Research from CJBS Lecturer Lionel Paolella suggests that law firm customers want a one-stop shop.
“Jack of all trades, master of none” is an often-heard derogatory phrase, based on the perception that someone who is proficient at everything cannot also be a specialist. But it’s not the perception of clients of the legal profession, according to new research.
“Legal clients expect sophisticated services and are willing to pay higher prices for them,” says Lionel Paolella, University Lecturer in Strategy & Organisation at Cambridge Judge Business School. “But when issues are more complex, we found clients assess a producer as a broader entity instead of looking at particular elements of expertise in isolation. Clients are actually looking for full-service legal providers and favour them more, based on their specific ‘theory of value’ – that is, identification of issues and solutions which correlates with their willingness to pay for them.”
Paolella’s research, which examines 10 years of data in corporate law firms in New York, London and Paris, contradicts previous studies that suggest “category-spanners” are valued lower than organisations focused on a single aspect of law.
“While it may be that a client is attracted to a firm offering a particular specialism, corporate legal transactions are complex and involve multiple category expertise,” he says. “For instance, a client who proceeds with acquisitions, or invests in foreign countries, needs advice simultaneously in corporate M&A, tax and employment laws. The more a single organisation can offer these, the more straightforward this can be for the client.”
Paolella’s research, with Rodolphe Durand from HEC Paris, examined eight areas in competition and corporate law, focusing on how specialists and category-spanners were ranked by clients according to three major law directories. “We found that before potential clients consider firms’ products, they value firms for the coherence of their categorical identity.”
William Bowes, general counsel and company secretary at Cambridge University Press, agrees. “The market is polarising into three categories,” he says. “In the first category are the Big Magic Circle firms and the tier just beneath them – very expensive but very good firms that category spread. People will still pay a premium for excellence and guaranteed delivery or resolution. The second category is those firms that offer a more cost-effective but good enough service, again across a spread of categories; these firms are being really challenged. And then there are the very specialised firms who focus on serving particular localities across a spread or on a particular issue or sector.”
Bowes believes the shift is down to what he calls “the rise of the in-house lawyer”. He adds: “A lot of companies are now bringing in specialists in their particular market sector who can see and understand a business’ legal needs better and then tailor advice and services that fit with the overall company strategy, rather than just be on hand to respond to issues.”
“This increase is down to several factors. Cost is one, of course – if you’re getting value, you perceive a reduction in cost. It’s also part of the democratisation of legal services – the mystique that only law firms have the answers is receding. There are many new actors in the legal market providing different kinds of solutions to traditional legal problems, be that project management, process improvement or systems implementation. Many law firms, particularly specialists, also take a very clear view of the law and give advice based on that, which can be quite narrow – whereas an in-house lawyer will give advice with the background context of knowing the practical impact that would have on the organisation. ”
“And finally there’s globalisation – people are combining cultures, working across borders where the law and ethical standards and values are different. As a General Counsel responsible to a global board for providing a single answer to an international legal question, you don’t want to hire a firm that says: “Well the answer on UK law is this but for regulatory or insurance reasons, I couldn’t possibly comment on the situation in France or Singapore, where it could be completely different. Some of the bigger firms have developed that global reach but, generally speaking, most law firms have not got to that point and the legal sector in general is well behind accountancy firms in this respect. They will need to change to meet their clients’ needs in such a global arena.”
However, Bowes’ views – and Paolella’s findings – are not without their counterpoint. Funke Abimbola, General Counsel and Company Secretary at diagnostics and medical development firm Roche, says specialists are essential. “In the UK we use one firm for pensions, one for ‘general commercial’ covering contentious large litigations, and in life sciences, especially the biotech element of that, specialist legal knowledge is absolutely essential.”
Abimbola says a key part of her role is finding the few niche law firms that understand the specific legalities of Roche’s business as well as, and better than, she does. “If you tender, no law firm will ever say they can’t do the job,” she says. “So many times companies have said: ‘Oh yes, we have healthcare clients’, but you look closer and it’s, say, an NHS trust – and they have no experience or knowledge of market access on biotech, or R&D in oncology, which is what we need. We cannot afford to take risks – I share information with my peer group across the industry, check out the directories and the testimonials to ensure we get absolutely the right specialist firm to address our very specific requirements.”
And while Roche does, of course, need and have a significant legal team, the idea of bringing everything in-house is out of the question. “It’s simply not practical,” says Abimbola. “We do have the specific expertise but we often do not have the time capacity. And we can’t work where there’s a conflict of interest – for example, pensions issues, because as staff we’re all involved in that.”
“Like any other business, we have to be mindful of cost, and we are very strict and pragmatic about the work we put out to tender and why – but specialists offer us the best value in our market.”
Paolella does conclude that “the message seems to be that if you want to compete with the best, it’s better to offer a full service”, and adds: “Many companies are now mushrooming out to become legal ‘department stores’ offering a range of services.”
But he adds that whether a company opts for a category spanner or a specialist, there is a clear message that every law firm can take to heart. “The single most important thing is to put out a consistent identity to your clients,” he says. “Either you are a specialist or a broad provider. Making sure your clients know exactly what you stand for is imperative for success. Perception is key.”