The last thing that I would say about the report is it shows that banks and finance companies’ rates only went up by 2.8 percent, which was pretty good compared to other industries. That said, the really high rate increases that you see in some of the other industries may look real, but many of those companies put a great deal of pressure on their law firms and actually slashed rates during the pandemic and they had to make up for that in 2021. So it appears to be a huge rate increase, but if you smooth that out over two or three years, it might go away. I haven’t done the analysis, but I suspect that’s the case. Why do you think banks are paying a premium for legal services? It’s not totally clear that they are, because the comparisons aren’t apples to apples. Yes, they’re paying higher rates than any other industry, but that’s not apples to apples in terms of the type of legal work that’s being done. I do think some of the work that they’re doing is extremely niche, and we know from economics that when a particular good or service is scarce, the price goes up. So I think in many cases, the reason banks are paying the highest rates is because they’re forced to buy that scarce expertise. There are some other reasons as well. I think that their use of alternative legal service providers is probably lower than average. My analysis showed that their use of ALSPs 44
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is something like half of what you see in the industry at large. So that probably doesn’t help the average rate they’re paying for people. And the historical relationships that clients have with law firms also keep rates higher than they might be otherwise – for example a tendency to use the law firm that’s physically located near you, with attorneys that you know, or that you went to law school with. The geographic correlation and the type of timekeepers you tend to use probably doesn’t help banks. If your company is based out of South Dakota and your in-house attorneys are using South Dakota firms, that’s probably cheaper than if you’re based out of Manhattan and your in-house attorneys are using Manhattan attorneys. Can you talk about what financial services firms can do to save on legal services going forward? And this is outside the scope of the report, I know, but is there anything you’d like to impart to readers in other industries that they might take away as they try to mature their organizations? To answer your last question first: Don’t underestimate your bargaining power. There’s data from Altman Weil showing that a large percentage of law firm revenue still comes from undiscounted rates. While some of that might be smaller companies that lack bargaining power, there are also bigger organizations out there buying legal that
