Monday, July 22, 2013

I'm Shocked, Shocked!


The New Republic’s latest cover story, “The Last Days of Big Law – You Can’t Imagine the Terror When the Money Dries Up” by Noam Scheiber, is a dishy article about the international law firm of Mayer Brown. The author recited some of Mayer Brown’s well known management missteps over the last decade and cited numerous unnamed sources, most of whom are former lawyers at the firm, to construct a parable of what’s wrong with the rest of Big Law.

For the record, I once consulted with Mayer Brown and think highly of that firm and the leaders, lawyers and marketers I worked with who are still there.

The author of The New Republic article looks down his nose at Mayer Brown and, consequently, Big Law for (1) having too many lawyers, (2) replacing expensive lawyers with cheaper lawyers, and (3) firing anyone because there’s not enough work for them to do. He says he's shocked to discover that (4) Big Law is also Big Business, which those of us who work in and for law firms have known for some time. Perhaps most amusingly, he is even more shocked to find that (5) lawyers are competitive creatures who are ideally educated and trained to game every reward system ever built.



The author employs the effective journalistic techniques of card-stacking, false assumptions, either-or-fallacies, false generalizations, etc. Given his skills, I’m surprised he doesn’t do more political reporting.

He appears either ignorant or uncaring of any actual facts about the size of the corporate legal services market and its recent- and long-term trends. However, he’s not alone in that regard, since “The Sky Is Falling” still seems to be #1 on the “I Wonder if Someone Will Pay Me to Write about Law Firms?” hit parade. Here are just a couple of actual facts:

•  In 2007, Am Law 100 total revenue was $62.9 billion. In 2012, it had grown to $73.4 billion. Yes, some of that was due to cross-border mergers. But most of it was not.

•  By 2020, Global 500 revenue is predicted to double – from $30 trillion to $60 trillion. Call me crazy, but the business, legal, political, demographic, and other changes that accompany that growth will doubtless require some considerable, proportionate growth in legal services.

(An aside to those who think the above facts are misleading: If your own firm’s revenue is declining, then the proper response might be to consider whether your firm is selling what buyers used to buy, not what they’re buying now.)

I readily acknowledge that my irritation with this article and similar ones I’ve read lately stems from my long tenure in the legal services industry. I’ve been around law firms so long now that, while I constantly see new things happening, I also see them as part of longer-term patterns. For that reason, I suppose I’m less alarmed than younger participants in this space.

All industries change – they change a lot. And people adapt – so much better than you’d think they would. There are always career casualties when big change comes. The resilient are resilient. The unresilient are not. The popular theory that the legal profession and the legal services industry don’t and won’t change is one that I simply refuse to accept. I’ve seen firms, lawyers, leaders, and their business advisors all change so much in the decades I’ve worked in this industry. The future rewards – financial, intellectual, and otherwise – of adapting successfully are too great to ignore.

Finally, I do get piqued by those who randomly wander in from off the street and say: “Hey, I know somebody who used to work in a law firm, and they hated it. You guys must all be miserable, too!” When that happens, I think for a moment about how good it would feel to toss my beer in his face. And then I smile and remember – that’s why I don’t do PR for law firms.

10 comments:

Anonymous said...

The article does not stray far from reality. However, the author lacked sufficient research to accurately describe the legal profession. All U.S. industries are being turned upside down and it is about time that law firms were redesigned. The point of their existence has been greed. Organzation, billing, and philosophy is overdue for a change.

Mike O'Horo said...

Ann:
I'm surprised to see you project "that [economic] growth [from $15T to $30T] will doubtless require some considerable, proportionate growth in legal services." Most readers would take that to mean, "growth for law firms." That's not necessarily the case, since demand for legal service does not equal demand for traditional full-service law firms.

I'm sure you've seen the same published studies I have that show corporations' steady shift to alternate legal solutions, whether growing their internal law dept capacity, or off-shoring, or using low-cost US contract lawyers, or embracing technological solutions for all or part of tasks previously performed by hourly US lawyers.

Overall, these factors will combine to accelerate law firms' loss of pricing power. Sure, clients will always pay whatever rate is demanded by the top-tier legal wizards whose strategic thinking, judgment and wisdom yield huge business impact. But they've already shown a disinclination to pay premium prices for the lawyers merely implementing those wizards' decisions.

I think it was a recent CitiGroup study showing that legal service demand was growing 3%/yr, but outside law firms' demand was declining by an equal amount. Companies will need more legal advice and execution; it just will be satisfied to a much lesser degree by traditional full-service law firms.

Timothy B. Corcoran said...

My perspective is somewhere in the middle of this continuum: I take no delight in the foibles of large law firms, yet I think it's healthy for them to self-examine now and again, an exercise they often embrace only after prodding from unhappy clients or from us, the pundit class. But I also have no particular fondness for the current large law firm model, which is by standard business measures inefficient in governance and service delivery and wanting in client satisfaction, so I'm fine with provoking and/or participating in needed changes.

So while I can poke some holes at the journalist's approach, the fact of the matter is clients -- and not necessarily the in-house counsel clients who in many ways are members of the same guild, but CEOs, CFOs and line managers -- have every right to demand improvements in the manner and cost of legal services they buy. They furthermore have no obligation to uphold the guild or the large law model or frankly worry at all about the impact technology and commoditization may have on the traditional providers. What they want, and they've demanded this from all other business functions, is continuous improvement.

No sector of the market will proactively and willingly concede profit margins unless they're convinced change will lead to even better performance, but not surprisingly this is a conclusion that few entrenched providers sitting at the top of the heap reach. Inevitably, change comes from without, from innovative new entrants who prod the sleeping giants into action, though not before adjusting market share and profit margins, often forever.

