Hiring Teams from Rivals: Theory and Evidence on the Evolving Relationships in the Corporate Legal Market
66 Pages Posted: 3 Aug 2009
Date Written: February 21, 2010
How are relationships between clients and law firms in the corporate legal market evolving, and why? Drawing on interview and survey data from 166 chief legal officers of S&P 500 companies from 2006-2007, we extend theory from economics, management science, and sociology, and find that - contrary to standard depictions of client-provider relationships in corporate legal services, which suggest that hiring decisions have become akin to spot contracting based on individual lawyers’ skills - we find (1) large companies have relationships with a small number, typically ten to twenty, of preferred providers; (2) formally limited in duration and subject to renegotiation, these relationships nevertheless continue to be enduring; and (3) clients focus not only on law firm platforms and lead partners, but also on teams and departments within the preferred providers, allocating work to these subunits 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 subunit 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 soft forms of legal capacity insurance - that is, a soft guarantee that their law firms will stand ready to provide legal services when and as needed by their clients. Apart from their descriptive value, our findings have normative implications for law firms, corporate departments, law firms, and law schools.
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