Report’s authors identify include changing expectations of clients, changes in the pricing of legal services, rapid advances in technology and growth of competition, including from non-traditional law firms. These, it is argued, are pushing law firms to make service delivery more efficient, more predictable, more cost effective (cheaper).

While many law firms have implemented significant changes to meet these demands, the vast majority have not. And the biggest single obstacle to change is law firm’s partners themselves. In Altman Weill’s ‘Law Firms in Transition 2020’ survey, over 150 U.S. managing partners were asked why their firms weren’t doing more to alter the way they delivered their services. The most popular answer by some way was ‘Partners resist most change efforts’. There are of course a host of reasons why that might be so, and no one said change is easy. But it’s not impossible either.

COVID and beyond

Other trends such as homeworking, greater use of technology, or becoming paperless have been given impetus by the pandemic. The changes we have seen in a remarkably short space of time are going to stay with us, to a greater or lesser extent. And as clients see their lawyers work successfully from their kitchen table, they are likely to ask themselves why they still cost what they used to when working from their city centre offices. And when clients see their law firms give up or substantially reduce their office overhead, they’ll ask the same question.

I’ve been asked countless times when training partners in pricing how best to capture the firm’s investment in technology, for example in precedents. ‘Should we record another 5-10 units’ time to cover that sunk cost?’ Quite apart from ethical considerations, it has always seemed to me a question that misses the point. Clients aren’t concerned with inputs, they don’t care how long it takes their lawyer to complete a task, they care about what they get (outputs) and what they pay for it.

In my view, the days when client will pay £300 per hour or more for their lawyer to fill in a court form, prepare a file note, or deal with routine correspondence are drawing rapidly to a close. The one-size-fits-all 6-minute unit charged at a uniform rate will go the same way. While clients have right on their side in refusing to pay top dollar for ‘mere’ processing, they will continue to value what lawyers do best – as their trusted advisors, as the provider of diagnostic advice, as an advocate and as a strategist. For these activities, and others like them, law firms have been undercharging their clients for generations, and have done so because they’ve taken the rough with the smooth. If you think my argument is contentious, ask your accountants what they charge for a newly qualified accountant working on an audit, and then what they charge for a partner working on an HMRC investigation. You’ll be amazed by the gap between the two!

It is time for a fundamental re-set in pricing legal services. Time to look at what clients value and are prepared to pay for. Time to stop looking under every rock because we’re making sure to cover every angle and instead giving clients what they actually want. And to recognise that some of what lawyers do now won’t be done by us for much longer but will be automated, replaced by AI or done by our clients using shareware or similar. A redesigned model for the delivery of legal services isn’t going to work if the pricing doesn’t change, is it?

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