And to echo Mike's point, the predicted substantial growth of large corporate clients only tells us, to the extent that such predictions tell us anything, that global clients will grow. It says nothing of the growth, proportional or otherwise, of traditional providers supporting these clients. If recent history is any guide, large clients with increasing buying power will not agree to a proportional allocation of this growth, and will actively seek ways to retain a greater share of this growth by seeking lower-cost alternatives in their supplier ranks. Of course some law firms and practice groups will thrive, and some will falter, but I have no doubt that many of the changes afoot are here to stay.

Snarky, shaded journalism aside, the fact is large law firms not reacting decisively to these changes will be in a world of hurt.

Ann Lee Gibson said...

Mike and Tim have questioned a prediction I made in this blog post. I said that assuming that between now and 2020 Global 500 revenue will double to $30 trillion “… that [corporate] growth will doubtless require some considerable, proportionate growth in legal services.”

In response to their very reasonable points that we can’t assume corporate legal expenses will grow as fast as corporate revenue and that law firms are no longer the only resources available to handle outside legal work, I’ll be more specific and say clearly that I’m not predicting outside counsel spend will also double by 2020. However, I’m confident that the Global 500’s outside legal spend will grow in the next 6 ½ years by at least 50%.

I don’t believe (and didn’t say) that law firms will be the sole providers of those additional legal services. However, I do think that between now and 2020 law firms will continue to deliver the large majority of outside legal services. I don’t foresee that by 2020 LPOs will have built the capacity necessary to handle that amount of new work.

Of course, if anyone has better information than I now have about LPO industry growth and market share projections that would persuade me differently, please share that information here with us if you are free to do so.

Ann Lee Gibson said...

Noam Scheiber speaks! Bloomberg News’ Lee Pacchia asks tough questions. Scheiber offers more strawmen, back-peddles, expresses deep admiration for Mayer Brown, and offers regrets (he’s had a few), including, “If I could do the piece over again, I would hedge on the prediction.” At http://bit.ly/15ip3R5

John Grimley said...

it seems BigLaw highly unlikely BigLaw will fail. Market share has gone to LPO's and other non-traditional services providers like Axiom. There is a debate in legal services over whether BigLaw challenges are structural or cyclical. Most believe they're largely structural. However let's assume increasing global economic growth. Yes BigLaw will likely win a large amount of this work as a result of their incumbent market position. But I wouldn't want to rely on that incumbent position alone. If BigLaw wants to compete more effectively for a growth in global business (Asia legal market will double in size by 2017 according to Alan Hodgart when speaking at the Inter-Pacific Bar Association annual meeting in Seoul in April) - then they should adopt the sort of internal efficiencies many in the ReinventLaw community espouse - as well as adopt sophisticated outbound sales divisions (like accounting firms have to some degree done already). Those improvements in competing for business both on the services provision side and the revenue side would help BigLaw meet global competitive challenges they're likely to face - both now and in the future.

Ann Lee Gibson said...

Big Law Funeral After-Parties:

1. Heather Morse is blogging about Noam Schiber's article at http://legalwatercoolerblog.com/.

2. Heather's also maintaining a list of articles relating to Noam Scheiber's article at http://legalwatercoolerblog.com/2013/07/26/list-of-articles-related-to-last-days-of-big-law/.

3. Finally, Noam Scheiber has doubled down on last week's article with another one that's headlined: "Yes, Big Law Really Is Dying." I guess he thought we didn't believe he meant it the first time. At http://www.newrepublic.com/article/114065/death-big-law-firms-cant-be-ignored

Mike Ayotte said...

Ann, do you have any response to Adam Smith, Esq.'s piece that CAGR is significantly down for 2008-2013 (http://bit.ly/13XNVOv)? Or Barry Wolf's admission that BigLaw demand was not coming back anytime soon (http://nyti.ms/12DqV9i)? They don't seem to be as bullish on the global economy.

Ann Lee Gibson said...

Mike, thanks for your question and your response.

I do want to respond to Bruce MacEwen's piece, but in the last week have simply been too busy to do so. In fact, I’ve only had time to read his long piece one time and think it deserves more consideration than I’ve been able to give it.

But yes, the Great Recession was characterized by economic contraction, so five-year CAGRs of scores of performance measures across many industries were very low. But the more interesting question is what will happen to the US and national economies going forward?

By the way, Weil Gotshal’s recent downsizing didn’t surprise me. They downsized similarly three to four years after each of the prior two recessions, when bankruptcy work lowered to pre-downturn levels. As I was quoted saying in a Law360 article several weeks ago, Weil Gotshal’s 2013 downsizing was what other firms without significant bankruptcy practices endured in 2009-2010.

I readily admit to being optimistic that global economic growth will continue to improve. GDP is over 5% in much of South America, East Asia, and Sub-Saharan Africa. Fortune magazine predicts that Global 500 corporate revenue will double to $30 trillion by 2020. And by 2030, for the first time during all of humankind’s existence, more than half of all people will live above the poverty line. There will be significant new construction and urbanization, educational and technological advances, and highest-ever consumer spending, all of which will support global economic growth. With economic growth comes some degree of demand for additional legal services.

For the record, I don’t foresee a coming "golden era” of broad, organic double-digit law firm growth. The tremendous law firm growth since the mid-1990s was a perfect storm of a different kind.

But to imagine that the future legal services industry, with services that will be delivered by law firms, in-house legal departments, LPOs, contract houses, solos, networks, patchworks, and legal enterprises we haven’t imagined yet, will shrink while economic and corporate growth doubles over the next 10-15 years seems highly improbable to me.

Jason Knight said...

I am just curious to see how our legal system will hold up during these next few years. There are a lot of things going on right now and I think that some things are going to change. I just hope that things end up going in a better direction.

Jason|http://hhm-llp.com/index.html

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