Several articles and surveys that have come out recently suggest a looming donnybrook in 2023 between law firms and business clients. The law firms want to aggressively raise rates but their business clients claim to be outraged by such efforts. These clients also say they plan to resist such efforts aggressively.

 

Pardon me, but I have heard this before. Law firms annually raise rates—albeit not as much as they plan in 2023. And many clients claim outrage before swallowing hard and accepting the increases. But there is some evidence 2023 may be different.

 

More importantly, though, any blanket conclusions about what clients will or will not do are misplaced. As I have previously discussed, the legal marketplace is so stratified and segmented depending on who and what is involved that across the board predictions are hard. So some firms will get away with rate increases, and some will not get increases but may actually be facing rate decreases.

 

The easiest way to try to maintain record profits is just to raise rates. And since many clients have in the past routinely accepted increases, it’s tempting.

 

First, the articles and surveys. Andrew Maloney recently reported on a Wells Fargo Survey. This Survey concluded that almost 98 % of the firms surveyed plan on increasing rates in 2023 by some 7-8%. As I have discussed, the efforts to raise rates are not surprising. Law firms are facing siginifanct increased costs due to inflation and perhaps reduced revenues in 2023. The easiest way to try to maintain record profits is just to raise rates. And since many clients have in the past routinely accepted increases (or haven’t even noticed them), it’s tempting.

 

A Thomson Reuters Study confirms the financial pressure law firms will be under. The Study suggests that demand for legal services is declining. And overhead is growing.

 

But according to an article by Trudy Knockless in law.com, this time, clients may revolt. Citing several sources, Knockless concludes that legal departments are being so financially squeezed they just can’t accept increases.

 

Legal departments are particularly upset that law firms are seeking rate increases

 

Legal departments further claim to be particularly upset that law firms are even seeking rate increases. They assume the firms are fully aware of the pressures in-house legal departments are facing to cut their budgets anywhere from 5-20%. Knockless reports that according to several sources, 2023 may be the year that the traditional blind acceptance of rate increases by clients ends.

 

But you can’t make blanket conclusions about what clients will or will not do since the legal market is so segmented, even for business-related work. There are some matters—we typically referred to them as “bet the company cases”—where the rate doesn’t matter. What matters is the expertise of the lawyer and law firm.

 

Other matters may be less significant than bet the company but are still important to the company. These cases, too, may be rate resistant. In both categories, the difference in the result between an A job and a C job is so significant that rates and cost don’t matter all that much.

 

So in-house justifiably believes for both categories that paying the higher rates is good strategy. For both classes of matters, law firms will likely get away with substantial rate increases in 2023, just like always.

 

The real question is whether the lawyer can convince in-house legal (and/or in-house legal believes) that the matter falls into the two categories I have mentioned. Since lawyers are good at persuasion and risk adverse in general, it’s often easy to convince and believe that the matter is either bet the company or requires A work. So higher rates and rate increases are a necessary evil.

 

Then there are other matters where a C job is good enough

 

Then there are other matters where a C job is good enough. For these cases, paying for a lawyer with less experience and lower rates makes sense. The result may not be as good as it would be with a higher priced lawyer, but by paying lower rates, the overall cost of the matter is reduced.

 

We see this dichotomy most clearly with insurance companies. One of the critical components of the insurance business is litigation. For some types of cases—the defense of claims against insureds—a C job is sufficient. On an overall basis, the overall cost to the carrier for these claims will be less by paying lower rates and incurring higher substantive costs. For other types of work—insurance coverage matters, for example—getting a better result and paying higher rates is justified.

 

What does this mean for 2023? Some law firms and lawyers will be able to raise rates without much pushback. Others won’t. But you can’t make a blanket conclusion across the board.

 

What’s a law firm and lawyer to do?

 

And what’s a law firm and lawyer to do? Try to convince your client that the matter falls into the higher categories of work. If it doesn’t, get prepared to either not raise rates or even be forced to decrease them. Do more with automation and reduce costs by doing so.

 

Bottom line: If you want to raise rates, first determine whether the matters you are handling fall into the rate resistant categories.

 

 

What’s an in-house counsel to do?

 

What’s an in-house counsel to do? Look hard at any effort to claim that a matter is unique and that paying the increased rate is justified. You are charged with the overall result and cost of a matter. The overall cost includes what you may pay substantively for a claim, for example, and the costs of concluding the matter.

 

If the substantive result is significant to you and your company, then consider paying the higher rates. Like your business, law firms are under increased financial pressure too.

 

But whatever you do as an inside or outside lawyer, don’t jump to conclusions across the board about whether a rate increase is—or isn’t justified.

 

Photo Attribution:

Tiger picture:  Frida Lannerström on Unsplash

Money picture: Giorgio Trovato on Unsplash

Ch-ch-ch-ch-changes
(turn and face the strain)…
Ch-ch-changes
Just gonna have to be a different man
Time may change me
But I can’t trace time

Changes by David Bowie

 

I recently ran across an article in Macworld by Dan Moren. The article is entitled Apple Is Quietly Preparing for a Future Without the iPhone-Or Another Big Thing.

 

In the article, Moren talks about how several well-known tech companies have pivoted even when they seemingly were on the top of their game. By pivoting sooner rather than later, these companies set themselves up for survival. And even greater success in a changing world. Says Moren, “Where once they might have ruled the world by producing the thing that everybody needed to have—whether it was a hardware product or a crucial piece of software—they seem to eventually evolve into a new form, one where they’re focused less on delivering a key product and more on what service they provide.”

Continue Reading Does Your Law Firm Need To Think About a Pivot?

