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Convergence: clients choosing to work with fewer numbers of firms

With U.S. companies considering fewer choices when it comes to selecting law firms, a trend seems to be developing. Essentially, this trend of client convergence means that many big corporations are using smaller numbers of law firms in a bid to increase efficiency, reduce costs and improve results.

In the past, the nation’s major companies selected attorneys based on proximity to the company’s plants or offices, says Wayne Drinkwater, a partner with Bradley, Arant, Rose and White, Jackson office.

“Lawyers are licensed state by state,” Drinkwater said. “Historically, the way companies picked lawyers was based on a locality-by-locality basis. Over time, national companies might be represented by hundreds of law firms around the country. In the early 1990s, some companies decided this was inefficient.”

So, instead of having a relationship with 200 law firms, major corporations might have gradually downsized to 20 to 50. Each national company has a different way of doing it, but the basic idea is to reduce the number of firms with which they deal.

Drinkwater said sometimes a company will hire one law firm to represent the client throughout the country in a specialized area such as labor law. In other cases, the company may look for law firms with a geographic base. For example, a company might choose a law firm that has offices in six states in the Southeast.

“The basic idea is that national corporations want to identify law firms across the country with the high-level resources and talent they can use in all their geographic areas,” Drinkwater said. “One advantage to companies is bigger firms have more lawyers that specialize in certain areas. Another big advantage is if a law firm represents the same company repeatedly, the law firm is able to deliver better services to the client simply because it knows more about the client’s need and business.”

Drinkwater said the client convergence trend has become a feature of modern American corporate litigation.

“It has pretty much swept the country,” he said. “It could well be in 20 or 30 years most of the major companies in this country may be represented by a small number of law firms, each of which is either regional or national in scope.

“We could see the day when major law firms will have offices in every state capital in the country and in every city with a metro population of more than a half million. This is a very important development in American corporate legal history that is going to have a huge impact on law firms and the legal market of this country over the next half century.”

Bill Reed, a shareholder in the Jackson office Baker, Donelson, Bearman, Caldwell & Berkowitz, P.C., said the trend is partly dictated by the sophistication and importance of the legal issues large national companies face. Especially when the issues are very sophisticated, and the stakes very high in a lawsuit that could have severe financial ramifications, companies want to be assured of the very best legal representation.

“They are looking for safe bets, which are typically the larger firms that have the expertise and the manpower,” Reed said.

Even when it is routine work that doesn’t require a lot of specialized expertise, there is still a trend for companies to use smaller numbers of law firms. That decision is mostly driven by economics.

“We see a lot of requests for proposals from clients who will ask firms all over the country to handle a certain segment of their legal business either on a fixed-fee basis, a per-case basis or to handle all the work in that area for a year,” Reed said. “When it is commodity work, price is a lot more important factor than the size of the firm.”

In general, Reed thinks the trend is positive. It has made lawyers take a fresh look at how they price services on everything except the really top-end work.

“Also, part of the reason we are seeing this is clients really want lawyers to know the client’s business, know their people, know their business philosophies, and know how they handle their legal matters,” Reed said. “It is more efficient, and the most cost effective. Frankly, it produces better results.”

Whether the trend affects the amount of business a law firm is going to get depends on a lot of factors such as the expertise and resources of the firm. It doesn’t necessarily mean only large firms will get all the business. For example, a small boutique firm in the area of intellectual property might do a lot of work for major national clients.

Christy Jones, chair of the litigation department for Butler, Snow, O’Mara, Stevens & Cannada, PLLC, Jackson, said the firm started seeing the trend in 1999 when it responded to a request for proposal from a national corporation whose goal was to reduce the number of law firms that represented it from more than 200 down to only four primary law firms.

“While this might have been considered unique in 1999, it is becoming more and more ordinary in 2006,” Jones said. “Corporations are seeing the potential benefits this can afford. The two primary motivators for corporations making the decision to engage in this effort are cost savings and improved quality of work. When lawyers operate in this environment where there are fewer law firms in the mix, they are able to become involved in more aspects of the company and their operations, affording them a greater understanding of their client’s business objectives. The familiarity that results from increased involvement with a client will ultimately result in a better work product that is more properly aligned with the clients’ overall goals and objectives.”

Jones said with the exception of retention of counsel for particular nationwide litigation, most corporations select more than one national firm, which provides them with increased depth beyond that of any single firm. The outside firms work together so much and so closely that they become a “virtual law firm” for the client.

Jones doesn’t see any real downside to the trend. However, she said the success of the relationship depends upon the commitment of both outside counsel and the company, the recognition that the client may desire or need different talents for different matters and the avoidance of complacency.

Contact MBJ contributing writer Becky Gillette at bgillette@bellsouth.net.

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