Why your board should consider using a smaller law firm

The reasons why smaller law firms offer significant advantages to companies are well known—this is especially true for businesses that are midsized or emerging. But the following is a primer for in-house counsel when their businesses are facing litigation and need help from outside counsel.

With a smaller law firm, experienced lawyers are the norm, rather than the associates who typically handle the day-to-day business for large law firms. The attention given to the client is second to none. As a result, relationships between the law firm and general in-house counsel tend to be closer. Then, of course, there is the matter of fees, which tend to be much more reasonable.

With these advantages, why would a client opt for Big Law?

Let’s say a small law firm has established its credibility with a long track record of great work. The relationship between in-house counsel and the partners is solid. But one day, the client says, “Sorry, we have to go with the big guys on this one.” What does that mean? Is it a rejection of all the hard work and success? Does it erase the great progress you’ve shared over the past several years? Not really.

There are a number of reasons why a client might go for a large law firm on a particular matter. There is the matter of self-protection when a major audit is in order. If something goes wrong, no one can say it was because a small law firm was chosen for this arduous task. Or, perhaps a case may be the subject of intense national scrutiny. For public relations alone, the choice of a larger law firm to handle it may be most prudent, especially when internal counsel has a board of directors that must support the rationale.

When such contingent factors come into play, it is no reflection on the smaller firm or general counsel and, for the most part, no threat to the established relationship. In fact, small firms have a vital role to play in cases such as a large merger or an audit because they can bring the big law firm up to speed on day-to-day information to which the larger firm won’t have access.

When is it best to bet on David rather than Goliath?

There are cases where trust in the relationship outweighs all other factors. For example, I represented a former chairman of a bank. The bank sued my client for losses it suffered on SBA loans after the 2008 meltdown. The bank had a board and an SBA loan committee—both of which approved the loans. Rather than looking at its own culpability, the bank sued the former chairman and president. Two of Chicago’s large law firms were recruited to represent the bank, its board members and its loan committee members. Our lawyers walked into the courtroom every day and faced an army of lawyers from multiple firms; even the judge commented about the bank’s legal costs.

My firm litigated the case in state court and won, but we were denied legal fees. The bank appealed its loss, while we appealed the denial of fees. My client ran out of money long before the case went to trial, but we did not quit. He died tragically at the age of 65, shortly after the trial court’s judgment, but before the appellate court rendered its decision. We were owed seven figures by that time.

The appellate court affirmed the exoneration of my client and reversed the decision denying our legal fees and sent the case back to the trial court for a determination of our entitlement to—and amount of—legal fees. After the court determined we were entitled to fees, the bank agreed to settle the matter. This occurred shortly before the court determined the amount of legal fees to be awarded. The family and widow were very gratified by the outcome. Although we went up against two large law firms who had a client with immense resources, after more than five years of this ordeal, we won.

The future is starting to favor the Davids, but don’t write off the Goliaths just yet.

Emerging trends seem to lean toward mid- to small-sized law firms. The 2009 “Bloody Thursday” that kicked off major layoffs at some of the biggest U.S. law firms brought with it a demand for lower fees. Of course, this opened a white space opportunity for smaller, entrepreneurial firms that could deliver more for less. Also, because of technology, some of the advantages that once favored larger firms have evaporated.

The giants once owned the biggest libraries and best information. But now, thanks to the digital revolution, small and big alike have access to the same data. Keep in mind, smaller firms tend to be more invested in their clients. The partners are responsible for the success or failure of their business; this goes further than just filling out a time sheet for hours. A concern with cost efficiency is part of their DNA. But as for the Goliaths, Basha Rubin put it best in an article for Forbes: “I’m not arguing that all big law firms will disappear entirely. Why should they? Many provide unparalleled service; they will continue to make sense for the biggest deals. The next time I merge my multibillion-dollar corporation with another multinational multibillion-dollar corporation, I certainly intend to hire one.”

What are the takeaways for in-house counsel?

Smaller firms tend to be the ones with their hands on the pulse of the business. They are an invaluable resource to in-house counsel and larger law firms who may need to be brought up to speed to prepare for litigation. Here are a few recommendations when presenting your case to the board:

  • Keep the outstanding small firm that has worked so hard to win your business;

  • Remind them that when an audit comes up or a case with national media buzz, that leaning on the big firm is simply a matter of self protection—not a dismissal but a fact of life in business;

  • Promote the great work of your smaller partner law firms to your board so that they can see the value;

  • Remember that business, technology and culture are in a state of evolution and the best partners are the ones who keep pace.

The above article was featured in the online publication Corporate Counsel on law.com.

Reprinted with permission from the May 2, 2019 edition of Corporate Counsel© 2019 ALM Media Properties, LLC. All rights reserved.

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