Practice Management

Convergence: Good Riddance or Here to Stay?

By Ronda Muir

The recent upsurge in the financial well-being of small and mid-sized firms, and their lower hourly rates, has left some wondering if the Age of Convergence is waning.  The eponymous DuPont Model, developed in the 1990s, started a consultant-fed surge of mergers and consolidations of firms in pursuit of making or remaining on the preferred provider lists that major corporations were furiously winnowing. Only by offering a broad range of expertise could firms hope to produce the economies of scale--efficiency, cross-pollination, etc--that corporations were after, or so the party line went. 

Never mind that not a single metric showed that bigger firms produced any such economies for the corporations.  The burgeoning size of those firms, and the costs of supporting them, meant that hourly rates kept going up. 

Nor did the hoped-for economic wins for the firms themselves come through.  "Cross-selling" says Mark Chandler, innovative and outspoken GC of Cisco, "is my enemy."

It is then somewhat surprising to see the 2009 ACC/Serengeti Managing Outside Counsel Survey report a record number of inside counsel citing their commitment, in the interest of reducing legal fees, to implementing... convergence. 

Perhaps we have overlooked the biggest advantage to corporations of having fewer law firms in the bull pin--the ease of leveraging them into lower fees.  Take away a $20,000 contract review and few firms would flinch.  Threaten to take away a cross-firm client generating millions in revenue and even the sassiest firm would sit down at the negotiating table.

So put one in the clients' column--sure, fewer law firms to deal with, so inside counsel may achieve some modicum of efficiency, but the real coup is in putting themselves in a position to dictate fees. As the report  "Law Firm of the 21st Century: The Clients' Revolution," prepared by Eversheds, concludes, the economic recession has shifted the balance of power in the legal marketplace toward general counsel (according to 3/4th of those surveyed).  And the shift is here to stay, 78% believe.

Oh, by the way, the 2009 ACC/Serengeti Survey reports that, for the first time in nine years, inside counsel anticipate no rise in billable rates in 2010.  They should know.

Full post as published by Law People on April 22, 2010 (boomark / email).