Hiring Teams, Firms and Lawyers: Evidence of the Evolving Relationships in the Corporate Legal Market

Abstract:     
How are relationships between clients and service providers in the corporate legal market evolving, and why? Based on interview and survey data from 166 chief legal officers (CLOs) of S&P 500 companies from 2006-2007, this and related papers investigate the purchase of corporate legal services.

Standard depictions of client-provider relationships in corporate legal services suggest that hiring decisions have become akin to spot contracting based on individual lawyers’ skills. Contrary to such depictions, we find (1) large companies typically have ten to twenty preferred providers; (2) relationships with preferred providers tend to be enduring; and (3) clients focus not only on law firms and individual lawyers, but also on the qualities of teams and departments within the preferred providers, allocating work to sub-units at rival firms over time, and following “star” lawyers from firm to firm more often if they move as part of a team. The combination of long-term relationships and sub-unit rivalry provides law firms in these relationships with steady aggregate work flows and allows companies to keep cost pressure on firms while preserving relationship-specific capital, quality assurance, and legal capacity insurance – that is, soft guarantees that law firms will stand ready to provide legal services when and as needed by their clients. These findings have important implications for how CLOs manage relationships with their preferred providers, and for how law firms can and should manage themselves to maximize these relationships. Although our data pre-date the financial crisis, during which large companies cut back on expenditures of all kinds and law firms engaged in unprecedented layoffs, we believe the trends we have identified will only be accentuated by these pressures.

The plan of the paper is as follows. First we review existing literatures to state our null hypotheses – the conventional views that relationships between corporations and law firms have been getting less durable over time and that corporate hiring is now focused on individual lawyers rather than firms – and alternative hypotheses to be tested against the data (Part I). We then describe our methods (Part II), and present findings (Part III). We conclude with implications.

Number of Pages in PDF File: 70

JEL Classification: J44, K0, L22, L24, L84, M12

Accepted Paper Series