Law Firms: Are You Getting What You Are Paying For?

How can you possibly explain why a lawyer at a substantial firm took on a file that was outside of his expertise and made a costly mistake, when that very same lawyer had three partners and two law clerks in his department, all of whom would have easily spotted the error if consulted? To make matters worse, had the lawyer involved one of the law clerks on the file to keep costs down, as would normally be done, the clerk would have immediately spotted the error. However, this lawyer chose to do all the work himself at a billing rate higher than the billing rate of the law clerks.

The explanation is not really that difficult to understand once you delve into the murky world of the various arrangements entered by lawyers who practice in a firm.

When a client sees a group of lawyers carrying on business under a firm name, they would likely assume that they are dealing with a single business. A client may take comfort from the fact that they are dealing with a big company with substantial resources, instead of dealing with an individual lawyer. They might assume that the firm is more financially solid than a sole practitioner would be, or that the lawyer that they deal with has access to various specialists in the firm. The client might also think that the firm will always assign their matter to the most appropriate and lowest priced talent that the firm has for that type of case. Finally, the client may think that their lawyer will have back-up if he or she is on vacation, gets sick or is busy.

The truth may be quite different.

Some lawyers describe themselves as practicing “in association” under a firm name. Typically, this means that each of the lawyers is in fact a sole practitioner, despite identifying themselves under a firm name. These firms specifically identify themselves as practicing “in association” to try to avoid the liability that partners have for each other’s actions. The lawyers in these firms only earn fees when they do the work, so they are financially motivated not to involve anyone else in their files.

Next, there are law firms which identify themselves as partnerships, but whose lawyers are in effect keeping their own billings, paying their own direct overheads, and contributing a share of the general overheads. Despite marketing themselves as partnerships, these firms structure their financial arrangements as closely as they can to the “in association” model, and again the lawyers in these firms are not motivated to involve other lawyers in their files.

After that, there are what I call the “real partnerships” where the lawyers recognize that they are partners and liable for each other’s actions (subject to the limited protection offered by the “LLP” or “Limited Liability Partnership” structure.) However, even in these firms, profits are not shared equally and are tied to productivity, so a lawyer’s willingness to involve other lawyers on a file may depend, in part, on their specific compensation arrangements.

These “real partnership” arrangements come in a spectrum of different flavours. 

On one end of the spectrum, the firm culture is such that lawyers make sure that each client knows that they are a client of the firm, and not the individual lawyer. When a client has a matter which “their lawyer” is not the best person to handle, either based on expertise or billable rates, “their lawyer” quickly involves the best person in the firm, and that person enthusiastically pitches in to help, because the client is a client of the firm.

At the other end of the spectrum, lawyers make sure that each client knows that they are a client of “their lawyer”, who happens to be a member of the firm. Sometimes “their lawyer” makes it look like he or she is handling a matter while another lawyer in the firm is doing the work. This is not particularly efficient but serves the purpose of keeping the client loyal to “their lawyer” and not to the firm. Other times, “their lawyer” does work which is outside of their expertise, or which could have been done by a more junior lawyer or a clerk at a lower billing rate, rather than have the client deal with another person in the firm.

Every “real partnership” falls somewhere between these two extremes. Often different lawyers in the same firm operate differently in this regard, some being team players, and some not so much.

The explanation for these different approaches, even in a “real partnership” always tracks back, at least in part, to the compensation system. If lawyers are compensated well for involving other lawyers in the firm with “their clients”, they will do so. If it is much more profitable to do the work themselves, they will lean toward holding on to more work, even if they are not the best person to do it or they are overloaded with other matters and unable to meet the desired service standards. 

Of course, there are other factors at play as well. There are lawyers who like and trust their partners and feel secure about their place in the firm and their ability to bring in new work. Such lawyers are more likely to take the risk of introducing their clients to their partners and associates than others who do not feel that way. There are other lawyers whose ethical standards are such that they will always put the client first, regardless of how it affects them financially. And there are lawyers who will always do what is best for the team, and not for themselves.

My medium sized firm once had a very well-regarded lawyer join us from a large downtown firm. This lawyer was thrilled with the support that he was getting from various firm members and declared that he had never enjoyed that level of support at his former firm. I was surprised at this and asked him how that could be so, since his former firm had hundreds of lawyers in every imaginable specialty, while our firm’s expertise was more limited. He answered that in his former firm’s culture, no-one was willing to take five minutes away from his or her own clients to help one of their partners. Despite being a major downtown law firm, they may as well have been a collection of sole practitioners when it came time to pitch in to help someone else.

Just to be clear, I am not saying that all large law firms operate in the manner that I just described or that all smaller firms operate in a more collegial matter. This is not about size of firm. It is about firm culture.

So, what does all this mean for the client? When done well, dealing with a substantial firm means that the client is more likely to get the most appropriate lawyer assigned to their case, and that lawyer is going to give it their absolute best. When done poorly, it means that clients may pay more to deal with a substantial firm but not receive the value that they deserve.

There are often good reasons for dealing with a sole practitioner or a boutique firm rather than dealing with a larger firm. However, when clients choose to deal with a large or medium sized firm, it is often because they feel that they require access to the greater resources of that type of firm or that they take comfort from dealing with what they perceive to be a more substantial entity. However, marketing being what it is, clients do not always get what they think they are getting. 

To negotiate this minefield, there are questions that the client can ask and red flags to look out for. For example:

1.     Does the firm describe itself as practicing “in association” or as a partnership?

 2.     Does the lawyer sell the firm or just the individual?

 3.     When there are clearly going to be various types of expertise required for a matter, or a mix of sophisticated and less sophisticated work, does the lawyer identify the team that will work on the matter, introduce the team members, and involve them in meetings and on conference calls?

 4.     Does the lawyer encourage the client to speak to his or her partners and associates at any time or does he or she instead insist on being the sole point of contact?

Let’s also look at this from a completely different perspective, being the perspective of law partners.  

I once had the experience of having three of my partners depart our firm somewhat abruptly. Each of the three partners had a very substantial client base, and each of them was getting out of the law business and would not be trying to take their clients with them. You would have thought that the firm would have had no difficulty in holding onto the clients of all three of the partners.

Two of the three partners had been team players throughout. They had introduced their clients to other lawyers at the firm whenever it was in the client’s interest to do so. After those two partners left the firm, the firm retained virtually all their clients. 

The third partner had also involved many of the firm lawyers on his client files, but he always made it clear to the clients that “he was the guy” and the other lawyers were only there to help. The firm lost virtually all his clients. In fact, I recall some of his clients asking for the files to be transferred to their new lawyers even before the partner’s last day at the firm.

Another time, I landed a new client because he had given up on his long-term lawyer. His complaint was not that the lawyer was having junior lawyers do all the client’s work. Instead, the complaint was that the lawyer was insisting on signing every letter going to the client or anyone else on the file and pretending that he was overseeing the file. This approach was both slowing down the response time and increasing the fees. The client told me that he would have been happy to stay at the firm and deal with the junior lawyers who he quite liked, but “his lawyer” would not permit it, so he left the firm altogether.

So, if the team approach serves both the client and the firm better, why is this even an issue? It is an issue because the compensation objectives of individual lawyers, as well as their egos and insecurities, sometimes come before both the clients and the firm.

I do not think that lawyers are going to change their business structures to fix these problems any time soon. However, clients can pay more attention to how their matters are being handled and search out lawyers who always put them first.