The following post originally appeared on Forbes | Oct 16th, 2013
In a recent Harvard Business Review article, Why Law Firm Pedigree May Be a Thing of the Past, Dina Wang and Firoz Dattu contend that, where a law firm’s pedigree was an important measure in a General Counsel’s buying algorithm, today, “… there is a growing body of legal work that simply won’t be sent to the most pedigreed law firms, most typically because general counsel are laser focused on value, namely quality and efficiency.”
AdvanceLaw – Dattu’s brainchild – surveyed 88 GC’s from major corporations like NIKE NKE -0.78%, Google GOOG -0.81%, eBay and Deutsche Bank DB +0.00%, about their preferences for law firm pedigree as it relates to a (conservative) 30% premium on fees. They found that 74% of those surveyed opted for the lower cost, non-pedigreed provider. In the words of the authors, “… clients are serious about moving high-stakes work away from the most pedigreed (and expensive) law firms.”
Since law’s inception, the credence nature of legal work has haunted even the savviest legal consumers. And though the evolution of GC’s (and CLO’s) is forcing a shift in the current power balance, pedigree – or, more accurately, prestige – will continue to guarantee higher fees, the best work, and the pick of the lateral litter to the firms that wield it. Though the glory days of clients flipping the bill to train 1st associates are waning, HBR may be adding more fuel, unnecessarily, to the BigLaw-is-Dead bonfire.
Surveys can be useful when they seek hard, measurable data. But hypotheticals and simple opinions are too easily tainted; ask Harvard’s own Gerald Zaltman. The article did consider more tangible evidence in the form of revenues-per-lawyer in a random sampling of pedigreed vs. non-pedigreed firms: “Our sample of 15 especially highly reputed firms (including the likes of Cravath, Skadden, and Sullivan) experienced an average increase of only 2.9% in revenue per lawyer over the 5-year period from 2007-12. In comparison, a sample of 15 smaller, comparatively less known firms posted average growth in revenue per lawyer of 12.7% in the same period.” These figures, while somewhat dramatic, need some context…
Larger pedigreed firms – e.g., Skadden – are often known for (quite) strategic and controlled growth, with primary consideration given to the preservation of firm culture. Many smaller pedigreed firms – e.g., Wachtell – have leaner leverage ratios, and are of a “Classic,” or “One-Firm” governance model, which demands slow, controlled growth, too. And let us not forget the floating, but still present, fee ceiling that most pedigreed firms not only define, but also hover just beneath.
Further muddying the waters is the potential for financial gymnastics, which may be argued to be more prevalent in the lower rungs of the Am Law rankings, where PPP’s are, by far, the most important reputational signal in the recruitment tool box. Most telling, actually, is the 2.9% increase that the sample of pedigreed firms experienced despite their inherent growth limiters and the (still) lagging economy.
Some of the author’s most enticing data – and, unfortunately, the least elaborated upon – surrounds AdvanceLaw’s clients that actually moved to lesser-known firms. Regarding this, the authors say, “… firms of varying sizes and pedigree are successfully unseating AmLaw 20 and Magic Circle incumbents on high stakes work (e.g., a recent M&A deal valued at $500 million; national trial counsel for a significant multi-state class action).” I am interested to know how many of the clients have actually transitioned, and the particulars of each move. Were they “bet-the-farm” matters? How are the authors defining “high stakes?” What was the nature of the relationship between the merging parties? Answers to questions like these would add much needed color.
To the authors’ credit, aside from being brilliant – see their bio’s: Dina Wang, Firoz Dattu – AdvanceLaw seems to have a unique view into corporate America’s legal departments. I believe they may have much more to offer us, if they would open the coffers a bit more. But for the moment, while the survey has some interesting data, I’m not dancing on any graves, yet.
Pedigree, or perhaps more pertinent, prestige (see definition) has always been the brass ring that major law firms strive for. This is for good reason – resources, work and money come easier at a certain elevation. Reputational signaling is the prime ingredient to any client or lateral acquisition – simple economics and social and consumer psychologies dictate this – and the quality of the signal is quite proportional to a firm’s prestige. Part science and part alchemy, proactively creating such a thing – which, if accomplished, ideally matures into pedigree – is at the forefront of any legal strategist’s inner dialogue. In fact, I am confident that the aforementioned (15) non-pedigreed firms had one goal in mind: moving up the prestige ladder.
From where I sit, the current market pressures, while forcing some work down the food chain, will also force a more discernable, and therefore actionable, division between commodity and skill-based work. Greater technology will accompany commoditization, resulting in higher efficiency and affordability, both of which will generate more and faster work and information flow. This significant increase in output will create newer and more complex legal challenges, demanding a higher caliber, more capable lawyer. And where will those lawyers choose to practice? Generally speaking, at firms that offer the most lucrative ratio of pay to prestige. The new breed of future legal challenges will only increase the value of these pedigreed firms – thus, the race to the top that we have been seeing for decades.
So, while the average BigLaw consumer continues to evolve, law’s credence nature and the gravity of high-stakes matters will, for the immediate future, stay the expulsion of pedigree from most purchasing algorithms. To quote da Vinci, “Poor is the pupil who does not surpass his master.” This is doubly so for Ivy League educated GC’s who have learned from the best – their BigLaw cohorts. Though the recent correction has sparked a shift in the power balance, giving GC’s an edge in the near term, da Vinci – rest his soul – wouldn’t be handing out diplomas, yet.