Mike, it’s a real phenomenon, to be sure, and it’s easy to see how it applies to clients’ thinking: if you’re paying top dollar for something, it’s got to be good — especially when you either (a) don’t fully understand the value of what you’re buying or (b) know that the underlying product or service is basically the same everywhere, but you want the CYA comfort of the expensive brand name. No one ever got fired for buying IBM, etc.

I can only suggest, in terms of a solution, that nothing clears the marketplace of “voluntary strategic overpayment” quite like a recession, one of which we’re now pretty clearly leaning into. I suspect that very soon, a lot of legal buyers simply won’t be in a position to use expensive rates as a de facto insurance policy, and that much of the basic work for which clients now pay firms a lot of money is going to get seriously compressed and condensed, whether anyone likes it or not.

I won’t speak for Prof. Henderson, but in his paper, he does agree that this sort of firm almost certainly wouldn’t be profitable from the start, nor for awhile after that. He suggests that an existing law firm set one up as an affiliate with the express idea that it’s a loss-leading R&D project for future profits, or — even better — that if outside investment in firms were permitted, an innovative firm like this would be very attractive to investors looking for high-risk, high-reward, long-term payoffs. Most law firm partners, though, addicted to end-of-year draws and short-term thinking, are a long way from there.

My question is: will this new model of firm ever be able to sustain itself through the number of years it would take to turn profit while maintaining its staff?

Sure, the idea is all well and good – great legal services at a discount rate – but there will always be a competing maxim that has been ingrained in the minds of many Americans. The thought process goes along the lines of the following: “the more I’m paying, the better product I am receiving.”

As skewed as this line of thinking is, it is a perception that many have adopted. I certainly don’t have any statistics to which I could point, though I’m sure Professor Henderson may, but perhaps this is an additional factor as to why firms such as Cravath have thrived.

Further, the training that would be required to achieve the level of skill necessary to run this model firm would certainly be draining on the finances of those in charge. Perhaps the new model firm that Professor Henderson proposes would not be able to attract enough business to keep itself afloat and cover the overhead fees inherent in the model.

I do agree, however, that the “Cravath” model firm is damaging to both the legal community and those dependent on its services.

This is an astonishingly concise and accurate summary of my Results or Résumés paper. It is great to have a professional journalist boiling down my ideas! You also add some important insights on the likely direction of change.

Note that I just posted a second blog entry on this topic, entitled, “Part II: How law firms misapply the “Cravath system.” It quotes the words of Robert Swaine and Paul Cravath to make the very point your make in the above entry.

Thanks for taking the time to review my work. Bill H.