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Four more reasons for inactivity by general counsel regarding law firms costs, building on eight earlier reasons

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In the view of Jordan Furlong 30 months ago, for three reasons general counsel balk at making major changes against law firms (See my post of Feb. 19, 2009: seven reasons why law departments do not take dramatic action.)

  1. General counsel are under-incentivized. This catch-all explanation adds nothing – the other reasons offered below drill down on incentives.
  2. General counsel are overburdened by distracted bosses. If driven pillar to post with other demands, where’s the time to sharpen the pencil? If anything, you need law firms more than ever.
  3. It’s hard to “reconfigure the legal services supply chain without destroying it in the process?” Here, I think Jordan is off the practical track into a theoretical or rhetorical question.

In my post I added five additional obstacles that I have observed or thought of

  1. Nearly all general counsel come from law firms, where often they were very successful as partners, so they know no other business model for firms.
  2. Change is discomforting at best and nightmarish at worst, so why undertake it (See my post of May 31, 2006: fear of change.)?
  3. A predilection for risk aversion among lawyers (See my post of.Aug. 24, 2008: lawyers and risk averse behavior with 11 references.).
  4. Even well-intentioned and well-executive initiatives to reduce spending founder on the bolt-out-of-the-blue major investigation, merger, class action, or patent infringement suit. So why bother (See my post of Oct. 3, 2010: external spend baseline and budgets.)?
  5. Most general counsel spend less than 15 percent of their time on management of the legal department, so whatever cost-saving energy they have is limited and – to be fair – generally peripheral to their main concerns (See my post of Nov. 12, 2009: estimates of how general counsel allocate their time.).

Having thought some more about this subject, let me offer four other obstacles to dramatic change by legal departments.

To re-jigger or pressure law firms upsets friends at those firms and clients at the company (See my post of June 6, 2011: disgruntled clients after convergence.).

Any sort of change costs something, a field of inquiry covered by transaction cost theory (See my post of Nov. 19, 2009: Coasian analysis with 6 references.).

One of this year’s Nobel prizes for economics speaks to the make-or-buy choice for legal services

Procurement may have pushed them and the law department over-reacted against that push (See my post of April 13, 2011: two points on Procurement: they stay away if your costs are under control but they can help on ancillary services.).

Law firms don’t suggest changes that encourage general counsel to up the ante for other law firms (See my post of Sept. 21, 2009: 8 reasons why a relationship partner might not make constructive suggestions.).

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One response to “Four more reasons for inactivity by general counsel regarding law firms costs, building on eight earlier reasons”

  1. Jeff Hodge says:
    August 19, 2011 at 4:49 pm

    Rees,
    Jordan’s list and your additions are really insightful. My personal view is that, ultimately, this stems from the fact that general counsel feel safe when there is no reason or presure to make changes. Generally, GCs are not trained business managers and are most confident in dealing with the law. What often gets ignored, however, is that in-house is much more dependent on either (a) an ability stay under the radar, or (b) an ability to show value. I’d like to think that these days most are opting for option (b), but I’m not sure that’s the case.
    Good past!