Walking away from a losing game

By Published:

And suddenly, everyone’s talking about Procurement. Not that long ago, warning lawyers about the rise of the corporate purchasing function was a little like a medieval parent telling their children about the goblin who lived under the floorboards: you’d better behave, or he’ll come and eat you up. Now the goblin is loose: Procurement’s importance in the purchase of outside legal services, which has been slowly and quietly growing over the past few years, is exploding into view.

Silvia Hodges writes at Bloomberg Law about Procurement’s growing role in Legal, Ari Kaplan provides procurement examples at Law Technology News, and Toby Brown at 3 Geeks gives us three separate columns on the intersection of procurement and legal spend and the implications thereof. You should take the time to read all of these entries, but I think the authors’ overall point is that

(a) Procurement is here to stay,
(b) Procurement’s traditional approach to purchasing is a questionable fit with best practices for legal spend, and
(c) the ideal outcome would be for procurement representatives, the in-house department and the outside law firm to work together towards arrangements that try to serve everyone’s interests.

I’m not confident that (c) is a likely outcome, given each party’s dramatically divergent self-interests, but it’s certainly worth a shot.

What interests me more about the rise of Procurement, however, is how it illustrates a broader trend throughout the legal community: our tendency to let third parties set the rules by which we operate. Procurement at least has a good argument for being at the table: it’s an important aspect of the corporate client that pays the bills. But I’m talking more generally about lawyers ceding control over our own business and professional destinies — our ongoing acquiescence to more aggressive players who have set the standards by which we judge ourselves. The two highest-profile examples, interestingly, are magazines.

For lawyers in large US firms, of course, it’s The American Lawyer. I don’t need to tell you that AmLaw is an excellent periodical, among the very best in class. But the AmLaw 100 rankings are a remarkable thing. A magazine chooses a single metric (average profits per partner) by which to assess large law firms and invites those firms to submit annual financial information so that the magazine can judge them on that metric. And the law firms do exactly that. Has that ever struck you, at any point, as, well, a little odd?

The AmLaw 100 (and 200) rankings, and their progeny in other publications, have arguably done a great disservice to law firms’ own sense of identity and success. Average profits per partner is a flawed metric in many ways (not least mathematically — even median PPP would be a more accurate gauge of a firm’s financial situation, since outliers don’t skew the result so much). It’s especially flawed because it regards annual profit for individual owners as a direct proxy for the health, success and prestige of a law firm. Recent history nicely illustrates the problem with that — Dewey & LeBoeuf was profitable and prestigious until shortly before it crashed.

We already know that good law firms provide more than just partner profits. They also deliver enterprise-wide productivity, a satisfying vocation for employees, a positive corporate social footprint, and above all, value for clients specifically and the legal system generally. Those features aren’t as easy to measure as PPP (especially when the firms conveniently supply all the figures), but they’re no less important. The pernicious modern belief that “The purpose of a business is to create wealth for its owners” was never all that accurate even for ordinary businesses. Law firms are not ordinary businesses — they’re fiduciary professional businesses that operate in a very favourably regulated environment, and they require both responsible management and responsible measurement.

You can probably guess, at this point, that I’m no big fan of PPP rankings. But as much as this approach to measuring law firm success alarms me, I’m more alarmed by the degree to which law firms have surrendered to it. Large US law firms routinely make important decisions about partner recruitment, associate development, legal service pricing and a host of other issues based upon whether the outcome will affect their PPP.

The spectre of a precipitous dive down the AmLaw rankings, and the legitimate fear of the subsequent loss of key partners to firms higher up the list, drives any number of short-term tactical moves by law firms. Some of these moves are sensible; many others aren’t. But the point is that we’ve allowed someone else to set the criteria that drive these decisions. We judge our success on their terms, rather than setting our own standards and taking our destiny into our own hands.

Similarly, take a look at law schools and the degree to which they’re beholden to magazine-based rankings. The US News & World Report — a publication I once referred to as the RC Cola of weekly news periodicals — is infamous for the influence it wields over American law schools. A publication — this one without any actual connection to the legal profession — adopts a series of criteria that it considers important and uses those criteria to rank the schools.

