Why law firms should be treated like pizza joints

Less than a mile from my house, just over the town line, is the village of Wellesley Lower Falls. It's not quite as quaint as it sounds. Basically, it's a quarter-mile strip of fairly busy road (Route 16) right by the Charles River. There are maybe a dozen retail establishments on this quarter mile, and five of them are pizza joints.

Now despite what Mel Brooks has said about pizza, you might think that's a lot of pizza for a small space. And you're probably right. First there's Wellesley House of Pizza. Around the corner is Mark's Pizza and Subs. And just up the street half a block is Peter's Pizza. All of these are the quintessential New England–style Greek pizza that you would find at any one of hundreds of pizza shops in Massachusetts. Recently, a fourth store opened up, aspirationally named Wellesley North End Pizza. (The North End is Boston's Little Italy.) And across the street is Papa Razzi, which is a more-upscale sit-down Italian restaurant, but which also sells pizza that you can order out.

It's a safe bet that we have more than enough pizza choices in this quarter-mile strip, and it's a also a safe bet that one or more of these stores will not survive the Wellesley Lower Falls Pizza Wars. But in the meantime, all this pizza competition is great for the citizens of Wellesley and neighboring Newton Lower Falls. These pizza peddlers know that we have five choices of where to spend our pizza dollars. And they know they must compete for our business. And that's a good thing.

Some will open on Sundays, knowing that people actually eat on Sundays. (Actually, all of them do except Mark's. Which is right next to Taylor Rental Center, which is also closed on Sunday. Because no one does home projects on Sunday, right? Does the word "duh" mean anything to you, fellas?) Some of them will deliver. Some of them will offer breakfast foods (because that's what I think when I think about breakfast — let's go to the pizza place). And some may compete on price.

All this competition means more choices for my family, and a more-motivated group of pizzamakers to try to win and keep my business.

Why on earth would I want to limit this? Why would I want to discourage these pizzerias from working harder to get my business? I mean, other than having to keep five menus in my kitchen drawer and five speed dials on my iPhone, how does having choices and competition hurt me?

Now it's certainly true that people develop favorites. Maybe your daughters don't like the sauce at one place, and only like the crust at another. Maybe you are devoted fans of Mark's (unless you really need a pie on a Sunday). You might go there all the time.

But you would never formally limit yourself to one pizza joint. Or even a couple.

You would never make an official list of your Preferred Pizza Providers.

And yet.

And yet corporate law departments do this all the time. They set up preferred-provider lists of outside law firms. Especially at huge companies. They set up lists of preferred providers and then they make a PowerPoint chart that shows how they've cut the number of outside law firms they use from 325 to 115. Nice big downward-sloping line. Mmmmm ... efficiency. And the bean counters hear the magic word — cutting — and they think that's a good thing. You know, like cutting the number of lifeboats on White Star cruises.

Last spring, Microsoft made news by revealing that it had dropped K&L Gates from its preferred-provider list. (Why is this news? Because the eponymous Gates in the firm name is Bill's dad, Bill Gates Sr.) Here's what Microsoft had to say about its PPL, as reported by The AmLaw Daily:

"We have had a preferred provider program in place for several years to consolidate a portion of our legal work and manage our legal costs efficiently," Microsoft spokesman David Bowermaster said in a statement. "We recently decided to refresh the program. We solicited competitive bids from a number of firms and conducted an extensive review. That led to a selection of ten firms across the country."

Maybe having a PPL allows a law department to "manage its legal costs efficiently." But it also ensures that it has fewer options to choose from. It means that the anointed PPL firms don't have to try as hard to keep the company's business. Sure, you can get kicked off a PPL, like Bill's dad's firm was. But since it takes a pretty involved process to create the list, as the Microsoft flack said, once you're on the list you're more likely to stay on.

For me, I don't see any reason to tell one or two of the local pizzerias that they are on my preferred-pizza-provider list. I'd rather have them continue to compete for my business and strive to improve their offerings. Maybe it's less efficient to deal with five menus and five speed dials, but I'll make that sacrifice in favor of having more choices for quality pizza.

Comments

[Jeffrey Gordon]

Jay:

I love the analogy. I also think it's flawed on two fronts.

First, law firms aren't really competing when they're vying for slots on PPLs. They're simply being selected as a result of geography and topical expertise. This isn't necessarily something that a single firm can adjust (ok, so they could hire an expert in a particular subject, but they usually can't open a London or Hong Kong office tomorrow). The customer is therefore not choosing based on cost or quality, but rather upon reach and subject matter expertise (ie: they need a litigation firm, an IP firm and an employment firm... and each firm needs to have a US, EMEA and APAC presence).

Second, the firms themselves aren't competing against each other because they're not disclosing costs - nor are they actually changing their fees to woo particular clients. Especially at the top tier level, they don't have to. Customers will pay $600-800/hour for a partner's time without batting an eye. Where customers in-the-know try to negotiate is in getting the firm to assign more of the real work to associates at $300-400/hour... with "review" by the partner. But even that setup doesn't always work when the customer's CEO calls a particular partner directly for assistance.

Additionally, subject matter experts at a particular firm are more like star baseball players. They're highly skilled, tout their win/loss records and can get "traded" every once and awhile [Oooh... I now want to see lawyer trading cards from the top-tier firms... didn't Garter do this with their analysts a few years ago?] But these superstars garner a following and can sometimes take their business with them if they leave a particular firm. In fact, I believe I just read an article about this - where the customer clearly stated that they hired the firm for a particular partner, not for the firm.

So again, while I like the analogy, I think it doesn't hold when looking at PPLs for law firms (even if I agree that they're ultimately not a successful way of driving down outside legal expense).