Texas Lawyer just published an article on increasing legal fees called “Are Law Firms too Sophisticated for their own Good?” The thesis of the article was explained as: “Over the last two-plus decades, law firms developed and offered sophisticated bespoke services, at an ever-increasing price point, to a client set the bulk of which simply don’t need that sophisticated an offer and doesn’t get good value at the prevailing price point.” This echos something I’ve been talking about since 2013. According to a few studies, one last May in Texas Lawyer, a couple by BTI, and at least one by Altman Weil (I bought these and cannot share them here because of copyright/licensing issues), lawyer rates have skyrocketed in the past several years– most notably in Texas, and especially in Dallas.
The Article explains the impact of legal fees going through the roof: “Recent surveys make this point emphatically: 82 percent of firms report they’re losing business to in-house legal departments; in-house counsel report that they meet 73 percent of total demand internally because of cost.” In other words, law firms innovated the services and expertise they could offer, raised the rates for all their lawyers, not just the ones doing the cool, new legal work, and now clients are pissed and brought the run-of-the-mill stuff in-house. Sound familiar? The author contends this is similar to the Dollar Shave Club phenomenon…sometimes you just want a regular ‘ol razor, no bells, no whistles. But why did this happen? Why did firms raise their rates so dramatically? Why does a senior partner at Weil Gotshal in Dallas, or Haynes and Boone, or Akin Gump, need to bill $1000 per hour for the same work that he used to bill $875 for last year? These are not CPI adjustments, these are pure rate inflation. The answer is that they raised their rates because they could…pure and simple. Is it any wonder that law firm leaders project flat to modest growth in their law firms (see here)?
There is a concept in Medicine called “iatrogenesis.” That is basically what they call it when the cure is worse than the cancer, or where a patient gets a worse disease or injury than the one they went in to cure. In litigation at least, legal costs are an iatrogenetic risks for clients. It is a strategic liability to have an expensive law firm with high legal fees, since the higher the expected cost to fight, the less willing to fight you will be, and simply lay down a lucrative settlement. Your law firm is in a sense, working against you.
I have been sounding the bell on legal costs and expenses for a long time (see, e.g., Here). The market for legal services cannot sustain $1000/hr lawyers at big law firms doing what a small law firm can do for half the price. Not in Dallas, not yet. Even at $500 per hour, my rate is not cheap. But I cost half as much as my “big firm” adversaries …namely because my overhead is a fraction of theirs. I can service clients who cannot afford the big firms but need top-level legal representation at a fair price. I know we are not alone in that.
But the point is this: Soon clients will rebel, and their lawyers will get the message. I predict an exodus of former big firm partners moving to smaller shops like mine where they can sustain their income at far lower rates because we have far lower overhead than the big law firms.
The Texas Lawyer article can be found here.