Since the start of the COVID crisis, we have posed the following question to our clients – How is your law firm sharing in your economic pain?
Looks like we were right in doing so.
According to a recent Financial Times article, private equity firm, KKR, asked its law firms, which include the likes of Simpson Thacher & Bartlett, to “share in their economic pain” by providing discounts of at least 15% on work completed this year.
This, coming from one of the most prominent consumers of complex law firm work, shows that law firms can no longer avoid the negative economic effects of a crisis.
This has set the trend for other private equity firms to follow.
Despite initially calling the request “galling” and “outrageous,” most advisers have accepted KKR’s request.
Many Bodhala clients have made similar requests to their law firms. This goes to show that even long-term law firm relationships are at risk if these firms are unwilling to participate in ceding some profits on rates – especially when those rates have increased at above-inflation for decades, as shown through our contribution to this WSJ article.
From the real estate industry to airlines, insurance, and hospitals – companies have carefully reevaluated and retraded every line item in their budgets in an effort to stay afloat amidst the chaos.
Historically, law firms have sheltered themselves from the negative effects of past crises. From the dot-com collapse to the 9/11 terrorist attacks to the 2009 Financial Crisis, law firms emerged unscathed from the crushing impacts these events had on our economy.
And so far, we have been correct.
Even the most prominent private equity firms, regardless of their balance sheets, are experiencing cost pressures due to the economic slow-down, and they are demanding that their business partners share in the burden.
KKR’s request to law firms came from CFO, Robert Lewin, as the private equity firm has spent roughly $18 billion on deals since February 2019.
After reporting a net loss of $4.2 billion in their first quarter of 2020, KKR was left with few options but to direct their cash conservation efforts towards their law firms.
And they’re not alone in doing so.
As corporate legal departments try to optimize their spend, law firms are receiving more and more “IOUs” from their clients.
Heading into the second quarter of the year, law firms projected an 8% lengthening in collections as their clients carefully monitored their accounts payable.
Since the start of the economic downturn, Bodhala has fielded client requests for data-backed insights on how to handle their law firm payables during COVID.
- Renegotiate fees and freeze your rate cards
- Examine law firm invoices with heightened scrutiny
- Run matter RFPs to explore high-quality alternative firms at lower rates
- Hold off on paying your legal bills
- Ask for higher broken deal discounts
- Freeze staffing on litigation
- Evaluate your law firm’s economic health
KKR’s request is resetting the market, leading us to ask:
If one of the largest private equity firms in the world is safe-guarding their legal spend, shouldn’t you be doing the same?
Bodhala’s groundbreaking legal technology platform provides the data needed to optimize your spend on outside counsel.
Across industries, our clients have leveraged our platform’s insights to drive real, actionable change within their legal departments.
To help you with these issues we have created this free form letter for you to download to start the conversation with your law firms.
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