Law firm panel

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“Within a couple of millennia, bankers in many parts of the franchise were doing little from dawn to dusk other than taking care of law firms. It wasn’t easy. The lawyers demanded a lot of them. Lawyers didn’t like personal responsibility for anything, so the bankers broke their backs forging disclaimers, liability waivers and caps for their advisors. Lawyers didn’t like sharing their fees with other firms, so bank operations teams laboured long days under the scorching sun building impregnable barriers to entry (so-called “panels”) within which their “captive” law firms could safely play without risk to their livelihoods.

The investment bank was not evolved for this. It was long adapted to gouging sovereign wealth funds, appropriating customer deposits towards casino banking and ripping faces from unsuspecting end-users: it was not designed to mutely agree terms of engagement and to carrying water for this high-paid advisors. Banker spines and brass necks paid the price.

Moreover, the new tasks demanded so much time that banks were forced to install thousands of lawyers inside their businesses, who would instinctively throw out instructions on any and every matter of doubt that crossed their minds. This completely changed the banks’ way of life.

Banks did not domesticate law firms. Law firms domesticated banks.”

—Noah Yuval Harari, Legio Cadabra: A Brief History of The Magic Circle

As good an illustration as you could ask for that the financial markets are an extended phenotype — a ghastly, metastasised spandrel that exists for the pleasure and enrichment of the commercial law industry.

Investment banking is riven with contradiction:

That a calling devoted to the principles of the anarchic free market systematically organises itself into enterprises that behave like Communist dictatorships.

That these cash-generating leviathans can be harnessed towards the better ends of not their shareholders, nor even employees, but a scarcely visible constituency of legal advisors.

The image of investment banks as docile harnessed sauropods munching stupidly away in the service of pan-dimensional superbeings — and not just their executives — might not be the first one that springs to mind. But then, nor does it immediately grab you that wheat has domesticated humankind to its biological ends, but that is what Noah Yuval Harari tells us.

The law firm panel looks like the banks taming and cultivating their lawfirms, but springs from an observation — investment banks spend an awful lot of money of legal fees — coupled with that unavoidable trope of modern commerce: scale is everything.

Picture the scene: an enterprising fellow in the legal COO team has pulled 5 years’ of legal spend, totalled it, and used the AVERAGE function in Excel. It generates this no-brainer:

“We spend £750m a year on external legal across 1,500 firms at an average run rate of half a million quid each firm. This is insane. If we concentrated that on say ten firms — even a hundred — we could dramatically reduce our administrative costs and leverage our scale. If we guarantee firms £50 million in billings we can push down their hourly rates, commit them to a programme of rolling secondees, have them run our annual training programme. That way we could cut our overall spend by 30% and get more legal value than we get right now.

This logic being unimpeachable, an action plan is implemented without ado. The pathological impulse to shower good money randomly over a myriad of anonymous law firms will be controlled. Order will be restored.

There will be a colossal multilateral

Now, had our fellow used a pivot chart he might have told a different story. For these firms span for 150 different jurisdictions, for a start. The mean may have been half a million, but the median spend was £10,000.

Five hundred of them billed less than £5,000 each. That third of the group account for just 2m of the total spend.