You may know about the natural beauty and cultural richness of Latin American countries. You may know the region for the crystalline colors of its Caribbean Sea, the remains of buildings of ancient civilizations in the jungles of Central America or high up in the mighty Andes. You may even know the region for the Rio Carnival, Colombian coffee, Argentine tango or Chilean wine. But did you know that it also has a vibrant legal market?
A lot is going in the legal industry in Latin America. International firms have put troops on the ground. Regional economies, such as Colombia and Peru, have grown and matured and have become increasingly attractive destinations for foreign capital.
Local companies, too, have become larger and more sophisticated. Multilatinas, companies whose operations are based in a Latin American country but are now regional or global players, are on the rise and are driving intra-regional investment. The arrival of global players has forced local firms to respond to new market realities. While many firms remain proudly independent, mergers of local firms, even across country lines, have become more common.
Just in Colombia, in the past five years or so, around ten international firms have entered the country. Some have set up offices, other have merged or entered alliances with local firms. A few Colombian firms have merged and one entered a combination with Chilean and Peruvian firms, in alliance with a well-known Spanish law firm.
But as fun as dwelling in Law Land is, what about clients? What do they make of all this? At Adam Smith, Esq., we decided to find out. There is very little information on how Latin American clients make hiring decisions and on how they’re viewing the regional legal market’s transformation. As part of a larger study of the Latin American legal market, we interviewed in-house counsel at large companies in Mexico, Colombia, Peru, Chile and Argentina. The companies included banks, airlines, industrial conglomerates and tech and energy companies. In most cases, we interviewed the GC and sometimes we interviewed other members of the legal team. All respondents had substantial responsibility and experience hiring and working with law firms.
Before we go into what it is that Latin American clients look for in their lawyers and what they think of the wave of law firm mergers and alliances, let’s take a look at how companies in the region find and select their law firms.
People I know
When it comes to finding law firms, Latin American clients rely on personal relationships or word of mouth recommendations from colleagues in the industry, business executives at their company or even other outside counsel. Clients like to work with people they know. Most companies work with law firms with whom they’ve worked in the past because they value the law firm’s institutional knowledge of their company.
This shows that law firms should take care of their current clients; they enjoy a big advantage over competitors who pursue them. And many studies have shown that current clients are more profitable than new ones. As some firms in Latin America are beginning to realize, excellent client service and client relationship management (including obtaining and acting on client feedback) is essential to their success in an increasingly competitive market.
I’m not part of supply-chain
Selection of outside counsel in Latin America is a mostly informal, subjective process. Most companies have no formal policies for hiring law firms. In fact, even though most of them have procurement manuals, the purchase of legal services is expressly excluded. Corporate counsel view the hiring of law firms as a long-term decision and one that is mostly based on trust. Competitive selection processes are the exception. With the help of procurement departments, some companies have made their law firm selection processes more structured. Their main goal in doing this seems to be cost reductions because, like their peers in other countries, corporate counsel in Latin America are facing greater pressure to do more work with less resources. These companies generally use competitive processes for routine matters, but have begun using them for strategic, complex matters, too.
I make the decisions around here
Our study also sought to find out who makes the decision to hire outside counsel at Latin American companies. We found that GCs are the key decision-makers. Sporadically, when dealing with high-stakes matters, they’ll consult the decision with the executives to whom they report. The few companies that have formal, competitive selection processes usually have a selection committee, of which the GC is a member.
As mentioned above, Latin American companies tend to work with law firms with whom they’ve worked in the past. One reason for this is that long-time GCs have developed close relationships with firms and, because they are the decision-makers, they tend to pick firms they know and have worked with. In some instances, client-law firm relationships pre-date current GCs. They’re institutional relationships that the current GC sticks to when making hiring decisions.
I pick you because…
Now, Dear Reader, let’s turn to what it is that Latin American clients look for in their lawyers. A proven track-record is of paramount importance to them. Clients look for deep knowledge and relevant experience in the subject matter in which they need help. And, to further strengthen the advantage of existing relationships, clients highly value a proven-track record with them. As once respondent told us, “I try to reward good work with more work.” Clients also look for firms with solid reputations. Respondents believe that “big brand” law firms have the track-record to deliver on their brand promise. This finding highlights the importance of specialization and focus. Clients seek depth. So, as we at Adam Smith, Esq. have been saying for a long time, it’s better to have a few excellent practice areas that you’re known for rather than a bunch of mediocre ones (i.e., being the go-to-firm for nothing in particular.) This presents a significant challenge for Latin American firms. Lawyers in the region have traditionally been factotum lawyers. A reason for this is that, except for few specialty areas (e.g., tax,) work volumes in the market have not traditionally allowed lawyers to specialize. But the market is changing. Both law firms and lawyers should make strategic decisions on which areas they’re better positioned to compete in.
