Big Corporations Hiring Smaller Law Firms

David and GoliathAccording to, U.S. companies are adding firms with 300 or fewer lawyers to their outside-counsel roster and saving as much as half compared with fees of Wall Street firms more than triple that size.

I wrote about this trend in Pendulum Swings in Favor of Mid-size Law Firms on the LawMarketing Portal.

Corporations hit by the recession are adopting a model used by DuPont Co., which are pressing firms for fixed fees or 10 to 25 percent discounts, accordingto Lower overhead of smaller firms, such as 210-lawyer Hiscock & Barclay LLP, permit them to charge less than DLA Piper LLP or Latham & Watkins LLP, which have thousands of lawyers. Partners at smaller firms charge $500 to $600 an hour as top fees compared with as much as $1,000 at large New York firms.

“At a time when general counsel are looking for alternative billing arrangements, the playing field has been leveled, so smaller firms can make pitches to big clients that would have fallen on deaf ears before,” Thomas Sager, DuPont’s general counsel, said in an interview.

Starting in 1992, Wilmington, Delaware-based DuPont, the third-biggest U.S. chemical maker, set out to reduce its stable of law firms, applying rigorous criteria to cut costs and increase the value of legal services. The company’s current roster includes eight of the 100 biggest U.S. law firms and four times as many smaller firms, which Sager said he prizes for their “flexibility and creativity” in billing.

High Overhead

Small firms offer quality work at a discount because they are more conservatively managed, with fewer offices, fewer junior attorneys and less debt, said Todd Phillips, managing partner at Wick Phillips LLP, a 12-lawyer Dallas law firm.

“At many big law firms, the overhead is so high it pushes the rates through the roofs,” Phillips said. “They are less able, or willing, to negotiate a different fee structure for fear of cutting their own throats.”

‘You Get Me’

While companies will continue to use big firms for some high-stakes work, smaller firms can handle routine deals and lawsuits as well as patents, real estate, employment and immigration work, said Rachel Hayes, a consultant with Framingham, Massachusetts-based Wellesley Hills Group.

“At many of the big firms, clients end up dealing with a fourth-year associate,” J. Joseph Bainton, a litigator in the New York office of Atlanta-based Smith, Gambrell & Russell LLP, said in an interview. “When you hire me, you get me.”

Smith Gambrell partners bill 10 to 20 percent less than big firms and give the client more attention than they get elsewhere, Bainton said.

Bainton previously ran a nine-lawyer New York firm. He joined 189-attorney Smith Gambrell with five of his colleagues in December.

Boutique Firms

A firm with fewer than 50 lawyers that specializes in a few areas of law is commonly known as a boutique. Smith Gambrell and others in the headcount range of 50 to 300 lawyers are traditionally considered midsize. The 10 biggest firms in the U.S., with offices around the world, have more than 1,500 attorneys.

The economic slowdown has hit big firms hard. Law firms such as 3,785 lawyer, Chicago-based DLA Piper and Dewey & LeBoeuf LLP, based in New York, have cut the annual payments to some of their partners. More than half of the 50 largest firms have fired associates and staff, anticipating revenue declines.

“These aren’t great economic times for anybody, but there are lots of opportunities for a firm like ours,” James Yates, managing partner of Raleigh, North Carolina-based Wyrick Robbins Yates & Ponton LLP, said in an interview.

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