Balancing Acts

At the intersection of law-firm practice and corporate in-house legal services, powerful forces are changing the nature of longstanding relationships—and creating opportunities for new ones.

About this time a year ago, Craig Evans made the leap. He left his law-firm practice concentration in complex financial transactions, and became general counsel for EPR Properties, the Kansas City-based public company that buys and leases entertainment properties around the nation.

Today, he’s feeling the tug from the same forces that law-firm executives say are remaking their operations, such as cost-control pressures, impacts of new technologies, work-force makeup and staffing considerations, and more. Only this time, he’s experiencing them from the perspective of someone reporting to a CEO whose eye is on the bottom line. “All of my career,” Evans says, “was on the other side of the fence until I came over here, but I’m dealing with those issues today.”

He has plenty of company. If you think of each legal sphere as parts of a Venn diagram, the intersection between law firms and corporate legal departments is where a different brand of change is swirling. Perhaps the most significant, executives from both spheres say, is that corporate clients increasingly are demanding higher levels of business acumen from their legal partners. If they’re going to develop that expertise, they have to do it on their own dime, and their own time. No longer is getting acquainted part of a billable hour.

It’s not quite to the point where law degrees must be married with MBAs, for a firm to have a successful relationship with a client, but it’s clear that those corporate clients expect more out of their trusted legal advisers these days.

 “I’m going to be an advocate for that, because that’s my background, an MBA,” says Tom Whittaker, general counsel for JE Dunn Construction. “I understand being in construction, and combined with a law degree, that serves me well here. I tell young law students that very same thing: Get in an area of practice that will complement your undergrad degree. The efficiencies and ability to differentiate yourself are great.”

Jeff Simon, managing partner at Husch Blackwell, said that dynamic had presented itself as a marketing opportunity to firms that understand what those skills bring to the business-development table. “For our firm, the face we present to clients is that we will take the time, on our own nickel, to understand their business and the broader industry they’re in. That helps communicate that we understand the market they’re facing, and that we’re prepared to deliver more insight into their legal affairs.”

That insight, Simon said, is what underpins the modern relationship between firm and corporate client. “Say what you want about technology, marketplace change, or efficiency, the most important thing in the relationship with a corporate client is the level of trust, loyalty and confidence they have in the firm providing those legal services—the old-school values that are essential to any attorney/client relationship.”

The Client’s Take

The corporate legal spend is one end of a financial teeter-totter: When spending goes up as companies bring in house certain functions formerly performed by their legal partners, revenues at those firms are going to go down.

“It is a major macro driver,” says Perry Brandt, managing partner at the Bryan Cave law firm. “Some companies have deiced that it is cheaper to build it than to buy it. What you see going on nationally—I have no local data—is that in-house hiring has gone up dramatically while law firm demand has remained relatively flat.”

At Kansas City Southern Railway, general counsel Jim Wochner sees the same thing. “We’re trying to do as much as we can in-house,” said Wochner, who’s been with the company since 1981. “We try to make our processes more efficient and allow people to do things in a more expeditious manner.”

It’s difficult, legal executives from both perspectives say, to fully assess the ways that corporate legal spending is changing, given that every corporation has its own unique legal needs: Some will be oriented more heavily to litigation, some more toward transactional law; larger ones have their own legal departments, some may have no in-house counsel at all.

“As far as outside counsel, we go all the way down to the Gulf,” Wochner said, “so we have attorneys all along those routes, and have used them for a number of years, one firm for more than 100 years. We have long-term relationships with these folks and they do a great job for us at a reasonable price.”

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He points out a scenario that is not uncommon, and one that reflects a partner firm’s commitment to understanding the business: “When we investigate a crossing accident, for example, the local attorneys at firms we use will go out to investigate in the middle of the night, as part of our team. It’s one of the things that determine the outstanding outside lawyers, the ones who can actually tell you how something fits in with your business, and not always from a strictly legal perspective.”

EPR’s Evans cited the same dynamic with respect to transactions buying and leasing of large-scale entertainment facilities. There is not, he acknowledges, a tremendous demand for those kinds of legal services, because so few companies have that model. So there aren’t  a lot of lawyers skilled in the nuances of those particular deals and what distinguishes them from other commercial transactions.

