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GCs May Grouse About Cost, But Do They Really Want Change?

Every few months, the blawgosphere ignites over a provocative post lobbed by a corporate insider bashing law firms for overlawyering and sky-high rates, and predicting their eventual demise just like the mastodon or medieval guilds. Yet for all of the bluster and doomsday predictions, the reality is that corporate clients continue to hire large firms. Bruce MacEwen examines the reasons at his blog, Adam Smith, Esq.

MacEwen's post grew out of remarks by Ron Friedmann at Legal OnRamp (currently invitation only), that corporations have no choice but to hire firms on the terms they dictate because large firms hold a monopoly on talent and reputation, and use their market power to drive up rates. Accordingly, Friedmann proposed the concept of regulating law firms to break their stronghold on the market.

But MacEwen doesn't buy Friedmann's basic premise, i.e., that corporations are effectively forced to hire large firms and accept monopolistic rents because of lack of competition.  Instead, MacEwen posits that corporations voluntarily choose to hire large firms, not because they have no choice, but because ultimately, they don't want to change:

Finally, I elaborate a bit on the thinking behind my suspicion that "GC's don't really want to change," by analogy to shopping at Tiffany's... My point about the imprimatur of a brand name, or "quality" [...] may be a bit more subtle or at least a bit different than the implication that GC's will pay a price equal to the "detriment...if they didn't have it." My point was that having a Magic Circle or a New York Elite firm's name on your acquisition agreement or your IPO registration or your massive IP licensing deal has an in terrorem effect against challengers. It's like buying your diamond engagement ring at Tiffany's instead of on 47th Street. It may not actually be better quality, but it's perceived that way, and at some (I would suggest fairly self-aware) level that's precisely the bargain the buyer is striking.

That's what I meant by "GC's don't really want things to change." They want Tiffany to stay in business, and more importantly, to stay in business on the Tiffany business model--not the 47th Street business model.

At least one other blogger, Patrick Lamb, responded to MacEwen. While Lamb agrees that brand matters in mega-deals or lawsuits, when companies need assistance on routine deals and disputes, cost counts more than pedigree.  While like Tiffany's, large firms will always remain in demand for special-occasion, bet-the-company types of legal services, Lamb believes that there's still a demand in the market for the 47th Street law firms as well.

Posted by Carolyn Elefant on June 19, 2008 at 08:45 AM | Permalink | Comments (0)

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