The legal industry seems to be finally bouncing back from a lost half-decade of stagnation.
However, as the law practice business improves, it is not returning to the same law firms. According to most metrics, midsize law firms are taking a growing share of big-time litigation. For example, legal consultant Ken Lopez finds that medium-sized law firms (those outside of the 25 largest firms) are suddenly dominating current and pending federal litigation.
Obviously, there are limits to the trend, but this is a real and undeniable change. He notes that there are about about 45,000 lawyers in the top 25 law firms and about 45,000 in the top 50-150 firms. However, 80 percent of large-scale federal litigation is going to the second group.
“This is a tectonic shift compared to the data only a few years ago,” says Lopez.
The New Law Business Model
While the broader economy is now recovering from the 2008 economic collapse, law firms have not been able to bounce back as quickly. In order to compete, more firms are finding it necessary to downsize and reorganize in order to survive. Just last week, Patton Boggs said it is downsizing by 15-20 partners and asking partners to suspend their draw. But there’s more to competing than getting smaller and shedding staff.
Big Law isn’t just about size. Unlike other industries, the biggest firms in America battle for prestige as well as scale. Big Law is about attracting top talent and watching those attorneys compete for the reward of partnership. These firms have huge teams of associates and support staff, but rely on the prestige of their partners to justify huge hourly rates.
The Lawyer Hustler
The most popular new law business ideal is a fixed-fee model. Fixed fees make legal services more affordable and help change the dynamics that pit clients against their own lawyers. (Remember the leaked DLA Piper email cheering on a colleague to “churn that bill, baby!”?) In the New Law model, services are commodified and the provider, not the client, takes on the risks of under-estimation and poor matter management.
But making a fixed-fee model work will require more than just commodity pricing. Fixed fees work best for repeatable and cookie-cutter type work. The world still needs legal experts who can bring original insights, brainpower, and experience to bear on complicated matters. For example, Nextpoint partner Legati has created a review process to match the best possible lawyers in its network with the right matters, all at a fixed rate.
The idea is to create an alternative process to the Big Law model, where young associates are often rewarded with work not necessarily by merit, but as a reward from the more powerful partners. Legati believes that if it can match the right lawyers with the right clients, smaller companies will be able to afford legal services.
In addition, more young lawyers will have a chance to prove themselves and earn the prestige once reserved for large law firm partners.
“We can’t just talk in vague terms about being more cost-effective or using alternative billing,” Legati founder Andrew Greene told Chicago Lawyer. “It’s just unacceptable to be in an industry that doesn’t service most of its potential clients.”
We don’t need to throw out the Big Law model entirely, but rather find a way to support the top legal minds without all of the wood panelling and army of IT and support staff. Law firms should have a menu of alternative fee arrangements, but must also maintain their core competency- offering legal advice. Succeeding in law does not mean you have to sacrifice your legal experience and start grinding out grunt work for a flat rate.
There is a reason many Big Law lawyers have left big firms and are now thriving in a boutique or even solo office environment. Back in the 1990’s and early 2000’s, large law firms beat each other up to see who could throw the most attorneys and resources at a problem. Now attorneys realize the advantage is having the most flexible and cost effective platform for legal services. To do this, law firms should reconsider the way they apply resources. There needs to be a just-in-time delivery of legal services. Rather than keeping a large IT staff and software in-house, they need a battle plan. When a matter hits, firms need to ramp up the appropriate partners and technology quickly.
Downsizing Can Be a Good Thing
Nicole Black predicts large law firms will go extinct by irrelevancy.
But in American Lawyer, editor-in-chief Aric Press says, “Will Big Law die? No. But it will confront challenges on its boundaries, which in turn will force more reaction and stress. The tech-based threats will likely come in two broad categories: how work gets done and how data—otherwise known as law—gets processed.”
That sounds about right. The size of a law firm is not the determining factor in succeeding in the new legal world. Success will be determined by factors like how responsive the law firm is, how well it can manage and process huge volumes of data, and how well it can manage the cost of litigation. Law firms need to make all of the backend work predictable and commodified, so that they can focus on the thing lawyers do best- practice the law.