Before the tsunami struck which devastated Indonesian coast lines and populations in 2004, it was preceded by a massive outflow of the ocean. As the beach fronts exposed major sections the ocean floor, innocent observers were fascinated by and attracted to the extraordinary sight of the seabed lying bare before their eyes. So appealing was this unusual phenomenon, many could not resist running toward their unanticipated demise.
The warning was there, but it went unheeded. The signs of approaching devastation were ignored. Worse, they were welcomed as enticing and attractive.
Are we experiencing something similar in the practice of law?
Thanks to Mitch Boult at Adams and Reece for referring me to Bloomberg Businessweek’s lead editorial (Opening Remarks: White-Shoe Blues) in this week’s edition. Editor Paul Barrett connects the dots in the context of Dewey LeBeuf’s current turmoil. Anyone in the legal profession is watching the Dewey saga with a perverse sense of intrigue as yet another BigLaw firm implodes in the face of a global legal services market phenomenon that has taken down a surprising number of formerly invincible legal powerhouses.
Barrett writes of the radical changes in legal services which are challenging the traditional notions of law firm governance, marketing and practice protocols. Following acknowledgement of vastly over-reported earnings at Dewey LeBoeuf for 2010 and 2011, major partner defections have led to a mass exodus of talent and revenue as the firm seeks to restructure for survival. It was reported this week that the firm is seeking to sublease its executive offices overlooking Central Park in Manhattan to generate up to $2 million in annual revenue in order to keep the lights on. Additionally, competing firms are circling the victim and seeking to snatch up quality talent with portable “books of business” further threatening the financial survival of a once world leading provider of legal expertise.
Some will attribute the next major law firm collapse to greed on the part of a few, mismanagement on the part of some or perhaps a simple misalignment of unfortunate circumstances. Barrett’s editorial takes a larger view and recognizes that the signs of law firm distress and turmoil have been on the horizon for some time. J. Stephen Poor at Seyfarth Shaw in Chicago is quoted as saying the Dewey dilemma is the same for 99% of law firms, “We have to improve or die.”
As a global marketplace has matured in its expectation of the delivery of products and services, the legal business has simply not kept pace. Among other concerns for the current law firm, the partnership business model for a law firm with 500, 1000 or even 1500 partners is simply inadequate to meet the constantly changing needs of success in today’s business environment. Achieving agreement to address strategic business initiatives among hundreds of co-owners and decision-makers is a laborious process at best and generates a lock-down mentality at worst. Fleet of foot is today’s business model. White shoe collegial reflection and consensus building takes time and can often miss vital opportunities. The global economy simply doesn’t wait.
Another dilemma is the excess labor capacity the legal industry possesses in the face of declining demand due to technology, legal process outsourcing and the increasing commoditization of law. When the U.S. Bureau of Labor Statistics projects 73,000 new lawyer positions over the next decade while law schools are generating 45,000 new graduates each year, “something has got to give”. (See numerous prior blogs on this site and elsewhere.)
Most importantly, there are law firms bucking the trend. Seyfarth has grown its revenues, client base and per partner compensation in an era when many firms are constricting. Seyfarth uses project management protocols and technology to improve its processes in the practice of law. As a result, differentiation in the market place is achieved by doing things well, more efficiently and with greater value to the client. Market segmentation, innovative business practices and revisions to the traditional law firm governance model are the hallmarks of the firms that are growing, not dying.
Running toward the new paradigm rather than chasing after the old reality marks the survivors from those choosing to perish in the face of the oncoming tsunami.
When we hear the great sucking sound, it’s time to move to high ground.