Some Historical Background
Abe Krash, a Distinguished Visitor from Practice at Georgetown Law and a Partner at Arnold and Porter, reflects upon the changes to the legal profession over the course of the last 50 years in a 2008 article entitled The Changing Legal Profession, which appeared in the Washington Lawyer, a publication of the District of Columbia Bar.
Krash, cites The American Bar Foundation’s Lawyer Statistical Report that: “In 1951 there were approximately 220,000 lawyers in the United States; by 2000, the lawyer population exceeded one million.” “What accounts for this explosive growth in the profession?”, Krash asks, stating that: “In a perceptive essay written a decade ago, ‘The Material Basis of Jurisprudence,’ Judge Richard Posner advanced an explanation that I find convincing. Posner argued the legal profession in the 1950s was essentially a cartel, in his words, ‘an intricately and ingeniously reticulated though imperfect cartel.’ As Judge Posner pointed out, the situation began to change around 1960. The cartel was shattered, and the profession became intensely competitive.”
“[The] expansion in the lawyer population has been accompanied by greatly intensified competition among law firms for legal business. Objective business considerations are the controlling factor in lawyer–client relations.” Krash continues.
He cites the increasing importance of developing new business for associates seeking to make partner, while lamenting “the emphasis on generating business [as having] greatly diminished the satisfaction that many lawyers once realized from practice.” Krash further states: “At present, the prospective capacity of an associate to expand the firm’s practice, either with an existing client or by attracting new clients to the firm, is an important criterion for election to partnership. Entrepreneurial capability is held in high regard. It is unlikely that anyone will rise to the highest levels of partnership compensation who is not an important rainmaker. The law school can contribute to an associate’s ability to do excellent legal work, but I do not perceive how it can teach or cultivate entrepreneurial or rainmaking abilities. I know of no law school that holds out that it can do such a thing. Yet, that ability has become a crucial factor for a successful future in legal practice.”
The Post 2007 Recession Period
In an ABA Journal article entitled: Law Job Stagnation May Have Started Before the Recession—And It May Be a Sign of Lasting Change, authors William D. Henderson and Rachel M. Zahorsky report that: “The legal profession is undergoing a massive structural shift—one that will leave it dramatically transformed in the coming years. There’s no doubt that the financial crisis beginning late in 2007 was for most lawyers a game-changer, prompting drastic measures as firms laid off thousands of associates, de-equitized partners, and slashed budgets and new hires.”
“Those who wish to rise above the disruption, the authors continue “will have to deal with technology that swallows billable work, a world market that takes the competition international, and a more sophisticated corporate client with vast knowledge available at the click of a mouse. As the balance of power shifts from traditional law firms and toward clients and a raft of tech-savvy legal services vendors, the price of continued prosperity for lawyers is going to be innovation and doing more with less.”
The authors cite “Ray Bayley, President and Chief Executive Officer of Novus Law, who specialize in electronic document review for large-scale litigation and corporate due diligence for large businesses. One of the new breed of legal services vendors that combines sophisticated technologies and work processes with an international workforce that operates 22 hours a day.” Bayley states: “The changes affecting the legal services industry began in the late 1980s. They have been significantly accelerated by the recession, and it’s picking up pace. In five years, the profession will be very different.”
The authors continue: “As firms resist change, their clients become more likely to vote with their feet: taking more work in-house, experimenting with smaller-market/lower-cost firms or giving work to legal process outsourcers, all of whom have greater flexibility to innovate. The 21st century is sure to give rise to a new generation of legal entrepreneurs who create novel ways to adapt to the needs of clients. Successful innovators will grapple with the three interconnected forces that make change inevitable:
1) More sophisticated clients armed with more information and greater market power to rein in costs.
2) A globalized economy, which increases the complexity of legal work while exposing U.S. lawyers to greater competition.
3) Powerful information technology that can automate or replace many of the traditional, billable functions performed by lawyers.”
