A farewell to the free lunch

Lawyers are re-examining the lavish entertainment of clients and participation in 'beauty parades', writes John-Paul Flintoff

Over the recession, clients got greedy. First, they demanded cut- price tenders for work, then they acquired the nasty habit of haggling over bills. And even if they didn't give out much work, many expected regular, tasty portions of corporate hospitality too. Now law firms are fighting back, by measuring the cost of individual relationships. If one client proves significantly less profitable than the rest, the law firm may terminate its contract. To put that bluntly, lawyers may sack clients.

Naturally, few firms wish to speak openly about the new development. But individuals at 10 leading commercial practices contacted recently agreed that clients must lower their expectations. Excessive "beauty parades" and freebies must come to an end.

Lawyers write off huge sums on potential customers. According to Julia Chain, managing partner at Garnett & Co, it is not uncommon to hear lawyers complain about having taken a client to the opera every year for three years, for instance, and still not get any business out of them. At an older firm, one of the City's top 20, a senior partner remembers "times when people have said: 'Jesus, why do we carry on with these clients?'"

If firms are invited to tender, that too is expensive. Chris Hinze, a spokesman for Nabarro Nathanson explains: "We do get invitations to tender and look at them and decide not to bother. We do about 200 a year, which is a hell of a lot." According to Hinze, one in 10 of those will be full- scale affairs, complete with colour brochures and other expensive tendering paraphernalia. On top of that comes the cost of lawyers' time, which could otherwise be earning fees for established clients.

After winning a beauty parade, firms might expect a steady stream of work. But some clients demand additional pitches for every transaction, so the marketing machine must be cranked up again.

Sometimes, the original pitch leads to nothing at all. A partner at one Big Five firm explains: "We get put on a client's panel, and they expect us to provide a lot of seminars; then they say 'by the way, we like the opera, and Mr Snooks here is keen on the cricket'. After a while, you realise there hasn't actually been any work from them."

Stephen Mostyn Williams, at Ashurst Morris Crisp, wants to avoid this: "We are concerned to extract the maximum from our marketing." But he's in no hurry: "We might not be upset if we didn't get any work within a year."

Many lawyers believe institutions should help to pay for tenders. One points to the epic Welsh Development Agency pitch which involved many firms last year. "They got access to all sorts of ideas for nothing," said one lawyer involved in that exercise.

Public-sector bodies like the WDA and local authorities are not the only targets for criticism. Others commonly cited include clearing banks, investment banks and PLC's. In essence, any client coveted by plenty of lawyers.

"In the past we haven't been very good at measuring the hidden cost of clients," admits a senior partner at one City firm with more than pounds 100m annual fees. And Richard Slater, at Slaughter and May, says: "We're trying to ensure that fee-earners keep records in a consistent way of all the money they spend on lunch, theatre, football or whatever with clients, and the time they spend on conferences, seminars and training for clients."

Of course, this research may show that individual lawyers are to blame for lavish hospitality, not clients. But the primary purpose is to pinpoint organisations which misuse the tender process.

One law firm has already established the overall cost of banking work - including tenders, training and seminars and hospitality - at between 3 and 5 per cent of fees eventually paid. To spell that out: for a bank to bring lawyers pounds 1m in fees, the firm can expect to spend pounds 50,000 on tenders, lunches and free seminars. (At Nabarro Nathanson, claims Hinze, the average costs between 1 and 2 per cent - though that doesn't include lunches and smaller-scale entertainment.)

In the advertising industry - which the legal profession has closely followed in many ways - some agencies have publicly sacked clients. Nabarros' Hinze has never heard the like of it. "It would be a very brave law firm that wrote to a client and said: 'Get thee hence'."

But it may not be far away: "I can certainly see it happening," notes an angry senior partner. Nevertheless, he believes only the largest law firms will be strong enough to sack clients.

Garrett & Co's Julia Chain believes law firms already do that, though not publicly. "Nearly all firms have taken a decision that there are clients they no longer wish to work for. Any client that takes advantage has to be looked at closely. Of course," she adds carefully, "we don't undertake this lightly."

In-house lawyers and senior managers take note: next time you're offered opera tickets by your solicitors, tell them you'd rather stay in that night.