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Law departments do not want the law firms they rely on to run at a loss

Amidst the prevailing frenzy of cost cutting, it is worth emphasizing that general counsel do not want to pinch pennies so much that their spousal firms – the few they are married to — refuse to take on more work.

A law department might be willing to retain a firm to do something on loss-making terms because the firm hopes to break in and demonstrate its prowess or to stand in line for a shot at lucrative lawsuits, investigations, or M&A that come later. Strategic or accommodation services at bargain prices are all part of the game. But continued services at what firm management deems to be unacceptable margins is bound to lead to divorce. Managers in law departments do not want to squeeze that hard.