How are relationships between clients and service providers in the corporate legal market evolving, and why? Answering this critically important question requires both the availability of unbiased quantitative information about how large corporations make law firm hiring and assessment decisions and a robust qualitative and theoretical framework to evaluate broader variations and trends. Yet purchasing decisions by sophisticated in-house counsel are vastly understudied aspects of legal practice and hardly any scholarly attention has been directed to assessing the ways in which corporate clients are responding to the numerous changes in law firms and the legal profession itself.
Prior research that focuses specifically on how large companies purchase services from law firms is scant and limited. Trade publications and general interest periodicals provide business insights and news, but rely on anecdote and often emphasize novelty for its own sake. Surveys of high-ranking in-house counsel by trade groups or consulting firms also provide useful information, but report low response rates or do not report response rates, do not compare respondents and non-respondents, and, most importantly, primarily study small or mid-sized privately held companies that together represent a relatively modest segment of the overall market for high-quality, strategic corporate legal services. Much of the available research on in-house counsel also focuses more on how general counsels attempt to contain costs, rather than how companies evaluate or manage the quality of elite legal services.
We conceived of the Corporate Purchasing Project as a way to establish and study a body of novel empirical data drawn from surveys and interviews of 166 chief legal officers (“CLOs”) of S&P 500 companies—one-third of all such large publicly traded companies. As detailed in the Methods section of this report, our data set comprised both written survey data from 139 companies and in-depth interview responses from 43 companies spread across a diverse range of manufacturing and service sectors.
Specifically, we sought to explore four topics of substantial importance about which there is little systematic information:
- How do these companies evaluate the quality of legal service providers when making hiring and legal management decisions?
- Under what circumstances do these companies discipline or terminate their relationship with their law firms?
- How do these companies evaluate whether to follow “star” lawyers when they change law firms?
- In what ways do these companies manage the intersection between law and public relations?
The resulting dataset is groundbreaking for its depth and breadth and provides a fascinating empirical look into the decision-making of CLOs as they seek to balance imperatives like cost control and legal matter outcomes with the value of long-term law firm relationships, such as relationship-specific capital, quality assurance and a soft guarantee of legal capacity when the need arises. Theoretical research published before our study suggests that the preeminence of individual lawyers and specialized teams within law firms (rather than firms themselves) combined with the growing sophistication of CLOs and other in-house counsel should decrease the value of long-term relationships. But our findings challenge this notion and suggest an enduring value to long-term corporation-firm relationships that should prove foundational to the ongoing evolution of the legal services sector.
CLP is in the process of planning an update to the Corporate Purchasing Project to capture a post-recession environment.
Corporate Purchasing Project
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