ven before the economic tsunami swept across the world’s markets, inundating clients and practice areas alike, a variety of storm clouds hung over the law firm landscape. Collectively they suggested that serious changes might be in the offing for a market notable for two seemingly immutable traits: relentless success and an ability to dodge, defeat, or co-opt genuine rebellion. Whether the tsunami has irrevocably changed the financial markets and the law firms that lubricate them remains to be seen. But the warning clouds remain, and because of their potential significance we devote much of this month’s issue to examining them.
We’ve been down this road before. Twenty-five years ago, the magazine was ablaze with the idea of professional service convergence, the ultimate high-end big box shop. Goldman, Skadden anyone? Evidently not. Ten years ago, we were sagely noting the advent of the multidisciplinary practice. Then we watched, with appropriate amazement, as Kenneth Lay and David Duncan put an end to those one-stop-shop fantasies.
This time we think it’s different (we always do!) largely because of the confluence of four factors that have come on the scene. These are the potential agents of change:
# First, thanks to significant changes in British law, outside investors are about to bring new money to this arena in England and probably Europe. In the wake of the shocks felt last month by once private, now publicly traded investment banks, we don’t think that many law firms will rush into the IPO market. If they did, we would look forward to Steinbrennerian bidding wars for talent-it’s always a mistake to bet against the lure of money. While we await that spectacle, venture capitalists seem certain to fund a variety of experiments and projects by nonlawyers that will threaten the established ways of doing business and the regulations that govern firms. In a paper published in the spring, University of Southern California law professor Gillian Hadfield observed that “innovators have long been imagined as disaffected or isolated iconoclasts tinkering away in the garage on the periphery of the markets that their inventions might transform. Where are the ‘garage guys’ in law? Locked in the garage.” An influx of money and changed regulations will free them.
# Second, clients are doing more than complaining. Firms have sloughed off the customer revolution for years, and who could blame them? The din has amounted to little more than a minor cause of global warming. But now, very slowly, clients have started to act. As one example, the once staid Association of Corporate Counsel has roused itself to form a “value challenge” for its members and their law firm vendors. That’s a fancy way of saying that the customers want a sense that they are being dealt with fairly by their high-priced vendors. If the irritation really turns to action, not even the niftiest client relationship software will contain the mischief.
# Third, the assumptions that underlie the hiring, retention, and promotion of talent are all under attack [see Tournament Without End]. Firms are hiring more and promoting less. They pay too much, bill too high, train too little, and wave goodbye too soon. They are flirting with systems that will divide their recruits into two classes: the elite few purportedly bound for partnership and the second-tier others, who will be diverted into the scut work that builds partner profits. Coincidentally, most of the young lawyers, absent this economic crisis, express little interest in devoting their lives to the big- firm ships of state. And American-style law schools are starting to open in foreign countries, creating the prospect of new sources of labor. Can a business that rests on talent remain unscathed even as the talent is morphing?
# Fourth, on the margins, technology is beginning to address this marketplace. We don’t mean the time-and-billing or e-discovery systems that allow firms to do more of the same, just faster and more comprehensively. We mean the advent of early-stage Web 2.0 efforts and the advent of high-tech solutions that will allow routine matters to be handled, well, routinely. At this point, we can’t find anyone who foresees the arrival of a true “disruptive” technology that will transform law firms the way the Internet changed information sharing and Google changed research. For one thing, the grand firms specialize in custom work that defies easy routinization-or so they insist. For another, some firms are trying to embrace technology as a way of holding down their costs, and getting ahead of the innovation curve. In the end, this should be a good match: the irreverent ethos of Silicon Valley seeking to undermine yet another secure and protected business.
Others have noticed these developments, too. “Over the last year, the dialogue just went way up,” says Mark Harris of Axiom Legal. “Everybody is talking about this.” Harris has a pecuniary interest: Axiom, for those who don’t listen to National Public Radio advertisements, is a “new-model law firm,” a coalition of big-firm refugees who get hired by in-house departments to handle assignments. Axiom is the sort of innovation that adds a concrete example to the talk at conferences, in articles, and occasionally at client meetings.
Given our track record on predicting the future, we hesitate to do more than speculate about the vectors aimed at the market. To test the appetite for change, we collaborated with law department consultant Rees Morrison on a poll of in-house counsel who belong to Legal OnRamp, another early-stage innovator in this area. We are publishing the findings on our Web site [see Looking Ahead]. Also, we include some pertinent responses from our annual survey of the heads of the Am Law 200 firms [see How Full?].
We are confident about two things. One, the big changes, should they come, will take a while. One example should suffice: If the advent of investment in England and later in Europe produces significant new ventures, firms and regulators in the United States will feel pressure to respond. But most regulation is state-based, which sets up a race between the tortoise and the snail. Which will come sooner: agreement on regulatory change among the 50 states, or the advent of congressional preemption?
Two, for all the imprecise discussion, the change agenda boils down to a bid to disaggregate the functions of the large firms. No one doubts that there will always be room for a trusted adviser who can find new ways to bend a statute, or a white-collar specialist who can save the hide of a business leader or two. Rather, this discussion seems to be about examining what firms do, finding the tasks that really aren’t worth their bespoke costs, and developing new systems or methods for doing this work more cheaply and efficiently. How big a problem would this be for firms? That will depend in large part on how much of their work can be fairly judged as routine. At least some law firm leaders estimate that half their tasks fit that description. Ouch. They will have to hope that no one notices, change their operations, or die.
It’s not that the work would go away, just that it would be handled differently. New organizations would develop that could handle the routine searching, filing, and drafting; the change scenarios imagine technology swooping in to provide these methods. Strings of law offices, filled with well-trained but lower-cost labor-from Bangor to Bangalore-would take on these tasks, passing them up the value chain to more expensive providers in due course. With much of the fat pared away, real specialists, the law firms and lawyers with reputations as high-cost providers worth the higher cost, could be even more successful than they are today. And general counsel would come to resemble the other sort of GC-the general contractor who would have to manage the many functions that were once performed, in the olden days, by a single law firm.