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New vs. Old Thinking about the Legal Market

Two recent published comments about BigLaw associates illustrate what I view as the risk of thinking about the legal market as it has been instead of what it likely will be. 

One comment comes from the GC perspective. A leading general counsel, commenting on lawyers learning concrete skills, was quoted: “I’m indifferent about whether they learn that at a law firm or in school, as long as I don’t have to pay for it.” It seems to me that GCs pay to train young lawyers one way or another. They can hire a law grad and directly incur the training cost. Or they can retain outside counsel and indirectly incur it.

Delivering legal advice over over the long term creates an economic cost to train lawyers. That is, there is a real cost and someone has to pay for it. So in my view, refusing to pay for junior associates is just a way to seek a discount or reduce partner profits – it does not make the cost go away.

The comment seems to suggest a “minor repair” to the old regime rather than to seek to usher in a new one. If I were a GC, I would seek regime change. For example, I would demand almost all work be priced on alternative fees, especially fixed fees. Then, as the buyer, I would not care about my law firm suppliers’ factor inputs (the mix of timekeepers). Instead, I would focus on cost and results. In how many other markets do buyers worry about supplier factor inputs?

A second comment comes from the law firm / recruiting perspective. The article Will Law Firm Changes Affect Hiring and Retention of Associates? (The Recorder, 21 Dec 09) expresses concern that law firms put their long-term health at risk by moving away from associate lock-step pay. The author argues that differentiating associate compensation is too hard and concludes that “Law firms that adopt dramatic changes in how they value and treat their associates in a time of economic stress may find themselves at a dramatic disadvantage in retaining and recruiting people as the economy recovers.”

This thinking is anchored in the past and apparently ignores many a change a foot. The evidence is that firms are differentiating now, that clients want alternative fees, that a wider range of suppliers (e.g., virtual firms, boutiques, and outsourcers) will prosper. Moreover, in the new regime, we will need to think about both demand and supply differently.

On the demand side, I suggested in Does the Legal Market Suffer the Same Over-Consumption as Health Care? that smart clients will find ways to make better risk-adjusted decisions, which will limit the need for legal advice. So I don’t assume a return of high demand any time soon.

On the supply side, my prior post argues that smart firms must adopt project management and business analysis. This discipline will help deliver advice without necessarily increasing the need for lawyers commensurate with whatever increase in demand may occur.

Also on the supply side, I don’t assume that in a new regime the labor factor input, aka new associates, will be the same. Who’s to say new lawyers will flock to the standard bundle of old rather than consider a range of “bundles” (mix of compensation, training, collegiality, etc) with different characteristics.

Of course I may be wrong. But in considering the future of the legal market, it seems more helpful to contemplate a new and better regime than to adjust the old one or assume that the old one will return unchanged. In my experience, tinkering with or trying to preserve a broken system typically fails. We need more legal market players envisioning how a new model will better meet everyone’s needs.