Monday, November 24, 2008, 3:45 PM

Law Firms, Make Changes or Get out the Way!

This post is in response to the American Bar Association's roundtable discussion: What Should You Do Now? A Roundtable Discussion on Law Practice in a Time of Great Economic Turmoil

Hundred fifty year old landmark financial institutions going out of business, others owned by taxpayers, Detroit on the rocks, two wars dragging on, stock market down, $700 billion in taxpayer money out the door and perhaps down the drain, stock markets halved, retirement plans decimated, bankruptcies on the upswing, new president with zero administrative experience, law firms closing doors, late-pay on the upswing, legacy clients closing doors. What, us panic?

I guess it's normal for commentators to advise "dont panic." But with all of these signs afoot, how can anyone working in a law firm not do so? Telling lawyers not to panic is like telling a defendant in a capital case to think positive. Just words. Lawyers everywhere are losing sleep, developing ulcers, and frenetically trying anything and everything to change the trajectory.

All the effort is not going to create a positive result unless we first recognize that just as the world has changed forever, the business of law has changed forever and the traditional law firm model is instantly obsolete. Fact one: except for the most crucial matters (where the billable hour will remain king), inside counsel will seek and easily find scores of alternatives to Big Law -- ranging from new-age law firms, contract lawyers, overseas outsourced lawyers, and more. These solutions are in place, and they will gain credence and market share instantly. Speedboat law firms offer a blended solution -- new, facile business models like the law firms 2.0 are offering combined with deep benches and expertise.

Even before the meltdown, The Association of Corporate Counsel's Value Challenge was a harbinger of the business model of the future. Before the meltdown, inside counsel and their first-cousins, the sourcing professionals, had established a significant intellectual leg up on the sellers (aka law firms) which have clung on to an ancient business model. The meltdown transports us instantly into an economic slowdown where capacity (lawyers in private practice) vastly exceeds demand. This is particularly true in transactional law, especially in the real estate sector. Law firms seeking to survive will have to make the changes that inside counsel have been demanding or get demolished by law firms who will make the changes.

Three forces that will drive legal practice are clear: legislators and administrators who will be driving new regulations and compliance; law enforcement, which eventually will seek to find and punish the errant who have wrought havoc with the world; and the plaintiffs bar, which will be capitalizing on whatever is available. As they design their new business models, law firms need to watch these segments for clues about the help that businesses will need....and then get there quickly with an efficient, affordable, scalable solution.

To the extent that panic brings about these changes, and quickly, maybe it really IS a strategy.


Anonymous Jordan Furlong said...

Speaking as a member of the ABA roundtable, I think it might be useful here to draw a distinction between panic and fear.

Panic is rarely helpful. Rationality shuts down, self-preservation takes over, and deeply held survival instincts rise to the surface, overwhelming reason. Panicked swimmers don't suddenly become stronger and swifter; they drown. In the case of lawyers, panic results in actions that are actually the opposite of the (correct) responses you advocate.

Panicky law firms do silly, short-sighted things like cut associates and support staff, cancel the holiday party, and suggest to their recession-ravaged clients that a 3 to 5 percent rate increase for 2009 is somehow appropriate. In other words, business as usual, just with fewer people and slightly depressed earnings. These are shallow, knee-jerk reactions, devoid of sober thought and careful consideration. Panicky lawyers don't escape their rut; they burrow deeper into it. Lawyers need their wits about them to respond to a crisis, and scaring them out of their wits is counterproductive.

Fear, on the other hand, in sufficient doses, can be galvanizing: the stark and sharp realization that danger is at hand shakes off other distractions and commands your full attention. Samuel Johnson's epigram -- "The prospect of being hanged focuses the mind wonderfully" -- applies nicely to firms right now, which need minds alert and focused on the problem at hand. Lawyers must, as you say, "recognize that just as the world has changed forever, the business of law has changed forever and the traditional law firm model is instantly obsolete." But it's asking a lot of professionals who don't like or understand change to accept that kind of cataclysmic upheaval all in one go, let alone act on it.

I can't speak for my fellow panelists, but one of the things I tried to communicate is that the profession is in serious, immediate trouble, and that lawyers need to (1) recognize that, (2) accept it and (3) act on it. Panicked lawyers won't get past the first two steps; genuinely worried but still functioning ones will. I hope everyone who comes away from the roundtable is genuinely worried.

You're absolutely right that great change is at hand and fundamental responses are needed. But the one things lawyers have going for them is their intelligence and creativity, and if we induce panic, they'll lose those critical resources.

Great blog, by the way!

November 26, 2008 at 9:40 AM  
Anonymous Patrick J. McKenna said...

Great blog.

It is interesting how you and others continue to wonder whether anyone "gets it." I've had that same discussion myself with numerous managing partners and practice group leaders and concluded that too many don't get it. Why? Well, you will remember how everything was supposed to come crashing down on our heads with Y2K. It didn't. You will remember how we were all supposed to be overcome with the impending pandemic. We weren't. And now we see this blip in the economy. Many senior partners are simply saying internally, "heads down, billables up, this too will pass." Unfortunately too many of us have now been conditioned to hearing the cry of wolf and expecting that it will quickly go back to business as usual. I fear that it is going to take some more time and more pain before the message starts to sink in.

Keep up the good work! Thanks

Patrick J. McKenna

November 26, 2008 at 1:07 PM  

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