Will the recession change the way law firms do business permanently?
New York Times columnist and author Thomas L. Friedman recently posed this question: "What if the crisis of 2008 represents something much more fundamental than a deep recession? What if it’s telling us that the whole growth model we created over the last 50 years is simply unsustainable economically?
I think so and ask what your opinion is.
I remember hearing a sound in August 2007, just as the recession began, when I first heard about lawyers charging $1,000 per hour. It was the sound of a bubble popping. I’m sorry, but no lawyer who cannot shoot laser beams out of their eyes is worth that much money.
In the following months the Association of Corporate Counsel launched its “ACC Value Challenge” specifically to rein in out-of-control legal costs. Clients are in an organized revolt.
Then came the massive layoffs of law firms, as tracked by the Law.com Layoff List. As of March 6, 2009, there have been over 7,241 layoffs (3,045 lawyers / 4,196 staff) since January 1, 2008, according to Law Shucks.
The handwriting on the walls turning into headlines in the news. Major corporations are actively seeking smaller law firms to get lower rates. Clients want cost-efficiency and an end to the billable hour.
The firms that survive the recession will:
- Have “customers” not “clients.”
- Offer flat fees per project or per procedure.
- Have rates that are markedly lower than in 2008.
- Will routinely produce budgets for all legal work.
- Be run like real businesses and offer customers “just in time” services at the best price possible.
- Realize that customers are fickle and expect personalized service.
- Have lawyers that fly coach and stay at cheap hotels near the client’s offices, instead of the Four Seasons 5 miles away.
- Have lawyers that know their clients business, their goals and strategies, and work to help the client make more money or cut their costs.
Answers (6)
Angelo P
Immigration Partner at Seyfarth Shaw LLP, Expert Witness, Public Speaker, Journalist & Blogger on Immigration Law
Larry:
You are clearly correct in your insight. The hourly business model for law firms is on the endangered species list, but no one will save it from extinction. The way that firms can do what you suggest is to focus on value-added contributions (from the client's perspective), process mapping and lean six sigma strategies.
There are forces, however, that will make the change slower than necessary. The old model of 50-state regulation of the practice of law will impede the pace of change because each state has its own view of what is permissible and ethical in terms of engagements with clients.
Thanks for opening this discussion.
Angelo Paparelli
www.seyfarth.com/immigration
I have been operating this way since the beginning, I did not foresee the extent of the economic collapse but I adopted part of these ideas into my original business plan. I think there is and will be more of a swing towards smaller boutique firms and the trends you outline. I had a friend who went downtown recently for a deposition at a large downtown LA law firm and it was a day when they just laid off a number of attorneys. He said the place felt like a morgue.
Links:
Clarification added 9 months ago:
Check out this link from LA Times the other day.
Clarification added 9 months ago:
I am reminded of an article I read recently where one high-powered Family Lawyer to the Stars in Los Angeles charges $97 per e-mail (that's in the retainer agreement). Even if that e-mail is one sentence.
There is a company that has been around for almost forty years that may be poised to fill the space previously occupied by that popping legal fee bubble with prepaid, life events legal services. The company in question offers custom services in most staes in the US and 4 Provinces in Canada. Low monthly rates, a broad range of everyday services and access to a broad range of legal specialties are just some of the features offered. In tough times like these, that broad middle class demographic may finally find the service they will be needing in increasing numbers.
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Larry -
I thought that sound in 2007 was the dropping of the other shoe. Law firms have been on thin ice for years, as they attempted to keep the magic knowledge of the law to themselves, at a time when the internet was destroying silos of knowledge on a daily basis. The main problem then was leakage, and, but for the monopoly enforced by the federal and state supreme courts, and the promotion of judges largely from the ranks of lawyers, the guild system of large and small law firms would have fallen apart in the early part of this century.
Remember the shreiks of terror about multi-disciplinary practice back then? Well, most state Bars stepped in to that on a sharing of fees objection, a concern that was completely ECONOMIC and not at all about justice or the law. The uproar on fees recently is just a product of the anti-market fees structure of lawyers, a set of charges that have no relationship to the cost of doing the business or to the value delivered in a particular matter. Hourly fees are completely unrelated to any market forces except the ego of the lawyer/law firm and the price resistance threshold of the client.
Your bullets pait a bold future. I hope it comes to pass. But I'd agree that the current system is reaching the end of its lifecycle.
I think you are right on point. It's time for the legal profession to become more customer centric. The corpoarte clients are going to demand it and as a business the traditional firm structure is going to have to change. In the past year we've seen firms collapse under their own weight (even before the economy tanked). Now we are seeing thousands of layoffs, de-equitized partners and a volume of lateral movement that is creating all kinds of new challenges. The change will be most profound in the largest of firms. Clients are now taking a more active approach to case management and vendor selection and this is only going to increase.
Historically the legal market has kind of been recession proof since the business cycles of various practice areas would tend to even things out in a macro sense. That's not happening this time around and I expect we'll start to see wiser use of resources and time. The shake out we are seeing in other industries (banking, insurance, manufacuting) is going to percolate down to the law firms working with them and they will have to adapt or perish.
Catherine A
Chief Enthusiasm Officer at The Legal Mocktail, President and Co-Founder of Legal Sales and Service Organization
Great Q.
I agree that the firms that survive will certainly meet all those criteria.
Those that thrive will, naturally, do more, even where the laws of a particular jurisdiction do not require it. For one thing, they will accept finally and fully that lawyers with customers are, by definition, responsible for sales and service. Firms will be organized to support these sophisticated professionals, in every sense. This means that certain, desirable behaviors are rewarded and the converse is equally true. I doubt this can occur in a partnership model.
The ACC Value Challenge should serve as an important catalyst for the kinds of conversations, decisons, and actions that should have been taking place all along,
Hopefully, more law firms will embrace process improvement, listen to the voice of the client, become far more efficient and much less wasteful, and align their business processes with their key customers.
In other words, successful law firms will seize this opportunity to realize their current (and rather aspirational) claims of being "client-centric." And they will create a business culture and structure that is steadfastly focused on and committed to that mission.
-Catherine
