March 01, 2015

How Global Competition Flipped the Attorney-Client Relationship on Its Head

David A. Steiger
  • How does your firm need to change in order to continue to be of use to your clients?
Editor's Note

This article is the second part of an excerpt from the publication Transactions Without Borders. (The first part appears here.) I hope you have the time and opportunity to read it, and then purchase the book for your library. Please feel free to contact me at attyjls@aol.com and let me know your thoughts on it.

Best regards to all,
Jim Schwartz

How Global Competition Flipped the Attorney-Client Relationship on Its Head

From the 1980s—if not earlier—on, American businesses have been under significant pressure to cut costs through downsizing and other efficiencies.1 Through the 1980s and 1990s however, legal departments largely managed to exempt themselves from the deafening mantra of do more with less that virtually every business area was confronting head on. They did this largely by pleading that the variety, complexity, and sheer unpredictability of legal challenges facing a business made the law department budget a breed apart and not amenable to the same kinds of controls with which other areas were forced to reckon.

 

This line of argument began to lose currency as the new millennium dawned for several reasons: the success of IT outsourcing demonstrating ways in which the supply chain model could be adopted to high concept services—including legal or quasi-legal functions; the demands of cost cutting growing to the point that law departments could not practically be counted as exempt; and increasing sophistication of metrics, just to name a few. Increasingly, C-level executives questioned why the legal budget was not susceptible to better measurement and cost containment.

Eventually, businesses began to demand that their general counsel hold to finite budgets, budgets which then began to decrease year after year, much as had been happening in other departments across the board. At the same time, the business climate was growing more complicated, offering greater legal challenges than before. Still, business executives, weaned on decades of do more with less, were unmoved by the plaintive cries of legal staff; they would have to find a way to address additional responsibilities with the same or even less available legal spend. Additional pressures brought on by the onslaught of the 2008 recession only added an exclamation point to a story that had already largely been written.

It is through the prism of these unprecedented challenges faced by in-house legal staff that the changes to the attorney-client relationship must be viewed and understood. The great majority of in-house attorneys served as outside counsel at some point in their careers, and particularly in connection with their trusted “go-to” firms, there is no benefit in punishing or abusing the people who are handling their companies’ most sensitive issues. By necessity of the circumstances, however, clients came to realize that because they held the purse strings, they had a great deal more power in the attorney-client relationship than they had ever exercised. And now they really needed to use it to make the partnerships with their legal service providers more accountable to the clients’ cost cutting needs and goals.

The value proposition was no longer just the province of the subject matter of legal services provided—it would from now on also extend to how the service was delivered: rates, staffing, efficiency in bringing matters to conclusion, and close examination of noncore services that had traditionally served as profit centers for law firms.

Given the assertiveness on the part of clients on the cost cutting/efficiency side of the ledger, it is not that difficult to imagine that clients who are also facing unprecedented challenges internationally will likewise insist that their trusted legal advisors be able to step up and assist with these new challenges, even if the clients had not needed such service before.

Having one counsel speak to both domestic and international concerns makes fundamental sense from the perspectives of both efficiency and strategic consistency, but it also speaks to the “x factor” that has not changed in the attorney-client relationship—trust and the human element of the professional relationship. In-house counsel and company executives seek comfort in knowing that their most intractable problems are under the watchful eyes of those professionals who have demonstrated the ability and responsiveness necessary to successfully address them. What this suggests for those counsel who haven’t yet seen the need to expand to a globalized practice is that they need to be more flexible in anticipating their clients’ needs, because there is little question that the twenty-first century will most assuredly be “the century of the client.”                                                                                             

A Globalized Legal Practice Does Not Assume a Total Shift to Cross-Border Work

The global marketplace is still evolving, and there is no doubt that there will be plenty of firms that will retain a national, regional, or even local focus. Still, as demonstrated above, the ongoing changes in both the general business and legal business models will make it increasingly necessary for counsel by and large (whether they are with larger firms in metropolitan areas or not) to be able to give competent advice on international topics to their business clients, including small and medium-sized concerns. For some counsel, that will be mostly an exercise in issue spotting and development of a network of professionals who can be retained to give specific advice on given international issues. For others, depending on whether their clients join the growing ranks of businesses whose strategy adopts some sort of international presence, a more thorough understanding of the issues and a more complete network of international professionals and consultants may be in order.

The fact is that these days, international work often leads to more domestic work. Harvey Cohen of Dinsmore notes that even though he is based in Cincinnati, he does work for companies outside the Midwest region. Cohen is convinced that if you are not working in one of the larger cities such as New York or Chicago, the current market forces will compel you to consider doing work outside of your home geographic region.

