“I Don’t Care What You Charge; Whatever It Is, It’s 15% Too Much”

by Brendon Carr

Today we got an inquiry (through a referral from their New York lawyers, actually) from one of the peculiar breed of corporate clients who has demanded a 15% across-the-board discount.

Problem is, this new client hasn’t asked for our normal fee structure. Without knowing our rates, fee structure alternatives (such as fixed pricing), general staffing habits (i.e., do we “gang-bang” the client with a bunch of lawyers, or are we generally pretty lean?), the client already knows our prices are too high and that a 15% discount is what ought to be granted by our firm.

Over more than a decade in Korea I’ve run across this kind of client from time to time. Usually, they are bad clients who bully with the promise (undelivered, in almost all cases) of future volumes of work. Or they think their brand name is so awesome that I get some kind of value out of association with their awesome company. In respect of this latter point, they’re onto something—hey, how about a limited trademark license agreement, so I can use your Awesome Corp. logo on my “representative clients” list?

The last time was a large computer systems-integration firm with a strong global brand, the kind of client with whom I’d like to work, actually. I like computers, know their industry pretty well, and thought I’d deliver good value. But I refused the discount in the end, suggesting instead that we work on a fixed-price basis for specific projects—if the fixed price was acceptable to them, they could hire us knowing exactly what the cost (and value) would be. Isn’t that better than a 15% discount on an untold number of hours?

Unfortunately, the systems integrator’s contact attorney was a relatively junior corporate counsel in an Asia-Pacific branch office, and that meant she had no discretion to do anything other than robotically repeat her department’s “But you must give us a 15% discount” demand. Plus she had no authority to pass me along to a more senior counsel who could make a value-based decision.

The idiotic “across-the-board 15%” demand merely promotes gamesmanship, posturing, and an unhealthy confrontational attitude—right from the outset of the relationship between the law firm and the client. If you think I’m a crook, why are you hiring me? And the solution, for some law firms (especially many Korean firms, for whom the request for “lean staffing” is laugh-out-loud funny), is easy: You want me to cut the rate? Fine, choke on these hours, cheapskate!

Or, Sure, you can have a 15% discount. Let me mark up the rate 25% first.

Life is too short for that kind of nonsense. It presumes, and encourages dishonesty on the part of the lawyer. And I’m fundamentally an honest guy, so I choose not to roll that way.

Meanwhile, I’ve got other client relationships which have gone as long as my time here in Korea—over 10 years. For one of those dear, cherished clients (a top global brand name which knocks everyone’s socks off), I haven’t raised my rate for six years—not because they demand blood from the turnip, but because we are in a deep and (hopefully mutually) satisfying partnership together.

By the way, Discount Demanders, the client I’ve just described now pays exactly 50% less for my time than new clients (yes, our partnership has noticed this discrepancy and complained to me about it). But I love the client: They don’t treat me like an anonymous, disposable vendor, and I treat them like family.

So, what to do about this new potential client? Well, although I am ashamed to say this—I am going to accept the demand for discount, do this initial bit of work, and then evaluate whether it’s worthwhile. The referring party says that “time is of the essence” and advice is necessary tomorrow. This makes me reckon if I were to refuse, my referral source—a friend from the IBA whom I wouldn’t want to put in a jam—would be disadvantaged for having made the referral. And I value his friendship and professional reputation enough not to want that.

But I’m not all that optimistic about the new client.

Dear Reader: As this is a topic of interest to lawyers here in Korea, to clients here and abroad, and especially to the new crop of young lawyers-to-be, I’d love it if you’d leave a comment below. The discussion would do us all some good.

April 8, 2008 | Filed Under That Guy (Don't Be), Personal

Comments

14 Responses to This Entry

  1. Ryan on

    As part of the “new crop of young lawyers-to-be,” I find this anecdote very interesting. I wonder if it is indicative of a general attitude among Korean legal clients of balking at market legal fees, and if so how will this affect foreign firms’ expansion into Seoul pursuant to the KORUS FTA’s ratification?

