Loss of loyalty: How global law firms are disappointing clients

There is a saying that those who expect little are rarely disappointed. In the legal world, however, expectations run high and there is ample room for reality to fall short of the ideal.

To prove the point, this year more general counsel decided to sever links with law firms than in 2012. The reasons for these dismissals were varied. However, in nearly three quarters of the cases, the fundamental reason for the loss was that the firm failed to meet client expectations in some way.

Granted, a certain degree of client loss is inevitable, due to factors outside law firms’ control – for example, matters coming to an end or conflicts of interest. Yet, as our research¹ suggests that only around a quarter of overall dismissals fall into this category, it is worth examining the relationship risk factors which are within firms’ powers.

Value failure

In tough economic conditions, in-house counsel are being forced to seek ways of reducing their external legal services expenditure. The knock-on effect for law firms is that the field of competition is now much wider and it has become essential to prove suitability on the basis of cost, client service as well as expertise.

In a hyper-competitive market of this nature, even the traditional legal powerhouses find they are not immune to the budget backlash. Our data² shows that three of the top four most fired firms in the year to date were market-leading premium global practices.

This shift away from the elite providers is a trend that has been developing since 2010. Clients value the specialist skills and approach that these firms offer, but they consider their use much more carefully. High fee spending is now primarily reserved for the highest profile, highest ?risk work.

Our research highlights this drive ?for value very clearly. Nineteen per cent ?of corporate counsel said they had ?parted company with their lawyers because they were simply too expensive. As one senior practice counsel, operating in the US banking sector, put it: “The quality of work was poor and the billings were, you know, staggering”.

However, the motivations for changing firms extend well beyond the merely financial. Clients value service excellence very highly and 17 per cent of global in-house counsel chose to fire law firm on the basis of failings in this area alone.

The views offered by a senior in-house lawyer working in the UK public sector were shared by many respondents who had experienced a similar apparent lack of care from their law firm: “The trust has broken down and the bills haven’t been timely. I get the impression that I am paying for the lawyer constantly without him telling me anything.”

Relationship management

Separations can be painful and costly to companies and law firm alike, so it is in the interests of both parties to make the relationship work – and keep on working – from the outset.

Many law firms expend a great deal of time, energy and money on developing new clients, yet the most efficient way of building business is to retain old ones. Obtaining new work from existing clients is more cost effective, but requires customer service excellence – a standard that is patently worth striving for, as it builds loyalty and referrals.

Our research has found that there are some weak points where rot can set in, as well as some best practices in how firms can grow business organically by nurturing existing clients (see box: ‘Achieving strong client relationships’).

Reasons for hiring

When it comes to hiring law firms, clients gave a range of reasons which reflected their need for specialist expertise as well as their propensity to spend their budget with firms they like and which represent good value. More than a third (37 per cent) of corporate counsel said they were influenced by subject matter expertise.

A further 17 per cent hired on the basis of the law firm physically being in the right location to effectively meet their needs. The response given by one chief legal respondent in the Australian real estate sector was typical: “We started getting institutional investment interest from the US. That justified going to ?a US firm.”

Another recurring persuasive ?factor was that of previous positive experience – once again underlining the crucial role that great customer service plays in building loyalty. Fifteen per cent of in-house counsel mentioned this as ?the reason they had hired a particular ?law firm.

Communication is key

Whether your strategic focus is ?primarily based on growth or retention, high-quality communication is at the ?heart of great customer service and is critical to the health of your relationships and your business.

By conducting regular, formal client feedback interviews and maintaining regular two-way dialogue from the start ?of the relationship, you can effectively put in place an early warning system to highlight problem areas before they become critical.

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Achieving strong client relationships

• Clients’ needs should be your number-one priority. Corporate counsel are under pressure to deliver results so they are, in turn, demanding world-class service from law firms. If they do not receive this, or do not feel that they are receiving this from you, you are opening the door for your competitors to come in and take over.
  Desirable clients are constantly being courted by ambitious firms. Carefully considering your clients’ current and future needs and offering timely solutions to their problems is a winning approach that will be rewarded with new business and greater loyalty.

• Clarify expectations at the outset. Most of the examples of dismissal that are within law firms’ control stem from mismatched expectations. Ensuring that you discuss with clients their preferred style of matter management – from ethos and communication methods to their attitudes to risk and billing preferences – sends out a clear message that you care and value their business.
  Agreeing some basic principles that you will both adhere to is an excellent way of insuring against disappointment and dissatisfaction.

• Use a formal, systematic client feedback programme from day one. It is never too early to start gathering clients’ views. At the beginning, it may be to find out which factors made them choose your firm over your competitors. This understanding provides a good basis for the relationship to flourish and acts as a valuable benchmark against which future satisfaction scores can be measured.
  The strength of the relationship should then be gauged on an ongoing basis. It is imperative to act on any feedback you receive and to keep clients informed of the ways in which you plan to improve.

• Avoid single partner contact. This is a wise way of ensuring that business from a client will not be at risk if their main point of contact at your firm decides to move elsewhere. It is also another way of providing great customer service. Who is to say that the partner you have chosen is the best fit for a particular client?
  Exposure to as wide a cross-section of your firm as is financially viable will keep the relationship fresh and add new perspective on client problems; it can also lead to new business through cross-selling of services.

• Invest in the relationship. Consider demarcating the time you spend investing in the relationship and deliberately point out to clients that you will not be charging for those hours. This is a highly tangible way of demonstrating value which clients can use to justify their external expenditure.

• Examine the way you charge. An upfront discussion with a client about the way you plan to charge for your services can prevent damage to the relationship through ‘fee resentment’. It is often the smallest things that cause the most frustration, so look carefully at peripheral costs – do you need to charge for things that the client could get done internally?

Note: Compiled from the combined feedback of over 12,000 general counsel who took part in Sharplegal research between 2007 and 2013

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Lisa Hart Shepherd is CEO of ?legal market researcher Acritas ?(www.acritas.com)

Endnotes

1. Based on telephone interviews with 968 senior in-house lawyers in $50m+ revenue organisations operating in all industry sectors across the world. See Winning and Losing Business: Clients’ Candid Views on Why They Hire and Fire Their Law Firms, Acritas, 2013

?2. Based on interviews with more than 2,000 general counsel and senior legal decision-makers in the world’s largest companies. See Sharplegal: Essential Global Legal Market Intelligence, Acritas, 2013