Lexion, an AI-powered contract management system geared to in-house lawyers and legal professionals, recently announced the results of a survey of some 450 in-house legal professionals. The Survey sought information on the state of legal technology, the potential economic slowdown, and the potential impact of any slowdown on their work. The results were published in The State of Legal Technology: Improving Efficiency with Existing Staff and New Technology as Hiring Slows. Respondents include in-house counsel, legal operations professionals, and contract managers across various industries.

 

Much of what the Survey found was not surprising. Close to 90% of the respondents are worried about the economy. Most of the respondents (almost 70%) believe their companies will likely soon slow down or freeze hiring. Most think they will also need to reduce outside counsel spend and even conduct layoffs.

Continue Reading Legal Tech: It’s Not Just for Lawyers Anymore

I just finished reading James Patterson’s book, The Last Days of John Lennon. In it, he goes through a fair amount of the history of the Beatles, both before and after the breakup.

 

I was struck by the role Ringo Starr played in the group. Like Charlie Watts, the Rolling Stones drummer who recently passed away, Ringo never really got the credit he deserved for being a world-class drummer. But more than that, reading the book, I discovere the role Ringo played in the group’s culture and with John, Paul, and George after the breakup. It was Ringo who tried to heal the relationships between the three. To keep them in touch with one another. To be there for them when they needed his presence. In many respects, he was the (and is) the Beatles unassuming flame keeper.

Continue Reading Every Law Firm Needs a Ringo

Several years ago, I was engaged by an insurance carrier to defend many of its insureds in some repetitive litigation across the nation. At one point, the VP of Claims to whom I reported and I were asked to brief the carrier’s VP of subrogation on the litigation. The subrogation unit was exploring whether any recovery actions could be brought against those arguably responsible for the losses and costs. (In most insurance companies, pursuing third party claims is the responsibility of a separate subrogation unit).

 

We were sitting in the palatial waiting area of the subro VP’s office when I spied a picture on the wall of a well-known outside subrogation lawyer. This lawyer was well known for obtaining several significant recoveries of the carrier. I jokingly asked my guy why my picture was not on his waiting room wall. He said, “Steve. The guy whose picture is on the wall makes us money. You just cost us money.”

Continue Reading Why Are So Many In-House Counsel Are Reluctant to Bring Plaintiff Actions?

Everyone is talking about the recent Partners Compensation Survey conducted jointly by Major, Lindsay and Africa, and Law360. Perhaps rightly so. The data for the Survey came from some 1800 equity and nonequity partners. While it was not specified, my guess is that those surveyed primarily came from larger firms.

 

The big headline from the Survey is that 2021 was a great year to be a partner in big law, at least financially. It was a record year across the board. So much for the notion that you can’t be productive working from home. But there were some other takeaways that are perhaps not so attention-grabbing. I recently talked with Craig Savitzky, Senior Data Analyst of Law360, about some of these.

Continue Reading The Partners Compensation Survey: Lots of Interesting Non Comp Findings

Just like Moneyball concepts changed baseball forever, perhaps the same may be happening in legal tech. Yes, legal tech companies are making more data and financial based decisions. But the old days seemed, well, more fun.

 

Another day, another announcement by a legal tech company of increased integrations, acquisitions, or consolidations. Monday, Reveal announced that it acquired Technically Creative. Tuesday it was MyCase announcing an integration with LawToolBox for rules based court calendaring.

 

Integration, acquisitions, and consolidation are all the rage in legal tech these days. We have seen FastCase partner with Visalaw.AI for a state of the art immigration case management platform. (October 25). On October 17, it was announced that Netdocs was acquiring Worldox. Clio recently announced advanced several third party app integrations. (October 10). Haystack acquired Business Intelligence Associates (September 7). Relativity acquired Heretic (August 29). BigHand acquired Digitory Legal (August 22).

Continue Reading Moneyball Comes to Legal Tech? Or Am I Just An Old Curmudgeon?

As things stand now, it looks like Elon Musk’s deal to purchase Twitter will go through. I fear what that all means for Twitter users and the legal tech community.

 

A couple of things seem certain. First, Musk has repeatedly said he plans to cut Twitter staff by a jaw dropping 75%. Secondly, he has promised to open Twitter to those who may have been banned or at least muzzled in the past for outrageous, untrue, or abusive tweets. Both could significantly affect the platform’s future usefulness for those in the legal community.

Continue Reading Wither Twitter: What It Could Mean for the Legal Community

I recent returned from the annual Clio conference, at which it released its 2022 Legal Trends Study. This Survey of Clio lawyer  customers and others comes out every year.

 

In addition, Aba Practice Forward Group also recently realized its own Survey of some 2000 members.

 

The two Surveys are interesting both because they offer a look at the post-pandemic (we hope) world and because the findings are in many ways similar. Since the studies presumably were not of all the same people, the similarities give a lot of credibility to both results.

Continue Reading CLIO and ABA Recent Surveys: A Tale of Two Studies

“By the way, you know, when, when you’re telling these little stories, here’s a good idea. Have a point. It makes it so much more interesting for the listener!”

Neal Page (played by Steve Martin) in the 1987 movie Planes, Trains and Automobiles.

 

Clio’s Legal Trends Report came out this week at Clio’s annual conference. One of the key findings is that lawyers and legal professionals don’t want to return to the office like they used to. I know. It’s those lazy younger workers who want to drink coffee and sit around in their pajamas at home and not work. I mean, who wouldn’t want to commute an hour each way to get to an office to do the same thing  they do at home. And be berated by a senior partner for being so uncommitted.

Continue Reading How to Build Culture, Train Associates and Make People Happy in a Remote World