    A few weeks ago I attended a 1L reception for a large US firm with several offices in Asia. I asked a senior associate if the firm was looking to expand into Korea when (if?!) their legal market opens up to foreign firms. He responded (in a nutshell) that the firm was only looking to expand into markets that could afford his firms services, and that in his opinion Korea did not fit this bill. His dismissive response surprised me. Up until reading your post I’d passed it off as benign ignorance. (I have since spoken with several associates/partners at other US firms here in NY who’ve said that they know personally of firm strategizing regarding how best to establish a Korean presence in the future.) But after reading your post I wonder if Korean clients will be willing to pay for top-dollar foreign legal services down the road. And if so, how will this affect billing practices (and business strategies) of domestic Korean law firms?

    Your post made me wonder—what will the imminent changes in legal education, bar passage quotas, and the eventual influx of foreign firms mean for Korea’s legal market in the long run?

    I should note that I’m very interested in developments surrounding the current and future state of Korea’s legal market. What’s your take on your post? Is there any writing on the wall that you could interpret? I’ve heard stories of clients of large NY firms grumbling about how many hours are billed by junior associates, but never the type of hard-nosed demands for bargain-sale discounts that you describe above.

    Another issue your post brings up—you mentioned your relationship with (one of your) your preferred client(s). Have you considered going to work in-house for them? (I hope that Korean legal mores don’t define this as an off-limits question….) I’ve heard former associates of large firms (now working in-house for their former employer’s client) say that smart partners actually encourage this type of cross-over, since it fosters long-term client loyalty. How does this all work in Korea?

  2. Brendon Carr on

    Ryan, the client in question is not a Korean client. It’s an American company, being introduced by its large New York law firm, also with several offices in Asia—which firm reports the 15% demand having been crammed down on them. And the lawyers there say it’s an increasingly common demand from their clients.

    You’re a 1L so I’m not surprised to hear that you are insulated from market realities. Ask around a little more—and don’t ask associates. They don’t know shit. Keeping associates in the dark about everything is a venerable tradition in the legal industry. Making sure that associates don’t know about the legal business is how law firm partners cripple the associates’ ability to compete with them once the associates are burned out and leave. I’m going to write about that a little more one day soon. Stay tuned.

    15% is not a huge discount, and with guaranteed volume we’d be glad to do it for a good client. As I described above, there are a lot of considerations other than the rate we earn for some work. But the point is—without knowing what the rate is, how can the client know it’s too high? Or are all lawyers’ rates too high? I can’t believe that to be the case.

    This demand is being driven by multinationals unhappy with $165,000 starting salaries for first-year associates in certain BigLaw firms. Or by $1200/hour rates for their London lawyers (and $600/hour for their associates!). Okay, I get that.

    But those conditions do not apply here in Korea—starting salaries are 25-50% lower, for example, and our costs are higher. (See my pieces on the cost of housing for some understanding of that, and also bear in mind that office-space vacancy rates are now below 2%.)

    And even if some other Korean firms might be extracting outrageous fees from their clients without delivering any value, they’s not us. At the very least, the client ought to inquire and critically analyze the situation, rather than robotically demanding a rate cut ab initio.

    Again, after we’ve been working together and each have a feel for the amount and quality of work (on our side), and our service characteristics and value (on the client side), it should be appropriate—natural, even—to consider ways to increase the collaboration. I spend every client dollar as if it were my own anyway—a smart client recognizes that pretty quickly.

    As for your other point, which is whether Korean clients will pay reasonable fees for reasonable work, my experience has been that they won’t. Korean companies either want their lawyers to work for a nickel, or a million bucks an hour. (Several chaebol, in fact, are famous for insisting on “Magic Circle” law firms for even their most mundane work—like buying a Fendi bag to carry paintbrushes!) Neither one of these habits speaks to a sophisticated use of legal services. So I would not be surprised if the foreign law firms unable to command a million bucks an hour would be nonplussed by the Korean market opening.