Pressure facing in-house counsel making hiring decisions
Richard Susskind, a specialist in the future of legal and professional services, is quoted as saying in a Dec 2, 2011 interview with Legal Skills Prof Blog that: “Corporate boards are putting intense pressure on in-house counsel to reduce the amount they spend on legal work. [Susskind is] not talking about 10% cost savings; it’s more like 30-40%.” According to Susskind: “The only way to reduce expenditures by such a large amount is for in-house departments to fundamentally change the way they source legal work. That means moving beyond the so-called ‘alternative fee arrangements’ offered by traditional law firms and instead looking for alternatives to those firms like offshore legal services providers, attorney leasing arrangements and other temp legal service providers.”
Henderson and Zahorsky report further in the ABA Journal that: “There is no question that a serious recession caused a heightened sense of awareness for law firms and consumers,” says Gregory Jordan, who works out of Pittsburgh and New York City as Reed Smith’s global managing partner and chairman of the senior management team and executive committee. “As the recession starts to reverse itself, there will be some movement away from that super-heightened awareness of cost, but this recession gave buyers of legal services enough time to really appreciate that they could get the same quality of service for less than before the recession. The better, faster, cheaper concept is very much here to stay.”
The authors continue: “Moving forward, globalization represents both the greatest challenge and greatest opportunity for lawyers. As the global economy matures, the push for increased regulation will also boost demand for sophisticated business lawyers. This has a twofold effect: Prominent U.S. firms, specifically among the 250 largest firms, are expanding global operations—a costly venture that will be unobtainable for some. And U.S. lawyers, particularly young associates and freshly minted law school graduates, face fierce competition for work from overseas counterparts.
U.S. lawyers underestimate the threats of foreign competition to the provision of domestic legal services. The realm of ‘all other legal services providers,’ which grew from less than $1 billion in total revenues in 1997 to nearly $3 billion in 2008, will continue to attract sophisticated business capitalists eager to obtain a greater portion of U.S. corporations’ legal budgets.
“I’ve seen various waves of purported reform crash on our shores,” says Peter Kalis, chairman and global managing partner of K&L Gates. “I see no paradigm shift in the business of law. What I see are evolutionary adaptations to changing market conditions.” Even so, Kalis says his firm’s aggressive global expansion in recent years is the result of client demands for cross-border expertise—and firms that can’t meet those demands could fail.”
“In a world where even modest-size clients compete in global markets, they are going to need law firms positioned to address that,” says Kalis, who works out of the firm’s New York City and Pittsburgh offices. “There will be a lot of casualties among firms not on the right side of history, and they will be the last to know until talent and clients start to migrate to other firms.”
What will law firms look in the future?
According to legal marketing expert and Editor in Chief of Lawyers.com Larry Bodine, in a March 15, 2009 blogpost entitled: Recession will forever change the legal profession: “Law firms of the future 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, which know their costs, can calculate a profit margin, 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, strategies and objectives, and work to help the client make more money or cut their costs.”
Virtual Law Firms
A growth area that appears to be potentially limitless is the provision of virtual legal services.
The Texas Center for Legal Ethics, in an October 10, 2011 blogpost, writes: “One example [of] a ‘virtual’ law firm [is] Axiom Law, which was founded in 2000 and now employees more than 600 full-time attorneys. Axiom Law attorneys mostly work from their homes or clients’ offices on non-litigation matters such as contracts, transactions and legal research. The firm’s lawyers are paid an average of $200,000 annually, and they charge rates considerably lower than most big firms. The model appears to be working: Axiom Law’s revenue rose from $1 million in 2002 to approximately $80 million last year. Another notable change can be found in the growing number of lawyers doing specialized work in areas that weren’t considered that special a few years ago, like document review.”
Susan Cartier Liebel, Founder & CEO of Solo Practice University, in a blogpost entitled: The Virtual Law Office Debate: Really? writes about Stephanie Kimbro and Richard Granat. They are both virtual practitioners as well as faculty at Solo Practice University
Cartier-Liebel states that: “The lawyer who chooses a virtual law office platform (and generally unbundled legal services) is someone who is looking to address an ever-growing segment of the population – the potential client who would have hired a traditional lawyer and paid the full fare, but economic times have prevented them from making this choice. Cartier-Liebel continues: “Moreover, the virtual law office platform does not necessarily equate to discounted services or low-end services or even unbundled services. It is a suite of technologies. How the lawyer utilizes these technologies is up to her. But, clients are demanding they be serviced differently and they are voting with their wallets.”
