Nearly half of companies swapped external lawyers in last year

Global outlook: International spend has held up better than domestic  

Law firms can not assume they have a fixed place on a client’s roster, with 45% of clients changing which practices they allocate work to in the past year, new research has warned.

Reputation has also dropped “dramatically” in importance for keeping a firm top-of-mind, according to Thomson Reuters, as “firms of many types — including alternative legal services providers (ALSPs) — offer a range of options to legal buyers”.

“Clients are increasingly aware of their alternatives,” its State of the UK Market report said. “In 2020, two-thirds of corporate buyers of legal services were aware of ALSPs; now, three-quarters are.

“The Big Four auditing and advisory firms continue to dominate the ALSP portion of the market, and, of course, they enjoy strong relationships with multiple decision-makers in client organisations.”

At the same time, there has been “a new impetus of competition arising from aggressive investments” being made in the UK by US law firms that want to grow their market share in the UK and Europe.

Researchers spoke to senior legal counsel in 255 companies, of which nearly two-thirds had revenues exceeding £800m.

While 35% expected to increase their legal spend this year, 26% thought they would spend less.

Securing work was more than just having the necessary expertise, the report said. “In the UK, more than in many other regions of the world, clients are focusing on the quality of the whole relationship with their advisers.

“In a major shift over the past 10 years, the historical reputation of a law firm is no longer enough to keep it top-of-mind in the market. The message is clear: firms need to re-consider how they present and deliver value to clients…

“In short, law firms need to demonstrate that they can act not just as a legal adviser but also as a business partner.”

While many firms would say they did this already — “and of course some do” – the evidence suggested “a narrower and more limited perception from the client side”.

The survey highlighted clients’ wish for their lawyers to be ‘business savvy’. “This shows that whilst legal expertise is the top driver, it is not sufficient on its own. It’s the other aspects of the relationship that will enable true differentiation.”

Too many firms still saw industry sectors as a marketing vehicle rather than “a means of truly understanding the dynamics of the client’s market”.

The report said the stresses of the pandemic also “taught many legal buyers that law firms were able to pivot and adapt quickly, and that their experienced partners can condense lengthy legal opinions to a much more focused and valuable summary of salient points.

“Now with much of the pandemic crisis behind us, legal buyers have become intolerant of poorly focused and wordy advice.”

Global coverage was also more important to clients as they increasingly sought to do business in different parts of the world. Over time, international legal spending has held up better than domestic spend and is currently at its highest level since 2018.

Overall, clients appeared satisfied with their outside law firms. About half were delighted (awarding a score of 9 or 10 out of 10), and only 5% indicate the relationship could be improved significantly (scoring 6 or lower).

“However, diving deeper, the number of respondents mentioning certain areas for improvement has increased significantly, with areas highlighted such as responsiveness (i.e., speed and communication), and knowledge of the business.”

They scored worst for innovation and value for money, which researchers stressed was about more than just price.

More than three-quarters of respondents said they were not aware of any firm with which they worked actually adding value by using technology, with partners often not aware of what was available or how to use it to benefit clients.

“Worse still, whilst charging by the hour remains the main economic driver, many partners will see adopting technology as undermining their own billable hours targets.”

Thomson Reuters said technological innovation did not need to be ground-breaking or especially disruptive.

“Much of the technology used by law firms enables relatively simple improvements to processes and communication, which help in-house teams in two of their top priorities — efficiency and cost control.”

Firms that have formal client feedback programmes on average received 34% of their clients’ external spend, compared to the baseline of 14%.

Despite this, fewer than a third of clients said their law firms have sought that feedback and, of them, fewer than half said they had noticed any change in service as a result.

Researchers’ review of global law firms’ 2022 results showed that, despite increasing headcount significantly (by 7.3%), demand for legal services fall by 1.3%.

All transactional practices saw fewer billable hours than 2021, and in keeping with general counsel’s move away from corporate activity, demand for corporate M&A work fell most sharply.

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