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Are specialised firms losing work from corporates?
New research has raised questions about the capacity of specialist firms that do not have diversified offerings to keep their places as suppliers.
Jerome Doraisamy
Wolters Kluwer’s ELM Solutions recently published its inaugural LegalVIEW Insights report, which focuses on law firm vendor usage by corporate legal departments (CLDs).
The provider’s research found that approximately 16 per cent of supplier relationships that existed in 2019 were put on hold for the entirety of 2020, and that 90 per cent of CLDs reduced their total number of active provider relationships “at least somewhat”.
Such reduction was “particularly striking”, Wolters Kluwer mused, given that the median number of active supplier relationships grew by 5 per cent in 2019, prior to the onset of COVID-19.
While all segments of the legal market suffered as a result of said reduction, from top-tier practices to sole practitioners, it appears that many of the supplier relationships being put on hold or even terminated were smaller relationships, rather than “key firms or panel firms”.
“While a lot of smaller relationships may have gone away, larger relationships persisted and did so in a way that mostly preserved the existing market share from 2019,” the provider wrote.
“Larger relationships tend to be more diversified in terms of subject matter area, and therefore exposed to less risk if a particular type of work dries up. On the other hand, firms that were more specialised often saw that work decline.”
Most CLDs consolidated 80 per cent of their work into 20 per cent, or fewer, of their vendors, which Wolters Kluwer described as a recognised best practice that reduces administrative overhead and creates opportunities for volume discounts.
“In 2020, larger law firms tended to experience market share growth, while smaller firms lost market share. Conversely, unranked law firms saw their market share decrease by more than two percentage points year over year, and they have lost four percentage points overall since 2016,” the provider wrote.
While the research pertains to American-based law firms, they do offer food for thought for Australian practices, especially if – as previously reported by Lawyers Weekly – law departments are looking into subsuming work into the business, hiring more lawyers in 2021, and/or considering sending increased volumes of work offshore.
According to Wolters Kluwer director of legal operations and industry insights Nathan Cemenska, who compiled the report, many relationships between law firms and their clients “went dark”, without a single invoice being sent in such cases.
“With the economy coming back, those gaps are going to be filled, but it won’t always be by the firms that lost the business,” he posited.
“Alternative legal service providers, the Big Four, and competing law firms are hungry for that business, as are in-house legal teams, which continue to get better at doing the work themselves.”
The report is the first of four quarterly reports that Wolters Kluwer’s ELM Solutions is set to release in 2021.
Jerome Doraisamy
Jerome Doraisamy is the editor of Lawyers Weekly. A former lawyer, he has worked at Momentum Media as a journalist on Lawyers Weekly since February 2018, and has served as editor since March 2022. He is also the host of all five shows under The Lawyers Weekly Podcast Network, and has overseen the brand's audio medium growth from 4,000 downloads per month to over 60,000 downloads per month, making The Lawyers Weekly Show the most popular industry-specific podcast in Australia. Jerome is also the author of The Wellness Doctrines book series, an admitted solicitor in NSW, and a board director of Minds Count.
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