On October 19, 2010 Sue Bramall wrote in the Law Society Gazette in an article entitled Why is ‘sales’ only whispered in the legal profession? where she states: “Three articles in the 14 October edition of the Gazette made me wonder why the word ‘sales’ is still rarely used within the profession.” Bramall continues: “Is a reticence to embrace and recognise the importance of sales making it easy for competitors [of traditional law firms] to enter the legal market?”
Steve Bell, Chief Client Development Officer at Womble Carlyle Sandridge & Rice LLP and author of The New Legal Normal Blog stated in a December 2, 2011 blogpost that: “I’ve spent more time again the last couple of years at gatherings of legal marketing – and now, sales – professionals. How things have changed! The field is now densely populated with a higher level of professional, many of them joining law firms after highly productive stints in other industries. They are bringing their experience, their leadership, their creativity and their willingness to take big risks to do what the legal profession has lacked. They challenge conventional wisdom. They do not wait for lawyers – who just don’t, as a rule, have the aptitude for or training in sales and marketing – to lead. These new creative forces in legal sales and marketing are influential change agents with deep experience, ideas, emotional intelligence and fresh perspectives.”
Perhaps these sentiments and others like them will help move the legal profession into a posture where dedicated sales divisions are de rigueur in the future. I for one certainly believe they should be, as I write about here.
The Year Ahead
Jordan Furlong partner with Edge International and a senior consultant with Stem Legal Web Enterprises, in a blogpost entitled: The year of living dangerously states: ”  looks like a year in which the limits of perseverance will be reached and breached. There are just too many places within the traditional legal community where resistance to change will weaken and ultimately collapse.” Furlong sees: ” [More] law firms disappearing, a rise in the influence and competitiveness of Asia-based law firms, an increase in alternative business structures and macro-economic and geopolitical events” all impacting the legal profession to restructure and reposition itself for a more competitive future.
Echoing this sentiment, an article entitled “Time to invent the future” Adrian Dayton, an attorney and author of the book, Social Media for Lawyers writes in The National Law Journal on September 19, 2011, quoting David Susskind: “The economy is not what it once was, and the mindset that will bring success in the future is not the same as the mindset that brought success in the past. The best way to predict the future is to invent it. This concept may not resonate with you or your firm, but it will resonate with a few of the outlier firms — and these outliers will design the law firms of the future.” Susskind also spoke in October at the VQ Knowledge and Strategy Forum held in Stockholm, which drew industry experts from around the world to report on their predictions on the changing legal marketplace.
Susan Cartier Liebel provides some excellent insight and statistics on the larger domestic and international economic context impacting the legal profession in a blogpost of July 25, 2011 entitled: Your Troubled Neighbor, Your Troubled Client, Your Troubled Practice?, where she states: “this New Economy is going to shake up a lot of lawyers who are ill-prepared, rigid in their ideas or smug about the way they currently do business. It is also going to lay the groundwork for tremendous successes for those who understand what is happening and make efforts to be creative, capitalize upon technology and move quickly. Legal problems will never go away for your clients. The delivery of solutions is what is ever-changing. Understanding what you’re clients are up against is half the battle.”
Altman Weil Inc, management consulting firm to legal organizations, stated in a recent blogpost entitled: Uncertain Transition: Anticipating the Pace of Change, cites The Rock Center for Corporate Governance at Stanford University’s recently issued report on the future of law firms in the new economy that concluded by stating: “We must acknowledge and respect the forces that created [current market dynamics], and fashion remedies that swim with the tide of economic change rather than rail against it.
I believe Abe Krash’ quote of English author LP Hartley in his previously cited 2008 column outlining the changes to the legal profession over the course of the past 50 years is even more apropos as we approach 2012: “The past is a foreign country; they do things differently there.”
John Grimley helps law firms, law firm practice groups, individual lawyers, financial services and governmental relations professionals develop and implement custom business development initiatives. To enquire about his services, contact him at +1.213.814.2855 or at email@example.com.