A Lesson From GE: You Can Get Fired for Sticking With That White Shoe Law Firm

The legal profession historically had some of the most inelastic economics of any business in the world.

People liked to stick with what they knew, even though what’s on the other side of the fence might have actually been greener, or just as green. Clinging to a false sense of security, when prices went up, people stayed with “their guy.” When prices went down, people, well, also stayed with “their guy.”
This is changing fast.  Those legal department leaders on the leading edge of this change are being rewarded, while those who still cling to the old economics are risking their careers. General Electric, which has one of the largest and most trend-setting in-house legal departments in the world, has been ahead of this shift.

“In a world where there are so many lawyers competing for business, when a law firm isn’t as transparent as it should be and isn’t as timely as it should be, there are a lot of other firms to choose from,” GE general counsel Alex Dimitrief explained in a recent Corporate Counsel article.
The recognition that legal work can and should be contestable is especially important because GCs are now expected by their peers and their management at their companies to demonstrate business-savviness in running their legal departments.

Data shows that a truly unique lawyer is an extreme rarity, with most lawyers offering a product at a quality offered by numerous others. This means that your legal department could be paying more than it needs to be paying. Not embracing competitive principles and data analytics could get you left behind.

Indeed, at Bodhala, one can see up to 4-5X spreads for the same work.
We have seen one partner charge $3M, while another, IN THE SAME FIRM, charged $15M for THE SAME WORK.

The deciding factor? What it feels the client will pay.
With this type of potential spread in results and costs, it is increasingly recognized as untenable for GCs and legal departments to hold the position that prices of legal services will “work out” because of relationships.

“I know there is an old wives’ tale in the profession. There is this legend in the profession that one of the safest things in-house lawyers can do is hire a name brand, a white-shoe Wall Street law firm, on the theory that if something goes wrong you say ‘well, what can I do, I hired Cravath, I hired Weil Gotshal, I hired Wachtell,’ said Dimitrief in a recent Above the Law article. “I just think the time for that excuse has gone by.”

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