A challenging future for lawyers
The world palpably shook in September 2008 and the repercussions are still very much with us, according to Bruce MacEwen in his book Growth is Dead: Now What? Law Firms on the Brink. Clients of big law firms are putting more pressure on prices than ever before. They are strongly resisting paying for junior associates, and requiring that major segments of matters be handled by low-cost providers such as LPOs and contract lawyers. Realisation rates and leverage have fallen sharply, and law firms are experiencing significant excess capacity.
Will these issues correct themselves when the global recession is over and the economy roars back to life? Not according to the author, who says that, now that clients have discovered their power over law firm prices, there will be no going back. The number of positions available for new law graduates has fallen permanently, as non-traditional replacements for the easy and repetitive tasks have become available. The huge compound annual growth rates enjoyed by big law firms for many years have ground to a halt.
So, where does the future lie? Apart from labour arbitrage, law firms have assiduously avoided serious innovation; that will have to change. Law firms need to learn from other industries which have been dealing with similar challenges for a long time. Greater financial and operational discipline will be required. Law firm cultures will have to change to encourage experimentation and tolerate failure. More attention will need to be paid to low-cost providers. Law firm management needs to be professionalised. A strategy which involves true differentiation will become critical.
For most lawyers, this will be a disturbing book, but, for those who are able to focus their thoughts on the future beyond next quarter’s profit figures, it also presents some interesting possibilities. Although the book, which is essentially a reprint of a series of blog posts from the Adam Smith Esq website, is based on the experience of US law firms, it is equally relevant to large law firms in other countries. I highly recommend it to anyone involved in law firm management.