But the firms that do show they understand how it all works, and how every deal can affect the company’s bottom line—this year and long-term—are the ones that will get his legal business.

“The way I look at it, especially since the financial crisis, the legal business has become very competitive,” Evans said. “What I expect from my lawyers now is someone who is much better-equipped for the task than I may have accepted in the past. The line between lawyer and business person any more is a bit fuzzy today. We need them to identify the issues, not just legal, but the business issues that come up. That’s when I get some true value out of it.

“If you are going to do work for our company, you’d better understand the company, invest your time as outside counsel to get in and learn that,” Evans said. “You can’t be a hired gun who comes and does some merger-and-acquisition work and then goes away. Business is too complicated for that, and expectations for lawyers are much higher.”

That emphatic shift is part of the broader need for companies to rein in their legal spend, said Dunn’s Whittaker, which is why relationships with law firms “absolutely have changed. Coming off the recession, there was a focus on overhead, a part of which is outside counsel expense,” he said. “We’re trying to be good stewards to provide value for the services we need for the company. What has changed is that greater reliance or need for outside counsel to really understand our operations. That includes not just understanding our industry, but what our key strategic goals and objectives are and how we’re implementing them.”

He’s fortunate, he said, to be addressing such issues in Kansas City. “We have a lot of large companies that have great general counsel that I really look up to,” Whittaker said. “Sometimes it’s validating to hear that others are fighting the same issues and solving the same problems, and when we can come up with shared ideas to manage a law department, that brings a benefit to all.”

The Firms’ Perspective

Jack Bowling, who sits on the business development and strategic planning committee at Stinson Leonard Street, noted one side effect of the hiring taking place in corporate law offices: They aren’t, generally speaking, chasing after new college graduates—they want experienced lawyers with skills developed in their business niche. Often, they’re looking to recruit talent from the very firms that have been doing work for them.

“Being a firm that represents a significant portion of the public companies in town, we’re a natural candidate for people coming forward to see if any of our partners or associates are interested in coming in to work for them because they’ve already been doing work for that client,” Bowling said.

Rather than viewing the potential loss of a partner or high-performing associate as a defection, he said, the transition can create opportunities for expanding services delivered to that corporate client. Some law firm executives say that relationship can even create new service lines altogether, or establish relationships with companies that haven’t been clients.

An interesting dynamic to observe, Bowling said, unfolds when a company reaches out to a partner at Stinson with a hiring inquiry—you can almost see the interoffice buzz in the air as word of the opportunity passes down the hallway from one lawyer to another.

The flow, Whalen said, is almost always in the direction of firm-to-client. “If had to speculate and put a number on it for people making that transition, 90 percent plus, maybe 95 percent is going into the corporate counsel role from the firm.”

Conventional wisdom holds that lawyers make such a move because of the presumptive stability of a workday defined by “regular” hours. “I’m not sure I agree with that sentiment that it’s a lifestyle decision,” Whalen said. “A lot of law-firm lawyers have that misconception, but it’s a myth.”

Brandt said the forces influencing the relationship between firm and corporate client have yielded a certain advantage for law firms among the range of advisory services a company may engage. “If anything, I think it’s helped,” he said. “The way you can’t look at what we do is simply being another vendor. We used to get hired as an outside lawyer vendor who performs task and sends bill—that’s how it was when I started practicing law 39 years ago.”

Now, he says, if you are going to grow your firm or your practice, you must truly be a partner with clients. “They want you to be part of their business, to lock elbows to get best results in the most efficient manner. I think it’s helped because it has created greater opportunity for partnerships.”

In a way, all of this is a legal-sector restatement of the law that the more things change, the more they stay the same.

“I may not be up on the latest on all this,” said Simon, “but everything I see says that clients today, like 100 years ago, want to have competent lawyers who do everything they can to advance their cause and win cases. Someone they can trust who is loyal to them and put clients’ interests fist.

“So yes, a lot of change is occurring in terms of how that relationship plays out day-to-day, but at its core it hasn’t changed at all,” Simon said. “For success on our end as outside counsel, the corporate counsel has to trust you, they have to believe in you and they have to know that you’re doing everything you can for them. I don’ think that part is ever going to change.”