Latin American clients also expect great law firms to have great teams. They want to know who the lawyers on their team are and that they have the right credentials. Academic credentials (that the lawyer went to such or such school or has a master’s degree from a foreign university) are particularly important, alongside her subject-matter expertise and experience. Team size and its members’ ability to collaborate are also relevant for clients. They don’t want to work with teams that are too large or that work poorly together.
As in other places around the globe, clients in Latin America are becoming more reluctant to pay for the training of junior associates. They resent delegation in young and inexperienced associates and want a team with partners and senior lawyers that work well together.
But subject-matter expertise and experience is not enough. Clients also expect excellent service. Clients expect timely and complete responses. They expect lawyers to match their companies’ timeframes. As one GC explained, “This is a complex industry . . . it gives us no time. We can’t just wait to see if our advisors
will respond.” Clients are permanently, even if informally, measuring client service. They carefully watch their interactions with outside counsel to assess the service they’re receiving.
As I pointed out above, respondents see the hiring of outside counsel as a decision that is based primarily on trust. We found that trust is built on two twin pillars: subject-matter expertise and experience and responsiveness. Corporate counsel trust a knowledgeable and experienced lawyer. But this is not enough. Responsiveness is critical because a lawyer’s timely and complete response sends a message of competence and commitment. It tells the client that the lawyer is part of its team. Law firms that invest in improving client service will reap the benefits. Those that fail to improve responsiveness will likely see a steady deterioration of their client base (our study also found that lack of responsiveness is the main reason why clients fire law firms).
Please, no dissertations!
Take a look at law firm websites and you’ll invariably find phrases on how committed the firm is to the “highest quality standards” and to “delivering value” to its clients. But what do “quality” and “value” mean for clients?
In doing their work, lawyers are usually focused on what they put in (i.e., billable hours.) But for the client, it’s all about what he gets out. Following Peter Drucker, we defined quality as that which clients in Latin America want to get out of their engagements with lawyers and are willing to pay for. The answer: they want complete, practical and timely work product. Let’s look at these three elements in more detail:
Complete work product: the law firm’s work must adequately respond to the client’s request and make evident the subject-matter expertise and experience of the firm’s lawyers (more on this below.)
Practical work product: the law firm’s work product must be actionable (i.e., make business sense,) concise (i.e., the client isn’t interested in reading a dissertation) and understandable (i.e., in plain Spanish/English, no jargon.)
Timely work product: the law firm’s response must be on time, which usually means that it is quick and that it matches the client’s internal timeframe.
If this is “quality,” what is “value” for Latin American clients? In most cases, value is related to clients’ ideas about complete work product. Think of it this way: the client is hiring a law firm because of its subject-matter expertise and experience. Therefore, the client expects that the law firm will actually use it when dealing with her case or transaction. The client doesn’t want to see that it could’ve done the work herself. So, clients want to see, for example, that the law firm they hired proposes a solution or raises flags about risks they hadn’t thought of. In sum, as we pointed out in our research report, timely, useful, real-world, business savvy advice given in a 10-minute call may have more quality for the client and provide more value to her than a 50-page memo with multiple citations of Supreme Court cases. For any firm looking to improve client service this provides a place to start: work on delivering complete and practical work product and delivering it on time. Forget about dissertations; make your points briefly and in plain language.
Price sensitive, me?
It’s become common for law firm leaders to say that all clients care about is price. That quality is a must, a given, and, therefore, clients pick lawyers exclusively based on price. We sought to evaluate this claim. We found that price is, indeed, very important for Latin American clients. But its importance varies depending on whether the matter is strategic or not and whether there are several providers with a similar track-record and reputation who could provide the service (i.e., supply and demand.)
Without doubt, the Latin American legal market is a buyers’ market. Clients expect price to be negotiable and they expect law firms to be flexible with fees. Moreover, some companies (particularly those that have implemented competitive selection processes) expect their lawyers to use their accumulated knowledge to help them reduce costs.
Price pressures present a big challenge for Latin American firms. In many countries in the region, law firms have engaged in a dangerous raise to the bottom in fees. This will only take them so far. They may soon run out of room for discounts. And then what? Instead of discounts, law firms should be figuring out how to work differently: exploring different staffing mechanisms, adopting common-sense practices widespread in the rest of the economy (e.g., project management,) and adopting technologies that help them work more efficiently.
