What Does Legal Procurement Think About Midsize Law Firms?
Because the term midsize law firms means different things to different people, I thought I’d give you my definition before I talk about what legal procurement professionals think about them.
Take, for example, the Am Law 200 — by some definitions, those law firms would be considered midsize firms, and by other measures, they would be considered large firms. For the sake of this article, I am going to classify midsize law firms as those that provide several services and have more than a handful of lawyers.
I enjoy working with midsize firms because they are always keen to win new business and are willing to be flexible when we are working on fees and alternative fee arrangements (AFAs). I can say that each one is very different, not only within their peer group but also compared to firms of different sizes.
When I consult with in-house lawyers on RFPs and with law firms on proposals, I find that many legal procurement professionals enjoy dealing with midsize firms. That is not to say that all of their legal work goes to this kind of law firm, however.
Midsize law firms frequently offer less resistance to alternative fee arrangements, as they have more flexibility.
Richard Brzakala, Director of External Legal Services at a large Canadian financial institution, has over the course of his career interacted with hundreds of law firms of all shapes and sizes around the world. He observes that “institutional clients (Big Business) have had a long love affair with Big Law for a variety of business reasons. Many in-house counsel come from Big Law-type firms and have an historical knowledge of the professionals there.”
Consequently, he explains, there is a mutual understanding and appreciation of risk, experience, and expertise that is unmatched at smaller or regional firms. “Big Law are typically the firms that get the most complicated legal work because they have substantially more resources and are more adept at solving complex corporate matters,” Brzakala notes.
Sweet Spot for Midsize Firms
Audrey Rubin, VP Strategic Advisor to the General Counsel at AON, agrees, adding however that “midsize firms frequently offer less resistance to alternative fee arrangements, as they have more flexibility. Many large firms — most of which have reduced their equity partner ranks — suffer from the financial success of a few senior people at the top who don’t feel the pressure to change.”
I believe that there is a sweet spot for midsized firms in the marketplace. These firms are in a good situation because they are leaders in certain markets; many have a geographical niche; and feature practice areas that are needed in certain localities. They often specialize in industries like oil and gas and pharmaceuticals and are sought out by corporations in those industries.
Midsize firms are frequently the target for mergers with Big Law because they service the enviable mid-market growth sector. Mid-market clients do not believe that they can afford the services of Big Law and naturally gravitate to smaller firms. In fact, mid-market law firms need to be more aggressive in the start-up tech market as this is a fast-growing sector that Big Law has its sights on. Smaller firms already have a strong foothold in the small-to-medium enterprise sector and are in an ideal position to specialize in this market.
When consulting on proposals, I remind both large law firms and midsize firms that lack of diversity on both pitch teams and matter teams is becoming more frequently a deal-breaker when clients decide whether a firm will win a bid. “Both midsize and large firms get low grades on diversity and inclusion,” says Rubin. “They have, for the most part, not modernized their methods of talent attraction and retention, which really bothers clients and especially procurement departments. Remember, most procurement departments have diversity spend commitments to achieve for the clients. They are much more likely to try to hire firms that are diverse or that can prove diversity improvement.”
Big Business finds midsize firms attractive because of pricing and typically utilizes these firms for highly commoditized, transactional matters.
Law firms use the apprenticeship model — training their associates by pairing them with a senior partner. Junior lawyers at smaller firms have the advantage of working with senior lawyers who are actively handling matters of all sizes. It is a great opportunity for these junior lawyers to learn the trade because they get a breadth of training and are not pigeon-holed into a narrow range of work. Clients appreciate that the associates working on their matters receive thorough and expansive training.(This is not to say that this is not how Big Law works, but often senior partners also fulfill a management role and the learning opportunities for junior lawyers can be more sporadic rather than hands-on.)
As I mentioned earlier, price is another reason why midsize law firms appeal to clients. “Smaller firms continue to be utilized by Big Business as they offer the lowest, most competitive rates,” says Brzakala, adding that often these types of midsize firms are localized, but have sometimes branched out to multiple cities within a specific region. “Big Business finds them attractive because of pricing and typically utilizes these firms for highly commoditized, transactional matters (e.g. collection recoveries, IP, collateral security registrations),” he explains. “Clients tend to stick to the firms they are most familiar with and economically priced, utilizing them heavily in regard to transactional work which can be extremely lucrative for these types of firms.”
Establishing a connection or relationship is paramount as these smaller firms tend to become part of a panel for most Big Business clients, Brzakala adds. “Smaller firms continue to be successful in niche markets but not without increasing economic challenges and increased competition from other paraprofessional legal outsourcing providers (i.e. non-traditional law firms or alternative legal service providers).”
So, what does legal procurement really think about midsize law firms? They like them, and they appreciate the value these firms lend to the marketplace.
Indeed, law firms of all sizes have a place in today’s legal market. Each has its strengths and challenges, and each can put themselves in the position to win more business and compete in various markets by focusing on quality of service and effective pricing and delivery models.