Commodity in recruitment – good idea, though poorly developed
Richard Susskind, UK professor and author of books like ‘The End of Lawyers?’, will be pleased now the commodity thinking he praised finally seems to be taking root in the legal community. Especially when, for the sake of argument you take into consideration all goings-on between businesses and their service providers in the legal sector. This therefore, also includes agreements between legal advisors and lawyers, solicitors and – right up our street – agreements between legal advisors and HR bureaus, recruitment agencies and interim agencies. However, in the meantime we are looking at a good idea, though poorly developed.
To me, an increase in commodity thinking seems to be a good thing and I believe we should react positively. Thus, the crisis will turn out to be good for something after all. Two years ago, we predicted that the practice of paying hourly rates would be extinct in five years time. Unfortunately, this was only uttered within the confines of our own community. We have another three years to go, which seems to be short but the crisis will make way for a more rapid change in the way firms (legal counsels) and their in-house lawyers co-operate. I refer to the recent columns by Philips’ Roland Notermans.
Developments at offices like Eversheds, are encouraging what I view as an inevitable need for insight into and predictability of legal support costs. Eversheds increased their computerisation to such a degree, that they are able to indicate the exact costs for advice, court proceedings or takeovers within a certainty of almost 95%. For the present, I will stick to my point of view, that a fixed fee for legal bread-and-butter jobs will be commonplace when the economy improves in 2011/2012.
Still, this story starts off pointing out the reversed results obtained from commodity thinking. Where did it go wrong? To put it differently, in which part of the legal community did it go wrong? Answering such a question puts me in a predicament, as I may well appear to be repeating myself. And so, I will speak in an objective manner.
Looking very closely at a business’s costs, is the obvious result of every crisis, thus putting service fees under pressure. Legal departments in practically all the top 100 businesses in the Netherlands will agree on this. Since the end of last year, budgets have been blocked for deploying outsiders (lawyers and solicitors) as well as for the hiring of permanent and interim staff.
Every large business saw itself cutting back some 10% per quarter, in order to cope with a decrease in sales of up to 40%. At the end of the day, every Euro that’s lost, will cost you about 60 cents or more in cutbacks, in order to steady profit margins, or even to prevent you from sinking. The consequences for staff (including legal staff), are familiar: a hold on hiring, dismissing interim staff and if possible getting a good deal when hiring services needed. While you’re at it, you can introduce the commodity approach throughout the organisation.
The annoying thing about a commodity is that it ceases being a quality product. Of course, it has to do the job, but it doesn’t really matter whether it is even better or just plain good enough. Such an approach is better suited in the case of larger quantities and low quality standards.
Price rise inducive
The question is, whether this is also the case when hiring Legal Support. How do we achieve efficiency when non bulk is not an issue? Due to the crisis, corporate legal advisors manage to persuade their law firm to deploy fine senior lawyers at cost price. This amounts to a fee of less than € 100.00 an hour. No wonder independent interim legal advisors are law firms’ biggest competitors nowadays. However in our line of business it is noted, that the change in attitude towards ‘suppliers’ actually causes a rise in price, instead of a decrease in costs.
It is common practice nowadays, to rely fully on market forces when hiring interim legal advisors. This means that clients have already put out a profile in their own network, before asking some five bureaus to present them with resumes of available interim legal advisors. Clients need not go far, given the fact that there are up to 600 to 800 independent interim legal advisors (of which no more than 150 are first class) operating in the Netherlands and some 300 businesses regularly make use of this type of in-house support. They all know and inform each other and this means the interim legal advisor will stick to his financial demands, seeing at least three bureaus will approach him for the same job at the same time. It may be clear that the General Counsel and the HR department have no need to choose from 25 fine looking, but overpriced resumes presented to them.
Bureaus in abundance
At the end of the day, the HR department and Legal Counsel end up doing the recruiting themselves. Isn’t that what you pay the bureau for? Besides, due to the large number of bureaus, paying the right price is out of the question. It appears to me that this is hardly an efficient and price-conscious way of hiring. Furthermore, the HR department and Legal Counsel most certainly have better things to do.
It seems we have a long interim legal recruitment road ahead of us before we can work out the certainty of commodity thinking. Rest assured, we have our views on this and we will most certainly ask Susskind about it when he visits us later on this year. We will keep you posted!
Hielke Bruin, Voxius Partner