The demand for lawyers is going down,
and the supply keeps going up. With clients spending less, the result is a
worldwide game of legal musical chairs, with a growing number of lawyers being
left with nowhere to sit down.
In 2005, in the first post in this
blog,
I wrote about an RFP that Tyco had issued to increase the value their law firms
provided. Before then, Tyco had used 167 different law firms for product
liability cases. The RFP was designed to combine all that work within a single
firm to maximize efficiency. To me, the most interesting fact was that when
Tyco made their choice, they selected a firm that was not one of the 167: Shook
Hardy & Bacon, a firm that they had no previous relationship with.
According to an ABA Journal article seven years later, the relationship grew, and “today Shook Hardy is Tyco’s sole
legal services provider for product liability, automobile, and general
liability matters.”
The article quoted Dennis Lynch, chief
litigation counsel at Tyco, “I think it has worked well because we’ve truly
partnered with them…They’ve gotten to know well the players here, the business,
products and obviously the law department.”
But that is not to say that building a
partnership was easy. The article also quoted Shook Hardy partner Paul Williams
who “admits the learning curve for Shook Hardy was steep.”
Firms need to reduce that learning
curve, since a recent survey found that 46% of law departments report that they are working with fewer law
firms than five years ago, and another 16% report that the number of firms is
the same, but they have switched to different ones. When the music stops, you
may need some new skills to make sure you still have a place in the game.
Improved skills could even help you
save your firm. You think your firm is
perfectly safe now? That’s what they thought at Dewey LeBoeuf, Howrey, Heller
Ehrman, Thelen, and Thacher Profitt. Each of these firms had hundreds of
lawyers a few years ago, but now the firms are gone. A large number of smaller
firms have died as well.
Every law firm that has gone out of
business had its own unique problems. But people often use this as an excuse to
say: This could never happen to us. Actually, it could.
When the American Lawyer ran a cover story on Dewey’s demise they interviewed nearly three dozen
former partners and staff and conducted detailed reviews of documents ranging
from audited financial reports to the firm’s bond offering circular. They
concluded that “Dewey’s death was the product of years of bad decisions, and of
greed on the part of senior partners.” The
implication for lawyers at other large firms was: Don’t worry. It was just a
few bad eggs. You are safe.
I have no reason to doubt the facts
quoted in the American Lawyer, but I
interpret them differently. Dewey failed because its leaders were overly
optimistic that the kinds of strategies that had worked in the past would
continue to work in the future.
Their business decisions would not have
led to bankruptcy a decade ago. Bad decisions simply did not lead $900 million
dollar firms to fail at a time when larger economic forces were pushing all
large law firms up.
As pricing pressures increase, so do
the bad decisions. For example, in “Growth
is Dead,” the Adam Smith Esq definitive series on the current state of the profession, Bruce
MacEwen has written about “‘suicide pricing’ in response to RFPs… bids—from
name-brand firms, mind you—that are so breathtakingly low one wonders how they
could possibly make any money. The short answer is they can’t. These bids come
in 5, 10, 20, 40% under what my clients think would be reasonable for the
matter.. in a desperate and/or deluded attempt to keep the factory whirring
away.”
Ten years ago, there was a lot of room
for error. Now there isn’t. As Warren Buffet famously said, "It’s only when the
tide goes out that you learn who’s been swimming naked."
Large law firms had a great run of
success through the first few years of this century, with constant expansion
and ever-rising salaries. But that’s over now. As Dan DiPietro, Chairman of
Citi Private Bank, put it, “The industry will not return to the golden era of double-digit profit growth
any time soon.”
And, as Microsoft founder Bill Gates
stated,
“Success is a lousy teacher. It seduces smart people into thinking they can’t
lose.”
In other industries, many people have
experienced great success and thought they couldn’t lose. Here are some of the
companies they used to work for: TWA, Pan Am, Eastern Airlines, MCI WorldCom,
American Motors, Montgomery Ward, Woolworth’s, Standard Oil, RCA, Compaq,
Digital Equipment Corporation, Wang, Drexel Burnham, E.F. Hutton, PaineWebber,
and Lehman Brothers.
But the world changed, they didn’t, and
now all those companies are gone. So are lots of others.
In the last few decades, the forces of
global economic change and technology have radically transformed many
industries including telecommunications, airlines, retail, mass media, and
medicine. As jazz great Miles Davis said in his autobiography: “The world has
always been about change.” These same forces are now transforming the business
of law.
In his apocalyptic book The End
of Lawyers? Richard Susskind argued that, “For many lawyers, it looks as if
the party may soon be over.” (p. 270) As a result of advances in information
technology and pressures toward commoditization: “The market is increasingly
unlikely to tolerate expensive lawyers for tasks (guiding, advising, drafting,
researching, problem-solving, and more) that can equally or better be
discharged by less expert people, supported by sophisticated systems and
processes.” (p. 2) As a result, Susskind
wrote, “Lawyers who are unwilling to change their working practices and extend
their range of services will…struggle to survive.” (p. 269)
Change is never easy, and it will
require both inside and outside counsel to make a substantial investment in
learning new skills and experimenting with new ways to do business. As Harry
Trueheart, the chairman emeritus of Nixon Peabody, put it:
Law firms will pay dearly as we
as a profession learn to do this. There will be winners and losers.
There’s still time to decide whether
you will win or lose. If you want to
lose, ignore the need to change your behavior and better meet client
needs.
But if you want to win, it is a time to
stop acting like a risk-averse lawyer, and start acting like an entrepreneur, and
turn your clients into raving fans. As Camden
Webb, a partner at Williams Mullen, put it after completing one of
our project management programs:
Don’t hold a series of committee meetings for
a year and then do a top-down analysis. Just do something
This post was adapted from my new book “Legal Project
Management, Pricing, and Alternative Fee Arrangements” which will be published
in February. A draft of the book is
currently being reviewed by experts from over 50 law
firms.
