Corporate & Securities Law

Legal Billing Rates: The Next Wave 2

By John Wallbillich

Today we complete yesterday’s first cut at the emerging Legal Pyramid for law firms and other actors on the corporate legal stage. Today the focus is on layer 4, with a nod to layer 5.

For convenience, here is yesterday’s graphic, slightly rebranded:

And also a key to decode the abbreviations:

– NF = National Law Firms
– RF = Regional Law Firms
– CB = Corporate Boutique Law Firms
– VL= Virtual Lawyers (solo NF/RF/ex-IHC)
– CL = Contract Lawyers
– LPO = Legal Process Outsourcers

The summary takeaway:

Each lower level cannibalizes the one above it. As law firms try to raise (or hold) prices, they find competitors one layer (or more) down with highly experienced lawyers or staff that can do the same work for $100 to $300 less per hour.

We left off after discussing layer 3, and so now it’s time to focus on layer 4, where the Contract Lawyers and US LPOs reside. The $99/hour cut-off is of course arbitrary. There are contract lawyers who push $200/hour, and probably some US LPO work which will be done closer to the Global LPO rate at the $49/hour placeholder.

What is most interesting is that layer 4 is hitting hardest at layers 1 and 2, as they are the law firms that do most of the mega-discovery litigation.

Related to this is the phenomenon that most Virtual Lawyers I know of do not do litigation, so they are somewhat insulated from the discovery pressures exerted by the LPOs. Query whether this will last as the LPOs move up the legal work chain from discovery to corporate legal processes (e.g. collections) to transactional work (e.g. contracts).

Over time, smart GCs will increasingly source work on quality and cost, which together is a decent definition of value. That means to me moving the work as far down the Legal Pyramid as you prudently can. As more transparency emerges as to what law firms in different regions charge for the same work, GCs can accelerate this shift. The unbundling inherent in the LPO model adds momentum to the mix.

Some observers may recognize this as precisely what the better law firms did for years. They moved work to junior partners, associates and paralegals when appropriate. But now when some larger law firms charge paralegals out at $200+ per hour, that historical cost-saving gambit is not as appealing to clients. So we have perhaps a final takeaway for now:

Once work moves a layer down on the Legal Pyramid, it rarely goes back up.

To me, the Legal Pyramid helps explain the Next Wave in corporate legal services and there’s nothing normal about it. Will there be enough large law firm diaspora to populate the Corporate Boutiques? Not sure. Will some take the more daring step and become Virtual Lawyers, solo or digitally aligned? The jury’s out. Can Contract Lawyers be used like surplus staff when needed? Sometimes (but someone’s got to find them and mind them).

But we know the LPOs are here, and they are coming fast. No one in the corporate legal industry should feel complacent when there is always someone the next layer down that could do work better, faster, and cheaper for clients.

That means the Next Wave can be dangerous, but also exciting.

Here’s some video of nascent Virtual Lawyers trying their luck against forces of nature. Start, toggle up to at least 720p on the HD control and enjoy the ride. (1080p HD and full-screen is especially sweet if bandwidth permits).

Full post as published by The Wired GC on March 25, 2011 (boomark / email).