That aphorism says that if your law department too aggressively drives down billing rates and the economics of your law firms, you end up with poorer legal work (See my post of June 15, 2006 about meddling in firm management; and July 5, 2006 with several forms of intervention.). If profitability suffers, the best and brightest in law firms will gravitate toward clients that pay full-boat. Over time natural selection will leave the aggressive department a cost-cutter with cut-rate quality.
I have always liked the saying, “Better a fair price for good quality than a good price for fair quality. Tighten the vice; degrade the advice.