Tuesday, February 26, 2013

Hastening ZombieLaw’s Collapse—and Why That’s a Good Thing

Ignoring the ballyhoo about “The New Normal” and the debate about whether this is BigLaw’s end of days, most seem to agree that the US legal market is overcrowded. It suffers from too many lawyers and law firms.

Like many aspects of our industry, market overcrowding is not new. For years, we have watched some BigLaw firms stagger around zombie-like and refuse to die. They decline in vigor and resort to bottom feeding and submitting low bids on every job in town. Some of these ZombieLaws are highly leveraged affairs with shrunken equity partner castes and even smaller star chambers that oversee closed compensation systems. Other ZombieLaws are over-leveraged and offer a warm bunk to lawyers with small books of business whom no one else will hire.

The disappearance of five such firms would blow fresh wind under the wings of fifty nearby firms and lift them higher. I blogged about this in 2008 when I predicted Bay Area firms would benefit from Thelen’s and Heller’s demises. (See "It's Hard to Accept Intelligence That Breaks Your Heart.") Since then, the Boston and Atlanta legal markets have also benefitted from regional right-sizing. The New York City market is right-sizing now, albeit slowly. In several other overcrowded markets, a handful of firms are feeling and causing each other’s pain.

If I had more resources right now, I would create two online prediction markets. (See Intrade for examples of such markets.) The first market would solicit bets on which US law firms will dissolve by December 31, 2013. The second one would solicit bets on which firms will merge with one or more firms by the end of the year. On January 1, 2014, I would close those markets, open two new ones, and start all over again.

If these markets worked well—and I believe they would, by crowd-sourcing intelligence anonymously from knowledgeable persons who will never go on the record—they would quickly and accurately identify the weakest firms. And, yes, these prediction markets might hasten their deaths.

What a mean thing to do, right? Wrong. It would be a kind thing to do. Depending on your viewpoint, of course.

So how about it—would you place anonymous bets on these two markets?  Which geographic, practice and industry legal markets do you see as the most crowded? Which firms would you bet will dissolve or merge by December 31, 2013?

1 comment:

Steve Nelson said...

Very good post, as usual. Curious to see if we took the AmLaw 200 composite revenue, and factored in the firms that merged or dissolved, to see the level of revenue increase in the sector. I suspect that the increase is quite small, confirming your thesis that to a large degree, there's a zero sum game going on.