Start the Revolution in the Middle?
Are Mid-sized Firms the Key to Transforming the Legal Service Model?
“Listen,” consultants are always telling mid-sized law firms, “You’ve got three choices in today’s legal marketplace: merge, grow, or die.”
And that’s accepted wisdom. Law practice economics don’t lie. Mid-sized firms may try to compete for profitable corporate litigation, deal and other bread-and-butter work. But, everyone knows they (1) don’t have the IT and other systems heft to innovate with the big players, (2) don’t have the scale to market and compete for global business, and (3) can’t attract the talent they need to go head-to-head with Big Law on major work.
But what if that’s wrong? What if mid-sized firms are in an ideal position to fix what’s wrong with law practice today? Could it be that the revolution has already begun and some visionary mid-sized firms and the companies that serve them are already taking the steps necessary to kick Big Law’s can down the road and around the corner? Might they have exactly the nimbleness and creativity to transform the legal services model in ways that clients are demanding? And can we hope that creativity perfuses the whole model and fixes what’s what desperately needs fixing?
Well, we’ll see. But first, let’s talk about what’s broken.
How Unhappy Can You Make Us? Clients have been telling Big Law for years that the their service model is abysmal. Association of Corporate Counsel (ACC) surveys highlight year after year that lawyers don’t return phone calls, that they are difficult to reach and unresponsive. Altman Weil, BTI Consulting, and others capture the repeated complaint that lawyers don’t trouble themselves to learn their clients’ businesses. And, as though that weren’t bad enough, only a small fraction of chief legal officers surveyed by the ACC believe firms are willing to change their service models. Big Law just keeps on keeping on.
These conditions have led to an unprecedented level of activism by law departments. The rise of legal operations functions, the introduction of procurement disciplines into the acquisition of legal services, the formation of groups like the Corporate Legal Operations Consortium (CLOC), the creation of the ACC Value Challenge, extraordinary pushback on pricing and staffing decisions — all are dramatic responses to these perceived shortcomings.
So what are Big Law firms doing in response to all this very vocal complaining?. Well, they’re doing what they do best:
Raising prices.
Defining the Opportunity. Altman Weil’s 2016 Survey captured the essence of the opportunity that inheres — for someone — in these law department complaints:
“Among the reasons that law departments switch law firms, the themes of problematic service, cost and efficiency appear prominently. In the last twelve months, 53% of law departments say they shifted a portfolio of work worth $50,000 or more because of a client service issue; 41% switched to another firm in pursuit of lower fees; and 30% moved their work to a firm that was more effective in managing matters.
Every year since 2009, the survey has asked law departments to assess law firms’ seriousness about changing their legal service delivery model. In 2016, for the eighth year running, CLOs rated law firms at a median three on a zero to ten scale in which zero equals ‘not at all serious’ about change and ten equals ‘doing everything they can.’”
The 2017 Georgetown Report, from the Center for the Study of the Legal Profession at Georgetown University Law Center and Thomson Reuters Legal Executive Institute, goes further:
“Driven by strong internal pressures to reduce the overall cost of legal services, clients over the past decade have been increasingly willing to embrace a broad range of strategies to enhance the value they receive for their “legal spend.” A linchpin of these strategies has been a growing willingness on the part of clients to disaggregate or unbundle the services they seek from particular outside providers, and this, in turn, has led to a steady erosion of the traditional law firm franchise.”
These market conditions would be opportunity enough for entrepreneurial firms of any size. But the opportunity for mid-sized firms is amplified by the astounding passivity of Big Law firms in recognizing and responding to client complaints. Yes, Big Law firms talk about changes in the market. And sometimes they appoint chief innovation officers or the like to “think” about change. But do they change?
Not enough for clients. That inaction has created a growth industry that has come to be called “New Law.” Services such as Rocket Lawyer and LegalZoom are turning automated document assembly and online decision trees into an entirely new infrastructure for the delivery of legal services. And, while those companies started out in the consumer sphere, they are now encroaching on valuable startups, as well as small and mid-sized business markets.
Legal Process Outsourcers (LPOs) have transformed the economics of eDiscovery, and cut, especially, Big Law out of very profitable revenue streams. Virtual entities such as Axiom, Counsel on Call and VLP are reformulating what it means to be a firm. Blockchain-based companies are actively developing smart contract solutions in the financial and consumer goods sectors that cut lawyers out of the equation. Alternate dispute resolution services are springing up to remedy the cost, delay and unfairness inherent in an overloaded court system. And all of this is clearly just a beginning. Watson is waiting in the wings and clients are lined up waiting to use AI to further erode Big Law’s hold on premium legal services.