These rankings and their criteria subsequently become vitally important to the schools, which start making decisions — about applicant admission, student classification, faculty hiring, even the number of books in their libraries — not on what’s best for the school and its community, but on what will help them move up the rankings. In many cases, as Brian Tamanaha notes, these decisions have driven behaviour that was not only unwise, but also flat-out dishonest.

In-house counsel now face, with Procurement, a similar phenomenon. Just as the AmLaw rankings care about a single metric (partner profit), procurement officials tend to care about a single outcome: lower expenditures. If that becomes the sole focus of in-house law departments, then it will drive very different types of internal behaviour by Legal — some of it good, some of it not; but all of it determined by someone other than the lawyers involved.

I want to emphasize here that Procurement is not a villain, and neither is US News nor The American Lawyer. These are corporate entities making business decisions that happen to involve or affect the legal profession, and they have every right to do so. The problem, from my point of view, is that lawyers and legal enterprises haven’t responded strongly enough to advance our own priorities in turn. We’ve allowed ourselves to be drawn into games in which we didn’t write the rules, in which those rules don’t serve our best interests, and in which other players’ moves dictate our own. Is that really the best we can do? Are we so insecure that we’re content to be the raw material for other people’s platforms?

Maybe so. But I would hate to think that we went down that road on anyone’s terms but our own. If we allow other people’s criteria for success to become our own, and then blame those criteria when we engage in highly questionable behaviour, then we have an existential problem. But we’re powerless only if we decide to be. We can decide for ourselves what behaviour is important to our mission and values. We can assert broader and better criteria for success, and transparently self-publish them. We can make it perfectly clear, both internally and externally, what matters to us, and then let the world judge us on those choices, not on someone else’s.

The only way to win a game in which you’re set up to lose is not to play. The only way to gain control over your own destiny is to ignore anyone outside your core constituencies who asserts otherwise. There are exactly two constituencies that law firms have to please: the clients who buy their work and the lawyers who are paid to produce it. There are exactly two constituencies that law schools have to please: the profession that hires their graduates and the students who pay to graduate.

Law firms’ and law schools’ conversations about strategy and destiny need to start with those constituencies, and they should end there, too. Everything else, no matter how popular or pervasive, is ultimately just a sideshow and a distraction.

Jordan Furlong delivers dynamic and thought-provoking presentations to law firms and legal organizations throughout North America on how to survive and profit from the extraordinary changes underway in the legal services marketplace. He is a partner with Edge International and a senior consultant with Stem Legal Web Enterprises.

 

Print Friendly

One Response to “Walking away from a losing game”

  1. John Chisholm

    Jordan as usual you make very insightful comments here.

    I agree with you law firms should not play the ratings game or the benchmarking game but they do and seems they all want to. I am not sure in the USA at least what impact all this has on clients (do they really really care about a law firms PPP?) but maybe it does have some effect on lateral recruitment ( if you are trying to attract the type of people who are attracted to measurements like PPP then maybe you are attracting the wrong people in the first place?) although I suspect it is much more a pander to partners egos.

    Like timesheets PPP is a pretty easy and objective to measure (if like timesheets often exaggerated) so I guess that is why the benchmarking organisations love it. After all impossible to objectively rank client value because value,like beauty and love, is subjective and in the eye of the beholder.

    Oh and you are right about Procurement and again law firms have done this to themselves so only have themselves to blame. If I am going to keep emphasising to my clients just how much activity (read “time”) goes into something and charge my clients by that metric then clients are going to respond accordingly by essentially using Procurement to seek ways to reduce that time or the “cost” of that time.

    Again smart organisations-including some smart law firms-worked out a long time ago that you sell your services based on the value you are providing to your client.Because as I said earlier value is subjective the normal objective Procurement tactics then have much less impact.

Leave a Reply

  • (will not be published)

 

Post Categories