Spend wisely

By Published:

One of the reasons — maybe the main reason — why lawyers are so risk-averse is that averting risk is kind of the whole point of having lawyers. People hire us for two reasons: (a) to fix a problem that’s already occurred, or (b) to arrange things so as to minimize or eliminate the risk that problems will occur. In Susskindian terms, these are the ambulance at the bottom of the cliff and the fence at the top, respectively.

The idea that we’d be better off with fewer ambulances and more fences is starting to catch on within the profession. But there’s an important question in there: how many fences do you really need? Is it possible you’re installing more fences than can be justified by the reduced risk of accidents? And as sellers of both fences and ambulances, are lawyers sufficiently objective to be the ones making that call?

Ron Friedmann got me thinking about all this with two insightful and provocative posts about reducing corporate legal spend. He argues that institutional clients “need to do a better job assessing risk and deciding what warrants legal attention,” and draws an analogy to the US health care system which, by many accounts, costs so much in part because of rampant unnecessary treatment. If clients took the time to review all their legal spending and figure out what percentage could be eliminated with an acceptably small increase in risk, they could lower their legal spend without dramatically increasing the company’s exposure.

The idea that companies are over-protecting themselves against risk and therefore overspending on lawyers is compelling. Obviously, there are legal costs that can’t be eliminated — if the government tells you to comply with a given regulation or face prosecution, you’re going to comply. But if you separated corporate legal spend into two piles — one for “we need to do this or we’ll go out of business” and “we’d better do this to make sure we’ve covered all our bases” — you might find the second pile a lot higher than you expected. And if you weighed the savings of not covering a given base against its reasonably foreseeable consequences — not the possibility, but the probability of trouble — you might decide you’re buying too much legal risk aversion.

I can see more companies doing just that — figuring out what they can live without in terms of legal coverage and proceeding to live without it. The lawyer’s argument against that, of course, is that even the smallest detail overlooked can lead to devastating liability consequences in court. But as the rise of “good enough” continues, especially in what figures to be an economically difficult period of time to come, I can see rules and regulations being interpreted in similarly “good enough” fashion — threshold standards being lowered slightly, breaches looked upon more leniently, etc. In the aggregate, it could add up to a collective consensus that not every stone needs to be unturned and not every potential risk needs to be run by the lawyers. If that came to pass, the impact on lawyers would be profound.

In his posts, Ron specifically notes he’s excluding consumer legal spending from the discussion. But if anything, I think the reverse applies to the way individuals buy legal services: I think they underestimate risks and under-purchase legal protection. How many people buy and sell a house without using a lawyer, bypassing expertise and institutional protection in order to save a few hundred bucks on a transaction worth hundreds of thousands of dollars? How many people die intestate every year, even with children and extensive assets, because they just never got around to making a will? How many litigants choose to make their own way through our labyrinthine court system?

Individuals’ failure to avail themselves of lawyers isn’t entirely, or even mainly, their own fault, of course. Too often, lawyers have either failed to adequately market the value and importance of their services, or allowed their prices to balloon past the point where many people can afford to hire a lawyer without help from family members or government programs. In my ideal world, you couldn’t get a  driver’s license until you’d filled out even a basic will, and you couldn’t get a marriage license without having to take a basic course in family breakdown, support, custody and access — both at low costs.

Unless and until that comes to pass, lawyers have an obligation — not just for business reasons but also for social ones — to let people know how important these sorts of fundamental legal instruments are and to ensure they’re accessible to the majority of potential buyers. And at the other end of the spectrum, lawyers also have a responsibility to help their institutional clients tell the difference between “need-to-haves” and “nice-to-haves,” and to place the focus of their services firmly on the former. A trusted contractor won’t replace your garage if a repair will do just as well; trusted lawyers do the same.

Over the years, legal spending patterns have become habit-forming: institutions have gotten used to buying ever more risk-avoidance services, while individuals have gotten used to buying only those services that circumstances require them to buy. It would be reasonable, in an extended period of economic malaise, to expect those habits to change. Lawyers who want to stay ahead of dangerous curves like that should spend time thinking about what their clients absolutely require, and changing what they sell — more of some things, less of others — to match.

Print Friendly

One Response to “Spend wisely”

  1. Tim Donovan

    The balance between “good enough,” “not enough”, and too much, or overlawyering is part and parcel and life as an in house attorney or general counsel. Our goal is to reduce risk for the client, not eliminate risk. It is impossible to run or more importantly, grow, a business enterprise without taking calculated risks. Part of the problem with current law firm business models is that they are not able or prepared to incorporate this into their business model. For example, how many firms would advise the client not to pursue a claim or counterclaim that has some merit, but will use resources that might be spent more effectively on the strongest argument supporting the clients position? The need to include all claims and all parties is imprinted into our classical legal training and in some cases, rules of procedure.

Leave a Reply

  • (will not be published)

 

Post Categories