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Factors that erode the rational best choice of a law firm

In a rational-actor model, corporate lawyers hire the law firm most suited to handle a matter according to an objective determination of various firms’ skills and costs (See my post of Aug. 22, 2006 that reviles “beauty contest” as a description.). This Dr. Spockian, information-processing model departs in many ways from reality.

Information imbalance. Law firm partners provide credence goods (See my post of April 26, 2006 on these trust-me services.) as to which it is very difficult to judge quality at the start. Moreover, those partners know more things about their staff and experience than do the inside lawyers who hire (See my post of Dec. 23, 2005 on information asymmetry.). Rationality drains out when information is missing or unbalanced.

Favoritism distorts objective rationality (See my posts of March 8, 2006 on the possibility of GCs dispensing work to future partners and March 7, 2006 on not using their former firms.). Friendships, enmities, or relationships skew the optimal decision process.

Marketing and emoluments can turn the head of in-house purchasers (See my post of April 17, 2006 on influence peddling.). The “name brand” effect distorts straight thinking (See my posts of June 12, 2005 and Sept. 10, 2005 on brand name firms.). Clients may put a thumb on the scale when they believe law firms refer business opportunities to them (See my post of April 26, 2006 on the elusive referral.).

Useless performance evaluations. Most law departments scarcely evaluate their law firms, at least not with any formal process (See my posts of May 14, 2006; and July 21, 2005 on law departments sharing evaluations and data.). Without study and analysis, the quality of future choices becomes no better.

The processes for retaining firms are rife with subjectivity but despite these human frailties being tested, most law departments get at least passing grades (See also my posts of Feb. 1, 2006 on auctions and April 7, 2006 on procurement.). The firms and partners they choose and stay with meet their needs.