Franz Kafka’s The Metamorphosis, begins with its protagonist waking up to find himself transformed into a hideous insect. The novella chronicles his attempt to cope with this vexing transformation, especially as it relates to those close and familiar to him. Could this be the fate of law firms?
The scope of tasks being performed by lawyers—especially those who work in law firms—has narrowed considerably, especially during the new millennium. There are several reasons: (1) technology; (2) economic pressure; (3) globalization; (4) regulatory changes; (5) the realization that lawyers need not perform all tasks incident to a matter; (6) the growth of in-house legal departments; and (6) the proliferation of legal service providers as well as companies that provide products (ranging from software applications to documents). This begs the question: if lawyers are no longer handling all facets of a case as they did for so long—how will that affect law firms? Surely, it will have an economic impact. But the cumulative effect of the above-enumerated market factors is more profound than that: law firms—at least as they have operated for at least the last half century—are subject to even more profound changes including accelerated mergers; strategic alliances; pairing with service providers; and, as some have already experienced, dissolution and/or bankruptcy. That prognosis applies to “traditional model” law firms. The prospects are far brighter for new model firms as well as for new entrants into the marketplace, many of whom will not be “law firms” as we know them but, rather, professional organization groups for whom lawyers are a part of the mix.
Even Law’s “One-percent” Will Be Feeling The Competition
A recent article in The Wall Street Journal confirmed what many in the legal marketplace already knew: a handful of the AmLaw 200 firms have separated themselves from the pack both financially (“PPP”) as well as by the work they do— “bet the company cases.” These firms, the legal market’s “one-percent”, have sufficient brand differentiation, at least in their areas of expertise, that enables them to keep their models in tact and, essentially, practice as they did before the perfect storm of 2008. At the same time, it’s fair to ask how long even their delivery model is sustainable in light of similarly elite firms from across the pond (“The Magic Circle”) who operate in an Alternative Business Structures (“ABS”) environment which enables them to be more diversified, better capitalized, and with broader global reach than their U.S. competition. And that is not to mention the BigFour accounting firms–three of whom have already applied for and/or secured ABS status– who have made clear their intention to enter the legal market in a significant way. Their size, global footprint, embedded client base, well-oiled project management skills, inter-disciplinary depth, and expertise across multiple verticals—not to mention their war chests—make them formidable rivals.
Then there are other professional service firms who are already engaged in “bet the company” matters. For example, a handful of elite lobbying and crisis management firms take on such work which, not so long ago, would have gone exclusively to law firms. These largely unregulated competitors engage lawyers and, to a lesser extent, law firms; however, lawyers are not stirring the drink nor are they doing the bulk of the work (read: no longer take the lion’s share of the fees). These inter-disciplinary teams are led by non-lawyer professionals who view law as a piece of the solution, not the sole means to achieve its end.
This is not to say that a collection should be taken for the legal elites or that they should stage fire sales for their third homes. But it is evident that even the bespoke law firms are facing competition both from each other; from beefed-up in-house departments who are handling more mission critical matters themselves ; from foreign competition; and from new entrants keen to garner market share in this lucrative segment of legal work.
What About the Rest of the AmLaw 200?
The uptick in mergers can be construed as an acknowledgment by firm management committees that the status quo is not sustainable, perhaps even during the relatively narrow window to their retirement. Many firms are adopting a “too big to fail” approach, and several have effected multiple mergers within a span of a few years. One might ask: what—beyond the name– is the product of these mergers? Surely, multi-merger-fueled firms face challenges of integrating cultures, technologies and, of course, conflicts. But beyond that is the issue of what the new amalgam is –a law firm? Add to that the byzantine structures of many of the large firms—especially Swiss Vereins (where individual offices and, sometimes, practice groups are their own profit centers) and one wonders whether the entity is really a firm or a bunch of tents in an ever-expanding bazaar?
Déjà vu all over Again?
Too many years ago, I became the youngest partner at Finley Kumble, at the time the second largest law firm in the US. Steve Kumble and Marshall Manley, the visionaries who created a law firm “from coast to coast” would routinely walk into partners meetings and say, “On Tuesday, you will be meeting your new partners from the (fill in the blank) office. A boozy, opulent reception with our new colleagues would follow and then those “partners” would disappear, rarely to be seen or heard from again. One day, soon after the launch of the new San Diego office, it was announced that “the San Diego office has up and left.” Was this a law firm or a franchise operation gone awry? Finley, of course, had a celebrated fall (fortunately, I resigned the “partnership” well in advance) that is eerily parallel to the collapse of Dewey. With mounting pressures coming from all sides, is it unreasonable to expect that more firms will follow the same path of merger-merger-acquisition-bust? And before leaving Finley (because history really does so often repeat itself), let’s remember that they ushered in the practice of “raiding” rainmaker partners from other firms. That practice drew headlines from The American Lawyer and howls from white shoe firms. Today, it is commonplace. But what does it say about a law firm and what it really is?
Firms will continue to be Important but will take on Different Forms
No doubt law firms will continue to be a key component in the delivery of legal services. There is considerable value to be derived from a concentration of expertise as well as, in some instances, the ability to integrate different practice areas. And let’s add to that “across multiple geographies.” Technology does not create a law firm, but it does help to integrate it. At the same time, technology enables individual attorneys and groups to “connect” and, potentially, to establish new and different kinds of collaborative arrangements previously unimaginable. Law firms no longer must operate from the same bricks and mortar location(s). Moreover, as the functional boundaries between law firms and legal service providers become increasingly blurred—especially in the corporate segment of the market—new law firms will emerge. Already, several AmLaw 100 firms have embedded sophisticated, bundled service providers into their firms; the law firm performs tasks that require the exercise of professional judgment and the service provider—operating seamlessly within it—performs a range of other tasks. And, of course, the law firm retains the risk. There are many other combinations and options available to law firms if/when many of the traditional ones begin to break up.
A Quick Word on Access to Justice
There is certainly great opportunity as well for lawyers in the retail side of the market to create agile, efficient, cost-effective law firms built to address the access to justice crisis as well as to provide jobs for a significant number of unemployed/under-employed, and debt-ridden recent law school graduates. Already, two large firms have partnered with a leading law school to leverage the intellectual capital of those firms and pare it with recent graduates to deliver legal services to individuals and small businesses who can pay something but not current rates. This is another type of new law firm that holds promise both for clients and lawyers.
Just as the role lawyers play is rapidly changing both in a functional and economic sense, so too can that be said of law firms—at least as we have known them. As with all periods of change, this can be unsettling. However, the up side of more cost-effective, quality service for clients—retail or corporate—and the delivery of those services to an expanded client universe, bodes well for the future of lawyers.