The Mid-Sized Opening. Which brings us to mid-sized firms. It turns out that the major mid-market constraints that have, over the years, prompted consultants to recommend merging or accelerated growth may no longer apply.
Take the assumption that only large firms can capitalize and manage the technology platforms necessary to compete for sophisticated legal work. The rise of SaaS (Software as a Service) and cloud-based solutions now puts powerful technologies within reach of mid-sized budgets. And vendors such as LogicForce Consulting are available to spread the cost of technology management across many mid-sized firms. So, those firms can now compete head-to-head with Big Law in areas such as auditable cybersecurity (especially important to financial institutions), state-of-the-art eDiscovery, and mobile practice solutions. Technology, in other words, need no longer be a barrier.
What about other advantages of scale that accrue to Big Law? Can mid-sized firms offset those too? Yes, absolutely. Law firm networks such as Lex Mundi, TerraLex, Meritas, InterLaw have been working since the late 80s to extend the reach of mid-sized firms through global branding, expertise sharing and other cooperative efforts. And these networks are becoming quite sophisticated. At some point, clients have to wonder how much difference truly exists between a well run network and a Big Law firm Swiss verein in terms of branding, global reach and sophistication. One looks pretty much like the other.
Once problems of technology and scale are solved, client satisfaction becomes a matter of available expertise and reforming Big Law’s ponderous service model. And I believe the real competition — between New Law, Old Law, Big Law and anyone else who wants to weigh in now — will be over redesign of the service model.
Back in the 80s, the big firms could still make the case that armies of superbly educated, fabulously expensive associates were necessary to sift through discovery documents in litigation. How else, the firms argued, could you expect to find the one smoking gun in the midst of a warehouse of documents?
How indeed? Try automation, efficient work processes, trained specialists rather than untrained generalists…and so on. The case has already been made that Big Law armies are not necessarily any advantage.
eDiscovery automation and LPO specialization broke the back of the associate leverage argument in eDiscovery, and began to undermine associate leverage across all practice areas. Billing guidelines propagated by many large clients now prohibit billing for first years, sometimes second years, and force the cost of coming up the learning curve from clients back to firms.
All of this creates a huge opening for firms that are willing to reexamine their assumptions and alter them to meet the demand for real innovation and service.
Perhaps the foremost example of a mid-sized firm that meets head-on the sorts of client demands we’ve been discussing is Denver’s Bartlit Beck. That firm is not a new creation. Fred Bartlit left Kirkland & Ellis to form the firm more than 20 years ago. But the market conditions he described that gave the firm its opening are just as prevalent today as when Bartlit Beck started:
The working assumption of the large firm was that the more hours a project took, and the more lawyers involved, the better the end quality.
This assumption in turn drove a business model that seemed, to us, even more peculiar, resulting in:
• Experience was devalued. Associate turnover was fostered. Most associates were terminated as they gained experience. It was typical of large firms to hire classes of 150 each year, and terminate most of them by the eighth year. The result was that the lion’s share of a large firm’s work force was kept intentionally inexperienced.
• The legal process was very susceptible to use of time-saving technology. Yet most associates, and almost no partners in charge, were able to use technology.
• The hour-based fee model resulted in inefficient firms being more profitable than a relatively more efficient firm.
Bartlit Beck addressed those problems of the Big Law model by:
· Eliminating hourly billing
· Working only on a fixed-fee basis, with a results bonus
· Shifting from high associate leverage to high partner leverage
· Creating a true apprenticeship for the associates the firm does hire
· Using their low associate leverage and apprenticeship models to attract the best law school and law clerk talent,
· Avoiding all lateral hiring, and
· Leveraging all the best technology, not because it is innovative, but because efficiency is now a benefit rather than a detriment to the revenue model
The result of this client-focused service model has been steady growth for Bartlit Beck, a reputation for expertise and outcomes that rivals or exceeds that of most Big Law litigation practices, and a client list any Big Law litigation department would be proud of.
While Bartlit Beck is not a full service firm and mid-sized firms trying to emulate Big Law’s smorgasbord approach to practice may not see the fit, it’s policies very precisely address the complaints that most clients are now voicing about Big Law. The template has been cut, the exemplar proven.
If the Bartlit Beck example is so good, why haven’t more mid-sized firms taken such “radical” steps to meet client demand? In part, I think the “grow, merge or die” advice propagated by consultants has taken its toll. Bartlit Beckizing your firm isn’t on the menu.
But it needs to be. Because our clients need legal services designed for humans, not for law firms. And if law firms don’t meet the demand, then New Law and other latter day creations will grow to fill the void.
