22 January 2018

Legal departments bypass smaller firms despite preferring them

Small firms can be more innovative but are less likely to pass the muster with GCs when searching for suitable law firms.

In-house general counsel are three times more dissatisfied with larger law firms than smaller innovative rivals. Despite this, in-house teams are overwhelmingly appointing law firms based on personal connections rather than a rational appraisal of which firms would be best for the job. The report surveyed more than 300 general counsel (GC) and senior in-house lawyers at international businesses generating more than $1 billion in annual revenue. It revealed levels of dissatisfaction to be three times higher with larger law firms (19 per cent) than smaller rivals (6 per cent).

Innovative

Legal teams within large companies find smaller firms to be more innovative and provide better client service, but they are being frustrated because these firms are typically outside of their established networks. Ben Woolf, general counsel EMEA at Tate & Lyle said: 'We get better client service from smaller firms. We have 4000 employees and £4bn in turnover. When we instruct larger firms we are probably one of their smaller customers and just another customer in the long list they already have. If you go to a smaller firm, even with a fairly small legal spend, we can be an important customer to them. You do get a bit of specialist treatment as a result of that and perhaps they concentrate on you a bit harder than a bigger firm would do.' 

Personal connections

However most in-house teams quizzed on the factors that are important to them when identifying and appointing law firms are still overwhelmingly selecting law firms based on personal connections rather than a rational appraisal of which firms would be best for the job. Over two-thirds (68 per cent) of GCs rely on pre-existing relationships (selected by 44 per cent of respondents) or referrals from their personal network (16 per cent) to source new legal providers. This is because of a lack of obvious alternatives. When operating abroad, a quarter of in-house teams said that the greatest obstacle to doing so is finding a reliable local partner.

Client service

The survey reveals that half of companies surveyed with large in-house legal teams say they primarily work with smaller firms because they find them more innovative, while nearly two thirds (63 per cent) of teams that hire small firms say they do so because they provide better client service. Meanwhile, companies are becoming increasingly turned off by large firms due to their high prices, with over half of survey respondents saying their primary frustration when working with larger law firms is cost. 

Clear appetite

Joel Hyatt, CEO & Co-founder of Globality, which carried out the research and is a company promoting smaller firms to the Fortune 1000 companies,  said: 'It’s clear clients are increasingly unhappy with larger legal providers. They’re expensive, aren’t as innovative, and don’t provide the same level of customer service smaller firms can offer. But despite this, international companies are remaining with the larger firms through their old networks because they don’t know how to reach smaller firms that have the right expertise in the right jurisdictions. We can see a clear appetite for new ways of sourcing law firms and artificial intelligence matching provides the answer.'