Harvard launches ambitious study of legal services buying

In the not-so-distant past, corporations and their outside counsel often enjoyed long-term, enduring relationships built on personal relationships and marked by mutual loyalty.

But times have certainly changed.

In today’s hyper-competitive legal world, corporations rely far less on personal contacts in choosing outside counsel in favor of a wide array of new models – from online auctions to virtual teams assembled from various firms and networked together via the Internet.

What’s known is that the situation has changed dramatically.

But what’s needed is empirical data on how and why – and that’s the purpose of an ambitious new study at Harvard Law School analyzing hundreds of corporations to understand how they are purchasing legal services in the modern global economy.
The first non-commercial study of its kind, its goal is to assist general counsel on the best way to choose outside counsel and to help law firms find the best ways to present themselves to companies seeking legal services.

“For general counsel, this is a ‘best practices’ study,” says Ashish Nanda, who is directing the study at the law school’s Center on Lawyers and the Professional Services Industry. “It’s helpful for them to look around and see what other general counsel are doing in terms of hiring legal services, and the challenges and issues that they face.”
At the same time, the study will provide invaluable information to law firms on how they can successfully attract and retain corporate clients.

Response from general counsel has been overwhelmingly positive, says Nanda, a former associate professor at Harvard Business School. Indeed, in the investment banking and securities industry, so far all but one company contacted has agreed to participate. “It’s looking good and we are very excited,” he says.

The study is the first of its kind by an academic institution, says Nanda. While private consulting firms have performed similar analyses, their emphasis is on ranking corporate law firms rather than understanding the qualities corporate counsel seek in their legal services providers. Moreover, unlike these private studies, Harvard will not charge a fee to those interested in the results.

“To our knowledge, there’s nothing of its kind,” he says. “Participants immediately have a sense there’s a degree of rigor because it’s meant for an academic purpose and not for marketing or competitive purpose. We plan to bring more information into this market for services, and help make it more efficient for everyone involved.”

Wide scope of questions addressed
The project is focusing on a wide variety of questions about corporate purchasing of legal services, including: How does a company decide which matters to hand off to outside counsel? Who within the corporation – corporate counsel, the CEO, or others – makes the decision on when and whom to hire? How do such factors as the firm’s reputation, its geographic location or global scope, and its experience in a particular field affect the decision? What about factors such as diversity, firm size, and personal contacts between individuals at the firm and at the corporation? And, importantly, where does cost of services fit into the mix?

A key component of the study is to understand how corporations measure the quality of legal services, says David B. Wilkins, a law professor and director of the Center, which was launched at Harvard in 2004 as part of the Program on the Legal Profession.

“When corporations say, ‘We get the best,’ what exactly do they mean?” Wilkins asks. “How much is driven by the relationship between a company’s general counsel and a law firm? Is it particular expertise they’re looking for, and how do they evaluate that?”

In a little over a generation, the importance of personal relationships has diminished substantially.

“We know that the long-term relationships of 30 years ago have broken down in many ways, and there is now a huge range in the way that corporations purchase legal services,” Wilkins says. “We’ve moved from a model where, for example, the law firm was housed in the building of its major corporate client and the senior partner’s daughter was married to the CEO’s son, all the way to a new ethos that says, ‘We hire lawyers, not law firms,’ and where companies assemble virtual teams from various law firms.”

Many of these newer means for purchasing legal services were inspired by the Internet and other modern technologies, he adds.

“There’s a range of things going on, from spot contracting and online auctions bidding out of legal work to the so-called Dupont model, where a company has 50 law firms, and only those 50, that can do their legal work, and they’re all required to be networked together and to meet annually in conferences,” Wilkins says.

While these changes have been noted anecdotally, to date there has been no systematic evaluation on what’s happening or why, information those at the Center believe will prove invaluable to companies looking to maximize their profits while ensuring they continue to receive legal services of the highest quality.

Three phases

The study, which will proceed in three major phases, will focus on Fortune 500 or similarly-sized companies in four business sectors: credit intermediation including commercial banking; investment banks, securities brokerages, and similar institutions; pharmaceutical and medical manufacturing companies; and computer and electronic manufacturers.

The first phase, which has just launched, will include a series of telephone or in-person interviews with general counsel at approximately 130 companies, from which a series of preliminary reports will be issued throughout the winter, says Nanda.

The next phase will be a small number of in-depth case studies of particular instances of the corporate purchase of legal services, followed by a wider written survey of more than 500 corporations, expected to begin next summer.

Nanda attributes the enthusiastic response among general counsel to several factors, including the center’s commitment to bridging the long-standing gap between the academic world and the professional world.

At the outset of the project, the center invited a group of leading corporate counsel to work with the researchers in framing the study’s direction and specific areas of inquiry. This approach has maximized “buy-in” from practitioners, Wilkins says, and also has served to ensure the project was pragmatic in scope.

In another such initiative, Ben W. Heineman Jr., General Electric’s former senior vice president for law and public affairs, is the center’s first Distinguished Senior Fellow. He is working on a wide variety of issues including the global anti-corruption movement, a topic of intense interest to multinational corporations.

Heineman, who is also writing on such topics as the changing role of corporate general counsel in today’s fast-changing, global economy, is “as influential as any lawyer in his generation” in pushing and shaping the modern role of general counsel, says Wilkins, and, as such, brings priceless real-world experience to the law school.

Another reason that in-house counsel have been so responsive to the project is that Nanda, Wilkins and a third Harvard professor, John C. Coates, have preexisting relationships with many of the lawyers they are contacting.

“That brings a degree of comfort that helps a lot,” Nanda says.

In addition, Harvard’s reputation for excellence in research is attractive to general counsel looking for rigorous answers to the challenges they face in choosing legal services, he believes.

The corporate purchasing study is one of two major research projects now underway at the Center.

The other, “After the JD,” is a national study that is following 4,000 lawyers who began practice in 2000, surveying them on a wide variety of issues related to their work lives including what kinds of work they are doing, salary, and professional satisfaction.

Unprecedented in scope, the study will follow the group over a period of 10 years.
The first survey of the group was in 2002-03, and, according to Wilkins, “uncovered a wealth of data about who is going to law school, what their aspirations are, and how that affects their early careers.”

The data is being coordinated by race, gender, age, the prestige ranking of law schools, and other factors. “We’re really trying to build a kind of coherent vision about how legal careers are being created in 21st century,” says Wilkins. “Nothing like this has ever been attempted.”

Another, smaller study at the center is examining the growing trend of outsourcing legal services to India.

In its broadest sense, the Center’s goal is to understand the profound transformation of the legal industry over the past generation or so in order to help lawyers adjust and successfully adapt, Wilkins says.