from Second Quarter 2009
Corporate Board Member
by Randy Myers
Everything, it seems, is on sale these days. But how about outside legal counsel? “It certainly is a buyer’s market to some extent,” concedes Mark Director, a Washington, D.C., partner with the law firm of Kirkland & Ellis. But he quickly adds, “This is not the time to be shopping based on price.”
Perhaps not, though you could be forgiven for trying. Law firms are feeling the pain of this recession just like other businesses, and are going through pay cuts, layoffs, and in some dire circumstances the shuttering of firms. In San Francisco two outfits, Heller Ehrman and Thelen, closed their doors late last year, as did Thacher Proffitt & Wood in New York City. Heller Ehrman had been around for 118 years, Thacher Proffitt for 160.
The survivors are often hungry for customers. “Since January 1, law firms we do business with have been coming to us and telling us they want to help out any way they can,” reports Gary Ruff, general counsel of hospital operator Tenet Healthcare Corp. in Dallas. “A lot of them have seen a drop-off in business and are really reaching out to their clients. They’re willing to consider a variety of fee arrangements, as long as it’s a win-win situation for the client and the firm.”
“They’re looking for ways to expand their business, but understanding that with the economy the way it is, especially in the health-care arena, they’re offering a compromise,” adds Tenet assistant general counsel Paul Leslie. “One firm actually led with ‘We’re willing to reduce our fees.’”
Even the biggest law firms haven’t been immune to their clients’ cost concerns. Evan R. Chesler, the presiding partner at prestigious Cravath Swaine & Moore in New York City, recently confirmed that more clients are paying his firm flat fees for transaction work, along with success fees for positive outcomes and other payments for meeting specified milestones. Those arrangements account for a small fraction of the firm’s total business, he said. But they represent significant change nonetheless.
“Firms may be willing to make some accommodations and do some unconventional things because they’re interested in retaining the relationship and the business,” says Mark Director. For example, they may agree to look at whether rate increases are appropriate or whether discounts make sense in certain circumstances, especially for regular, high-volume clients. “One thing you’ve seen,” Director adds, “is more firms willing to do contingent-fee arrangements on litigation.”
While critics of the billable hour have long argued for alternatives, most law firms and their customers have concluded that any such arrangements are best suited to repetitive transactional work rather than unique cases. “I think most law firms will talk about alternative fee arrangements and are willing to discuss both how their hourly arrangements work and whether alternatives to those are available,” says John Butler, co-leader of the corporate restructuring practice at Skadden Arps Slate Meagher & Flom. Many firms, including his, have a variety of rate structures, he says. “What is important to getting a good deal, I think, is for companies to develop major relationships with the law firms of their choice, which will give them a better opportunity to make sure their fee arrangements meet their expectations.”