As globalization has progressed, many cities have lost their global headquarters. However, in return they tend to acquire facilities and massive foreign investments from German, French, and British companies, among others. These new entities’ concerns are now domestic American issues. This work, though domestic, comes to Cohen through the international work he does and through international organizations. Like Western companies in China, these newcomers to the United States start small and see how things go. They start with a few employees through an independent network and eventually set up distribution and then assembly operations. They find they need to have a U.S. office. European stalwarts such as Henkel, Siemens, and Bayer have been in the United States for years. Now privately owned $50–$100 million companies and independent divisions of larger companies need to have people here.

Your Choice: Master Cross-Border Issues or Watch Your Clients/Customers Migrate

As discussed above, many attorneys’ most important clients—even clients who would never have dreamed of having global operations or partnerships before—either may be preparing to develop them now or soon will be. Many companies have already concluded that over the long term, it will be necessary to leverage the low-cost, high-quality labor available overseas to help maintain a competitive business model. Although the media hoopla over offshore outsourcing has largely subsided, the interest in pursuing effective cost savings through an offshore sourcing strategy has not. If clients are even considering such a move, getting the proper due diligence and legal advice throughout the process will be critical to their success.

The global economy also presents unparalleled opportunities for many clients. Perhaps they are niche producers of equipment needed to create state-of-the-art manufacturing facilities. Odds are that they could multiply their sales many times by selling their products to a quickly growing and relatively untapped overseas market in Southeast Asia or Latin America. But after some investigation, management determines that they would need to create a joint venture with a local company that has the distribution network and political connections needed to effectively sell the product there. When key clients ask for advice in putting together such a joint venture, what will their lawyers say to them?

Their lawyers can, of course, continue to provide the same limited service they have delivered in years and decades past, and let the clients seek out international advice from law firms with expertise in global transactions. As it happens, though, those same firms often also offer tax advice, litigation management, or any number of other services that encompass existing counsel’s specialties, and those firms can integrate these services together with cross-border advice into a coherent overall strategy. If a client’s current outside counsel cannot, or will not, offer international services as well, why would the client not move all its business to someone who can service all its needs? Perhaps a given firm won’t lose all its best clients this way, but just how many of them can a firm afford to lose today? And how many potential clients can it afford to go elsewhere?

One of the best statements of the principles discussed here comes from Seyfarth Shaw Chairman J. Stephen Poor:

In order to meet business demands, corporate counsel are increasingly looking for firms that deliver greater value. Looking out on a landscape that includes a wider variety of choices than ever before—regional firms, national firms, global firms, virtual firms, legal outsourcing providers and contract firms, among others—their purchasing decisions continue to evolve.

If the recent recession teaches anything for the legal industry, it is this: The changing demands of our clients require the legal services profession to find different paths to deliver value to those who buy our services. Lawyers today should be asking themselves nontraditional questions: how to apply resources more effectively, to shorten cycle time and lower the cost of their work product and other deliverables, while raising the level of service. In the end, your client will reward you by giving you more work across more areas, and your relationship will deepen.2

Indeed, Mr. Poor’s last statement is the takeaway. If a given law firm—even one that has a long-standing relationship with a client—is not capable of providing services that include cross-border advice that many businesses find they need today, another one will. That competitor may be the one that receives “more work across more areas.” Outside counsel need to understand that they are now faced with much the same choice as their clients: master cross-border issues or watch customers migrate.

Businesspeople are largely already on board with the changes that flow from this simple concept, while some lawyers struggle to accept the new reality. Loring Knoblauch, former CEO of Underwriters Laboratories and a law school graduate himself, has wisely stated that it is lawyers who are most disadvantaged by globalization. He simply observes that lawyers are trained from the start to look backwards by the principles of precedent and stare decisis, whereas the global economy requires forward thinking. This makes it most difficult for lawyers in particular to cope with the rapid change the world is experiencing. Clients today need attorneys who can adapt—quickly—to the new world that is developing all around them. Lawyers can take advantage of a whole world of opportunity—or be left behind, trying to provide stale answers to yesterday’s problems. So, for lawyers reading this who might still be on the fence: what’s it going to be?

Endnotes

1. Henry Hornstein, Downsizing Isn’t What It’s Cracked Up to Be, Ivey Bus. J. (May/June 2009), http://www.iveybusinessjournal.com/topics/strategy/downsizing-isn%E2%80%99t-what-it%E2%80%99s-cracked-to-be.

2. J. Stephen Poor, Re-Engineering the Business of Law, N.Y. Times (May 7, 2012), http://dealbook.nytimes.com/2012/05/07/re-engineering-the-business-of-law.

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David A. Steiger

David A. Steiger is an attorney, author, and lecturer who has taught on aspects of the global economy and various legal topics for fifteen years. A sought-after speaker, Steiger has addressed a variety of audiences, ranging from students at Pepperdine and Notre Dame Schools of Law to annual meetings of the California State and Michigan Bar Associations, and from a local chapter of the American Society of Mechanical Engineers to the International Roundtable at the University of Chicago’s Graham School of Business.