    As for me, my own practice will continue to be inbound work from multinationals rather than Korean clients.

  3. seoulmilk on

    i’m surprised that the client is a u.s. corp.  from my experience at a big firm in korea, it was always the chinese clients who asked for discounts before seeing the fee rates.  as for u.s. clients, they never asked for discounts, but instead, they would ask for our justification for why such and such costs so much.  anyway, i love how clients would always promise big volume of work.  right.

  4. Erik on

    It’s not just lawyers who have to put up with the discount askers. It seems to be endemic across the entire professional services industry, and even more prevalent here in Korea.

    Part of it has to do, I think, with the way companies in Korea operate. They tend to be overstaffed and underproductive and assume that their vendors operate in the same manner. We once had a client demand a discount because we couldn’t put as many people on their account as they thought they needed. We were doing the work and vastly outperforming their previous service provider, but they still believed they needed another full time person on the account.

    There tends to be little appreciation among Korean companies, Chaebol especially, of the additional value offered by a competent, results-driven firm, rather than a bunch of hacks who just throw more people and hours at problems.

    I find your assertion that immediate discount askers tend to be bad clients an accurate one.

  5. Hoo on

    I completely agree with Erik.

    I currently do higher education consulting. Not quite the prestigious lawyer rates. However,if I provide my services at a “reasonable” rate people just completely blow me off.

    Therefore, I have resort to doubling and tripling my rates to my “competitors.” To get the attention and “respect” I need.

    I still deal with the discounters because I need to somehow pay for the rent.

    I don’t know if this culture will change- perhaps in a generation or two.

  6. Ryan on

    Just for the record--top NY lawyers/firms bill as much as their London counterparts, don’t they? Or is it a bit less/more? I’m just honestly curious. I had lunch today with a guy who at least claimed to bill over $600/hr (and I have no reason to doubt his claim). Wondering how that compares to magic circle. 

    By the way, which US/UK firms are strongest in Asia?

  7. Brendon Carr on

    Ryan,

    It’s difficult to say, as I haven’t been a consumer of such services myself. But my understanding is New York/London rates are approximately equal—if Sterling trades at $1.50. At $2.00 to the Pound, London lawyers cost a lot more.

    As to whether your friend is telling you the correct story about his rate, I have to presume it must be true. But what a distressing thing to sit around discussing over lunch, especially since you’re a 1L.

  8. Ryan on

    Ha! Good point. But it’s worse than you might imagine--he was trying to talk me out of Biglaw before it’s too late. But your point leads to another question. Given how depressing some attorneys can be when discussing legal careers, it seems wise to consider each current legal assignment as a stepping stone to something better. Does working in a Korean firm lead to different, more interesting options unavailable to US domestic lawyers? Or alternatively, is there something about the environment in Korea (or your firm specifically) that mitigates some of the pessimism common to overworked (albeit overpaid) NY attorneys?

  9. curious on

    Ryan,

    You are indeed one atypical, if not a truly privileged, 1L.  The lawyer you say you had lunch with was being incredibly generous with you.  No power lawyer I know would sit around idly wasting his 600-dollar hour, chatting about his hourly rates with a lowly 1L, trying to talk him out of “Biglaw,” which I think he wouldn’t be doing if he was interested in, say, recruiting that 1L.  So it makes me very curious who this “guy” you refer to is.  I wish I had known someone like that before I entered the Biglaw…

  10. Brendon Carr on

    The point of Korea Law Blog is not to kick 1Ls in the mouth. I do that kind of thing over at the Marmot’s Hole.

    Big New York law firms, like big Seoul law firms, may be great places to work for certain types of people. It’s just important for future lawyers to understand what kind of people fit there. Other people—also just fine attorneys—may not like the environment. Not everyone is the same.

    And it’s of course natural for 1Ls to be looking toward their post-graduation career opportunities: How much will I make? Will I be able to afford a home and have a family? When do I get the gold-plated private jet, like Willie Gary?

