Why Corporations Should Hire Small Law Firms

Corporations that once regularly hired large law firms for their litigation needs are now sending more work to smaller, less expensive firms for even the most complex legal work.

According to the Wall Street Journal, over the past three years, smaller law firms have nearly doubled their share of big-ticket litigation, to 41% from 22%, of the work that generates more than $1 million in legal bills, according to a new analysis released recently.

According to CounselLink, a division of LexisNexis, firms with over 750 attorneys have reduced their market ground in this area by approximately 6%.

The shift highlights corporations desire to reduce legal fees. “The larger the firm the higher the cost,” said Don H. Liu, general counsel for Xerox Corp. “Big law firms don’t have a monopoly on talent,” he says.

Corporate America wants good quality work at a reasonable price. The price can be reduced by looking at smaller firms with excellent talent.  “This is an art, and you can’t just treat obtaining legal services like you’re going to the lowest common denominator,” said Brackett Denniston, general counsel at General Electric Co., which has long evaluated law firms by looking at both quality and price.

Small and medium-size firms face their own competitive pressures. Despite the increased flow of work down market, many of them have opted to grow through mergers with other firms. Such combinations can increase a firm’s reach and, potentially, its revenue if existing clients opt to send more business its way. Big firms also enjoy some economies of scale and can offer bigger paychecks to lure talented lawyers from smaller shops.

Many companies like to hire a mix, retaining big international firms for complex, cross-border work but hiring small firms and even solo practitioners for matters such as patent prosecution that don’t require such a deep bench. According to Ronald S. Milstein, general counsel for Lorillard, “smaller firms-they want you more, they value you more.”

For many general counsel, prestige of the individual attorney outweighs the prestige of the firm itself. Many law firms have former big firm attorneys on their team at a reduced rate due to low over head.

At Gana LLP for example, most of the attorneys at the five lawyer shop have either trained at a large or midsize law firm or graduated at the top of the class.

According to a recent survey of top legal officers at 88 big companies by AdvanceLaw, nearly three-quarters of those surveyed said they would be less likely to use a large law firm for high-stakes matters if they could save 30% of the total bill by hiring a good lawyer from a smaller firm. While cost is one equation, many of these same companies said that smaller firms were more attentive to the client needs.