Competition for corporate legal work is keen. Law firms vie with each other for a shrinking segment of outsourced legal work. Corporate legal departments and a growing array of well capitalized, tech and process savvy service providers now account for an almost 50% of legal spend. It’s not surprising, then, that law firms are stepping up investment in marketing and business development activities. Will this narrow the growing delta between rising demand for legal services and declining call for law firms? Short answer: not unless law firms address the myriad of reasons for client dissatisfaction as well as differentiate themselves.
Miles van der Rohe, the noted architect, remarked: “Architecture depends on its time.” The same can be said about business structure–it depends on its time. A paradigm shift is occurring. Technology has enabled the creation of new business structures. It has facilitated a decentralized delivery structure, creating communities that connect sellers with buyers. This is sometimes called the collaborative or sharing economy, where individuals deploy underutilized assets—everything from cars and apartments to lawyers—to “share” with buyers. This eliminates centralized institutions that control supply and stifle competition by protectionist self-regulation. It has produced“ faster, cheaper, better” delivery of goods and services available on an as needed basis.
The litany of law firm gripes is long and familiar: exorbitant cost and rates, overstaffing, budget unpredictability, IT and process deficiencies, and limited knowledge of clients’ business. One would think that law firms would be responding to all this—they read and hear about it every day. So why are legal consumers—not law firms—driving change in the legal marketplace? Simple answer: most large firm partners have yet to feel the financial consequences of stasis and are staying the course so they can “run the table.”
India is about to open its legal market to foreign-based firms. This is not a sudden development; India was a signatory to the 1995 General Agreement on Trade in Services (GATS) treaty of the World Trade Organization that paved the way. And though there will be limitations governing foreign firms’ ability to set up legal practices in India—most notably they cannot engage in matters governed by Indian law nor can they appear in court—they can set up offices there and are free to partner with Indian lawyers/firms to circumvent the aforementioned proscriptions.
It’s hardly news that the once-cozy relationship between BigLaw and corporate legal departments has morphed into something quite different. In Facebook terms, it’s gone from “in a relationship” to “it’s complicated.” Relationships once cemented over rounds of golf and scotch have yielded to RFP’s and reverse auctions. The bloom is off the rose. And clients are voting with their feet as companies replace law firms about as often as laterals hopscotch in search of sweeter deals. But corporate legal departments are doing a lot more than simply substituting one firm for another.
Last week I wrote an article analyzing the principal reasons why corporate legal departments are taking on so much more work themselves instead of outsourcing it to law firms. This is, of course, an ominous sign for law firms and the traditional partnership structure. So too is disaggregation and the emergence of legal service providers as well as others – notably the Big Four – poised to enter the gargantuan legal services market.