In-house counsel have gained prestige within their companies as a result of recession-led changes to the legal sector, while Magic Circle firms have lost status.
The long-established practice of hourly billing is giving way to value billing, with firms offering freebies such as free-of-charge secondees to keep value-conscious clients on board.
A report, Law firm of the 21st century—The clients’ revolution, commissioned by international law firm Eversheds, warns law firms that that they need to modernise or lose out as a major power shift is taking place in favour of the in-house client.
The report canvassed the opinions of 130 General Counsel and 80 law firm partners around the world, with just over half (51%) of clients and 46% of partners citing the term, “Magic Circle”, as defunct.
The overwhelming majority of clients and partners said they welcomed the change to the traditional law firm hierarchy.
In-house counsel have gained status—three-quarters of General Counsel said they occupied a more senior commercial advisory role in their companies than before the recession.
The recession has also affected the way law firms charge. The hourly rate is now seen as just one tool among many billing structures, and 63% of clients reported seeing better value for money since the recession through add-ons such as free-of-charge secondees.
Two-thirds of General Counsel have demanded lower fee rates from their external lawyers. However, only one-quarter of partners are actually delivering reduced rates.
Bryan Hughes, chief executive at Eversheds, says: “When we conducted our first report into the legal sector, The 21st Century Law Firm, two years ago, we found that many law firm partners were resistant to change, despite their clients asking for it.
“For example, two years ago, only 22% of clients and 48% of partners saw value billing as a trend for the future. Now, 86% of clients and 88% of partners say they often or sometimes use value billing.
“As well as globalisation and the increased use of technology to deliver efficiency, the key change is the shift in power to the client, which is largely due to in-house counsel taking a more important commercial role within their companies. This will prove to be a real shake down for the legal sector and its workings, and law firms will need to really to prove their worth as in house teams expand their expertise.”
Law firms need to demonstrate how they can add value to a client’s in-house team, Hughes said.
“The change that was predicted to take place over the next ten years is here now, and it will be those firms who respond to the trends identified in the report who will see the real benefits.”
Richard Given, legal director, emerging markets, Cisco, says: “Firms cannot go on believing that the hourly rate is still an acceptable way of billing; the market is at a tipping point, and it is those who can address the change that will be the ‘next generation’.”