    Obviously, anyone looking toward a place which charges out associates $600 an hour to make photocopies and comb documents for missing commas probably isn’t facing a life of hardship. Their problems are higher on Maslow’s hierarchy of needs.

    However, I do believe that post-Biglaw career opportunities are somewhat better than for those poor schlubs—me included—who were damned to start their careers in Denver, St. Louis, or even Seoul. At his school, Ryan is probably reminded of that by all his classmates. But one of the rude awakenings of the lawyer’s career (even New York “power lawyers") is that nearly all of the people the lawyer serves are doing better than him, whether it’s in terms of money, career satisfaction, prestige, how much sex they get, opportunities to go hunting on the weekend, etc. That’s the real secret.

  11. Ryan on

    To curious—I’m not sure if you’re asking for the name of the attorney I was referring to; of course I wouldn’t be comfortable posting that. But you’re right, he was incredibly generous. A really nice guy. We met at a birthday party for our wives’ friend’s son. Another guest at the party had just taken the LSAT and we were talking about his law school applications when the attorney walked in and heard us talking. We talked for a while, he was happy to answer questions, and told me to come into his office the following week to continue our conversation. Definitely generous with his time, yes, but not an unbelievable story, is it? He may have been trying to recruit me (I know that there are referral bonuses for lateral hires, do firms have a similar structure for summer interns/first year referrals?) but it definitely wasn’t a full-court press. I judge this from his candor in discussing a range of issues, his plans to leave the firm shortly (he’s been with them for 7 years, is not on the partner track, and is itching for a change of scenery) and when I asked which firms were strongest in East Asia, he said “not us” (although they have offices there and he knew this would be a main factor in my future job search).

    Atypical or privileged? I was lucky enough to get an LSAT score that got me into a fantastic law school, someplace I never dreamed of attending after spending my early years chopping cotton and bailing hay under the Arizona sun. I am indeed very fortunate (and quite likely undeserving of my good fortune) but my opportunities don’t seem very different from my law school peers.

    To Brendon—no need to protect the lowly 1L from a little kicking. What doesn’t kill us…. And to clarify, I’m not completely oblivious to the realities of law firm life. Although only a few months into my legal education, I’ve already been barraged with information about the tedious nature of junior associates’ work, typical hours, the statistical impossibility of making partner at a large firm, the scarcity of “gold-plated private jets[s],” and a myriad of other issues. And I didn’t ask my attorney friend his billing rate/salary (why would I when this information is so readily available online?) I’m aware that my introduction to Biglaw may be red-lining, but you know what? $165 g’s for document review is a significant step-up from my apparent opportunities en los campos de Arizona. I’ll take it. And if it leads to something better (i.e.—an in to the “people the lawyer serves” who have the sweeter deal—which, by the way, is no secret in Manhattan, Brendon) then I just might take that as well.

    But worst case scenario, I’m on the cusp of scratching out a future for myself and my family that involves more security and less sweat than my past. Pardon my lack of pessimism, but frankly, given where I’ve come from, I’m excited at my opportunities.

  12. Korea Beat on

    I had my own depressing chat with an immigration lawyer in Japan who used to work with multinational oil firms and clearly wished he had been an MBA instead. He sounded practically suicidal over it. Pay attention potential 1Ls, it’s not for nothing that so many lawyers tell you not to become one.

  13. Brendon Carr on

    Pay attention potential 1Ls, it’s not for nothing that so many lawyers tell you not to become one.

    Also pay attention to this: I’m not one of the lawyers telling students not to become a lawyer. My own career is generally satisfying to me. I think a legal career is a good one. It’s just a “get rich slow” plan.

  14. Sonagi on

    I think a legal career is a good one. It’s just a “get rich slow” plan.

    Beats public school teaching, a “get rich never” plan.  I used to do summer school for extra pay, but to save money, our district has decided to have teaching assistants provide ESL instruction to save money.

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