Law firms “frustrated by clients” over alternative fee models

On the clock: Clients still accept hourly billing

Leaders of international law firms are frustrated by a “perceived unwillingness” on the part of existing clients to move from traditional billing and hourly rates to alternative fee models, a report has found.

It also said there was a “growing interest” among many commercial law firms in offering “consulting-type services”, for example on legal tech evaluation and implementation.

Thomson Reuters said: “Many firms have spent considerable money and effort in building up more robust pricing and legal project management teams, creating sometimes fierce competition for these sought-after roles.”

Yet “despite these efforts”, alternative fee arrangements had remained fairly consistent at roughly 20% of law firm revenues.

“To be sure, some firms outperform this metric, and some clients have placed a special focus on eliminating the billable hour from most if not all of their matters.

“But firm leaders report that clients remain more likely to accept either traditional hourly arrangements with discounts or budget caps applied.”

Researchers also said there was “a growing interest among many firms to offer consulting-type services, more akin to those traditionally offered by McKinsey or Gartner” – just this week, top US firm Shearman & Sterling launched a legal operations offering “designed to meet the evolving people, process and technology needs of in-house law departments”.

Some global law firms were already “viewing themselves as competitors in this space”, while others relied on their expertise in the technology area.

“These offerings included such activities as legal tech evaluation or implementation to help clients determine which potential tech solutions might address identified needs, then assisting with the deployment and implementation of the tool.

“In this way, the law firm can rely on internal tech expertise developed throughout the course of evaluating these solutions for use at the firm as a way of either creating an independent revenue stream for the firm or even providing such a service at no charge to the client.”

The Thomson Reuters Institute interviewed “dozens” of leaders of international law firms for the report.

On talent, law firm partners from the UK, Canada, other parts of Europe and Australia reported “feeling pressure to compete with US salary increases”.

Firms were also feeling pressure to pay bonuses to associates in some areas, decisions which could “sometimes be divisive if they are seen as inequitable or if some associates feel left out”.

Law firms based in London and Canada were under greatest pressure on associate bonuses and pay in general, “given the waves being generated by large US firms”.

Some partners spoke of associates leaving major UK or US firms to move to smaller firms or smaller markets.

“Leaders of EU-based firms also have talked about the surprising number of associates and in some cases even partners they have been able to recruit away from London law firms as those lawyers search for a better work/life balance and less hectic demands.”

On environmental, social and governance (ESG) strategy, researchers said: “Particularly among associates, a firm’s purpose goes beyond whether they feel they belong at a given law firm, and instead may determine whether they want to work for that firm in the first place.

“For these associates, firms need to create a clear sense and statement of purpose, conveying this in such a way that the associates feel they can identify with where the firm stands.

“This generation of associates believe they can and should hold their leaders to account for consistency between espoused ESG policies and the day-to-day decisions made in advising clients and indeed, which clients and matters to accept.”

Researchers added that the difference in generational perspective had led at least one law firm to establish a ‘millennial board’ made up of younger lawyers with “the explicit remit to advise the firm’s leadership on all ESG issues.”

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