What will law firms look like in five or 10 years? What kind of talent will they need?
One thing — among tremendous uncertainty — is certain. There is a revolution going on in the legal industry.
What once was is no longer. What was predictable has been turned on its axis. The top is the bottom and the bottom is the top. Anything goes and it has and it will continue to be.
What does all this rhetoric mean?
The legal industry was like so many American industries. It resembles the giant automobile industry – it was untouchable — then it got shot down. It was like the major insurance companies and being in good hands. Now they’ve lost major appendages. It was like the securities and stock market, it was bullish. Then it became like the bull in the china shop and it crashed. The banking industry was slow and sure and protected by FDIC and then suddenly they began falling like dominos until it was rescued by the US Treasury.
All of this was like a long solar eclipse. It has been the darkest period the legal industry has ever seen. The legal market felt the effects of the combination of ALL of these horrific events, not just one. It was like the greatest “financial tsunami” in the history of the industrial world had hit the shores of the American Legal Industry.
As a result, large law firms boasting million-dollar per-partner profits slashed partner salaries. They froze Associate compensations. They cut out their first year associate hires and they slashed their marketing and client development budgets to the bone. Every day of every month day since January 2009 saw layoffs and firings and law firms imploding and going bankrupt. Over 10,000 attorneys wiped out. “10,000 GONE!” should be the headline of the aftermath of that financial tsunami.
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So dawns a new day. We are a hopeful industry. We are a resilient people. According to President Obama, “We are emerging and the tide has turned. We think and we hope that better days are ahead.”
We hope that is the case for the American legal market. We hope law firms have weathered the storms. Nevertheless, our best predictor of the future is typically the past. As forecasting techniques like scenario-planning suggest, we can use historic trends as a tool to gain insight about what is likely to happen. To come up with the likeliest projections, we must consider more than just historical performance trends. We scrutinize future projections to identify possible factors or events that might promote or impede the forecasted future values from happening, which can then be built into the strategic planning analysis of law firms.
Future Law Firms
As I attempt to make future predictions regarding the scale and scope of the large U.S. law firms, the projections may or may not come to pass. What they will do is highlight a number of key issues that will affect these law firms in the coming years.
What might the future law firms look like?
- First, the continued splintering of the relationship between the client and the law firm will minimize their involvement over time. Lawyers may be forced to leave their large firms and create and join smaller ones. Those firms, like those in the past, may be boutique firms who serve one or two specialized practices. They may be firms with radically different cost structures, lower overhead, and lower associate and partner compensation. New boutiques will be formed similar to the 1980s and 1990s, providing a different business plan that will lower the cost of doing business and, in turn, lower the costs passed on to clients.
- Second, the necessity for outsourcing will continue to grow. Whether it is offshore or just somewhere other than the home office, the associate cost reductions with outsourcing will be something tomorrow’s firms will not be able to pass up. Legal services will start to look like other services with fixed fees. The billable hour will eventually be a distant memory, something for the law school textbooks.
- Third, technology will continue to drastically change the way lawyers work. Lawyers who use technology to enhance their practices will prosper; others will become dinosaurs and eventually fade out. Automation platforms will be very important in the future. There are law firms already in place in different parts of the country. Axiom Legal, for instance, uses the professional consultant business model and corresponding cost structure. Employees of former big firms as well as experienced in-house counsel charge half of the Big Law rate. The model includes having offices in many non-traditional cities where the cost of living is lower, salaries and draws are lower, and work is being done at half the hourly rates. The result? These experienced lawyers are turning out brilliant work and are happier for having worked in more desirable environments and are expected to stay with their firms longer.
In the aftermath of any extraordinary event, there are always the teams that come to clean up. There is always disaster relief, though the effects remain long afterward. So, too, it is with the legal industry. Bailout money for the insurance companies, banks, and automakers has been doled out.