Market May Change What Bar Associations Won't

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Although corporate law firms have seen business improve since the depths of the Great Recession, things are hardly robust, according to an analysis from one of the best-known legal consulting firms that recently appeared in Bloomberg Businessweek.

The gist of the message was that layoffs at major firms are going to pick up steam once again (one Top-100 firm plans to lay off one-third of its associates in the next three years) because there simply isn't enough traditional corporate work coming in the door. A major reason is that legal process outsourcers, or LPOs, are beginning to take the bread-and-butter of large law firms — handling whole mergers and acquisitions, not just the due diligence aspects of deals.

The consulting firm reported that for smaller deals, clients are finding "they don't need perfect, they need good enough," and are increasingly willing to hire LPOs rather than higher-cost traditional firms.

Now consider the ongoing litigation in New York, New Jersey and Connecticut by a major firm, Jacoby & Myers, seeking access to outside investors. That, of course, is prohibited by the American Bar Association Rules of Professional Conduct, which allow only partner ownership of law firms.

Jacoby & Myers contends that capital from outside investors would allow it to provide more legal services more affordably. But Economist magazine, commenting on the firm's litigation, makes another point: "An integrated firm with professional managers and modern computer systems could develop processes that are repeatable. A few small American firms are already trying to run themselves more like modern businesses and are delighting clients with quick, high-quality work and predictable fees. Allowing outside investment would boost the number and size of such firms."

From LPOs to developers of e-discovery software that quickly analyzes millions of pages of documents, corporate law firms are facing competition that barely existed a decade ago.

Most of these firms cling to the traditional billable hour/leveraged staffing model, and their clients are rejecting that. Lawyers need to pay close attention to the needs and wants of their clients. Large firms didn't grow without being attentive to client needs at first, and all lawyers will need to be more attentive in the future if they expect to retain the loyalty of their clients.

Technology and efficiency will be the differentiators in the future. The firm that embraces those two elements to reduce the costs of its operation and passes those savings on to the client will be more successful. And that will take investment — in capital equipment and in human capital.

Big Law is trying to paper over this emerging dynamic by continuing its lateral hiring binge at a near-record pace. However, trying to maintain profitability by hiring another firm's attorneys as those lawyers' clients continue to defect is not a viable long-term solution. The volume and fundamental nature of legal matters and issues will always be there as long as people need attorneys.

Whether matters are a commodity or not, creating systems to address the issues, reduce the cost of legal services, and pass the savings on to the client form the winning game plan for future survival of the great majority of the legal profession.

If outside investment (which Australia and Britain already allow through "alternative business structures") will facilitate this process, the marketplace will soon come to demand it — no matter what the traditional rules may say.

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