I look only for the best
Latin American clients, like their peers in other latitudes, see law firms in tiers. They source work to different tiers of firms based on the strategic importance and complexity of the work. While clients adjust their expectations about fees, depending on the law firm tier they’re sourcing their work to, they don’t compromise on quality and always look for the best. Even for lower-tier firms, clients expect excellent quality. The fact that the work is not as sophisticated as that performed by firms higher up in the food chain doesn’t mean that it can be done poorly.
No Italian at a sushi place
One GC told us that clients don’t want to eat sushi at an Italian restaurant. Again, clients look for subject-matter expertise and experience. So, if they go to your three-Michelin-star Italian restaurant, they won’t eat sushi there, no matter how much you offer it to them. They’ll go to a sushi place for that instead. Clients either look for law firms that are very good at everything they need or hire different specialized providers. This shows that, for cross-serving purposes, it’s no good that your law firm has a tax practice if it’s a mediocre one.
Mergers, alliances? What’s in it for me?
A key objective of our study was finding out clients’ attitudes towards the market’s increasing consolidation and internationalization. What did we find out? Well, Dear Reader, Latin American clients have ambivalent opinions on law firm mergers and alliances. Their views range from seeing little value in them to considering them essential:
Clients who see little value in them are concerned about patchy quality. They want to hire the best lawyers, not their local firm’s ally.
Some clients see only limited value in law firm mergers and alliances. They think it benefits American and European multinationals, but not them. A firm with offices in several countries in the region may also be useful for occasional, large, multi-country transactions.
Other clients see it as a nice-to-have; they have operations in several countries beyond their home country and having an integrated law firm may be useful.
Lastly, some clients see mergers and alliances as a must. To be their lawyer, law firms must have a presence in the countries where they do business.
Antonio Leal Holguín is a Director at Adam Smith, Esq. He is a lawyer and law firm consultant with prior experience working in the corporate and project development teams for law firms in New York and Bogotá, as in-house counsel, and as a government consultant.
The views of respondents on this topic didn’t depend on the type of company they worked for. One would assume that respondents who work at mostly local companies would find little value in law firm mergers and alliances and respondents at multinationals would find them valuable. But this wasn’t the case. Even respondents from large Multilatinas were skeptic about law firms merging or entering alliances.
Because there is so much noise about the market’s consolidation and internationalization, some law firm leaders and market observers seem to assume that mergers and alliances are good per se. “Everyone is doing it,” they think, so it must be what clients want. Our findings show that it’s not so simple. Firms should beware of easy narratives. Not “everyone” is doing it; most law firms in the region remain independent. Rather, law firms should invest their energies in better understanding their clients and what adds value to them. As our findings show, a merger or alliance with a firm in another Latin American country may be the last thing they care about.
The answers we got from respondents also send a clear message to firms that have chosen the path of mergers and alliances: they must show that they offer standardized quality (that they operate as one firm) and that they have top notch practitioners in the practice areas in which they compete. International firms entering the region have the challenge of showing that they have the best teams to service clients.
Peter Drucker famously asked his students: what is the one thing that a company needs? Staff? Computers? Software? Offices? None of these is the answer. The one thing that a company needs is clients. This truth led us to explore what Latin American clients were thinking about the legal market and how they hired law firms. Listening to clients, we believe, is the first step towards greater competitiveness and improved performance for law firms in the region.
Antonio Leal Holguín is a Colombian lawyer with nearly a decade of experience working as a corporate and project development attorney for law firms in New York and Bogotá, as in-house counsel, and as a government consultant. He is creative and forward-looking, and brings to the table experience in the U.S. and the Latin American legal markets to help Latin American law firms prepare for the future. Antonio is enthusiastic about creating idea-driven, data-led change in the legal profession and in legal education in Latin America.
In addition to doing legal and government relations work for private and public sector companies in diverse industries, Antonio was involved in the management and business development functions of a Colombian law firm. He is also trained in data-driven decision-making and project management (CCPM and Lean Six Sigma Yellow-Belt certifications.)
Antonio is a Team Leader at LawWithoutWalls, a global legal innovation think tank. He has conducted research on the Latin American and Colombian legal markets, focusing on the purchasing behavior of corporate counsel. Based on his research, Antonio presented on “What Latin American Clients Want” at Harvard Law School and at Universidad de Navarra Law School. He has also taught law at two Colombian law schools. In 2012, Antonio received Colombia’s National Economic Law Award for co-authoring the year’s best academic article.
Antonio obtained his law degree, cum laude, from Universidad de los Andes in Bogotá. He also studied law at Université Paris II, Panthéon-Assas, in Paris, and obtained a Master of Laws degree from Columbia University, where he was a Harlan Fiske Stone Scholar. His admission to the New York State Bar is pending.