BigLaw May be in for a Rough Ride
I feel like I am waiting for the other shoe to drop in the BigLaw market.
Consider the following items over the last 10 days that discuss the woes of large law firms:
- Law Firms Wring Out Back-Office Costs in the Wall Street Journal on law firms opening low cost service centers and outsourcing (front page, Market Place, 8 Oct 2012).
- To Survive, Firms Will Have to Get Serious About Costs, Get Off the Lockstep Treadmill by Patrick Lamb of Valorem Law in the ABA New Normal series, who writes about ‘right staffing’ (9 Oct 2012).
- Law firm partnership: the Grand Delusion by Stephen Mayson, on the fundamental problems of law firm partnerships (9 Oct 2012)
- Suicide Pricing, a Bloomberg Law interview with Bruce McEwen (aka Adam Smith, Esq.), who suggests Biglaw over capacity is driving unsustainable downward price pressure (12 Oct 2012). He has also written a recent multi-part blog post, Growth is Dead.
- BigLaw must reduce cost, not just tinker with pricing by John Wallbillich (aka The WiredGC), on how real competition drives down prices and that alternative fees alone do not reduce costs. (16 Oct 2012).
- And the walls came down by Jordan Furlong, who offers an excellent overview of legal market challenges / solutions (17 Oct 2012).
- Inexorable laws of supply and demand are biting #BigLaw by George Beaton, a very astute legal market observer and consultant in Australia, who cites the Mayson and McEwen blog posts, adding his own take, including that corporate law has become a permanent buyers’ market. (19 Oct 2012)
If the commentators are right, what happens? We see some signs of change and law firm response, for example, reduced hiring of new lawyers, stealth lay-offs, alternative fee arrangements, legal project management, and lower cost staffing. These changes feel enormous to law firms yet I could argue these are simply “minor adjustments”, an inadequate response to new market forces.
One commentator offers a dire prediction: the ABA Journal headline, reporting on a Bloomberg Law interview with consultant Kent Zimmerman of the Zeughauser Group, says it all: Law Firm Consultant Predicts ‘Absolutely’ More Layoffs and as Many as Five BigLaw Dissolutions . Without taking a position on that view, I note that law firms are not like airlines. When airlines reduce capacity, they park airplanes in the Arizona desert or sell them in distant markets. That capacity goes away, which reduces supply, which lets airlines raise prices. When law firms dissolve, many lawyers move to other firms. Capacity does not just disappear.
So that’s why I wait for the other shoe to drop. Maybe we get lucky and somehow muddle through. But maybe BigLaw is in worse trouble than firms currently understand. That’s why I have shifted my focus to service delivery improvement. Law firms that figure out how to provide outstanding service to their top clients have a better chance of prospering.
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