Private Law Libraries Summit, American Association of Law Libraries 2012 Annual Meeting, Boston, MA

I’m very happy to be delivering the keynote presentation “Law Firms and Legal Knowledge Professionals in a Changing Marketplace” to the Private Law Libraries Summit at the 2012 Annual Meeting of the American Association of Law Libraries on July 21, 2012, in Boston, Massachusetts.

The imaginary normal

The joke goes like this: “The optimist says the glass is half-full. The pessimist says it’s half-empty. The engineer says it’s twice the required capacity.”

So what does the lawyer say when looking at the glass? In many cases, it’s: “Why hasn’t anyone refilled my drink yet?”

I speak to more lawyers and legal professionals every day who really get it — who understand how much is changing and who are preparing to adjust and respond. I can’t tell you how encouraging that is to me.

But I’m still taken aback by the number of lawyers and legal professionals who cannot or will not recognize what’s happening — who look at the market and see only what they want to see, interpreting a storm of the century as merely a passing squall.

For many such lawyers, I’ve come to conclude, the underlying cause of that delusion is a sense of entitlement. They’re entitled to respect for their position, steady work from clients, protection from unqualified competition, privilege at the top of the pyramid, stability in an unstable world.

And why should they think different? It’s all they’ve ever known and it’s rewarded them handsomely, so of course they believe it’s the natural order of things. They believe it’s normal, and they’re waiting impatiently for it to return.

Here’s what I want them to understand: It’s not normal. It never was.

The legal market hasn’t really been a “market,” in classical terms, at all. It’s been artificially constrained for decades by asymmetric knowledge, inadequate technology, limited competition, undifferentiated providers, seller-driven pricing, and most damaging of all, the absence of disinterested regulators. Accordingly, buyers have long suffered from weak bargaining positions and low self-confidence. Why, when you stop and think about it, would we ever have supposed that was normal?

The legal profession has been living inside a bubble for decades. And like all bubbles, those on the inside thrived disproportionate to the overall benefits they were delivering, while resentment and frustration continually grew on the outside. And we had no clue, because we figured that was how it was meant to be.

But now that’s changing. Consumers are gaining more knowledge and more choice, giving them more power. The bubble is leaking. The traditional mechanics of healthy markets, by which sellers truly compete with each other to gain the business of well-informed buyers on the buyers’ terms, are reasserting themselves. A legal marketplace that has always been tilted in lawyers’ favour is rebalancing itself.

This isn’t a market going crazy. It’s a market going normal. And it’s not going back.

What mergers can’t achieve

Back in my university days, I remember walking past the Graduate Students Office and seeing a photocopied diagram taped to the door. It was called “The Doctoral Candidate Flowchart,” and it provided a series of turns and directions for graduates struggling to get their thesis finally completed. My favourite entry on the flowchart was in the “Delaying Tactics” stream, a box that sent the user back up to the top to start again. The box was labelled: “Read another book.”

I thought of the Doctoral Candidate Flowchart after seeing all the recent reports of real or suggested law firm mergers in the US and UK, because it occurred to me that just as grad students read another book when they don’t know what else to do, many law firms start talking merger when they’re not sure how else to facilitate growth. After a banner year for mergers in 2011, we can expect, as my Edge colleague Ed Wesemann points out, much more of the same in 2012. But Ed, who has facilitated many such mergers, will tell you that he’s proudest of the ones he helped discourage because they would have come to a sorry end. More firms should reflect seriously on that.

Interestingly, the latest round of breathless merger speculation in the legal press is starting to give way to more skepticism. Alex Novarese doubts that cultural fit and business case no longer matter as much sheer size in merger calculations. Ron Friedmann asks a pertinent question: in what ways do merged firms demonstrably deliver greater benefits to clients than their smaller antecedents? And most significantly, we should all ask: do mergers produce stronger firms? SNR Denton, to take one example, is a transatlantic giant born of a merger two years ago, yet its UK arm suffered a 40% profit drop last year; nonetheless, it’s on the merger trail again.

Don’t get me wrong: many law firms mergers make eminent sense and create real growth. But others do not and will not. And in any event, I think all the merger talk right now might be distracting us from the main event, which is taking place in other settings altogether. Let me suggest four developments in the global legal marketplace in the last couple of months that I think are more important than the latest elephant mating dance.

  • One merger that really matters: King & Wood Mallesons, the Sino-Australian giant whose emergence has caused barely a ripple among many legal market observers. But this colossal firm, Asia’s largest with almost 2,200 lawyers, looks better positioned than any global incumbent to generate real business opportunities in southeast Asia and Oceania, if not beyond. And Mallesons, before the merger, was the most innovative law firm in the world. Are they a threat to the AmLaw 100? Not today; but they’re looking much farther down the road than today, something that’s true of very few AmLaw 100 firms.
  • Another Australian invasion: the outright purchase by Slater & Gordon, the world’s first publicly traded law firm, of national British firm Russell Jones & Walker for an eye-opening £54 million. Not incidentally, RJW is the owner of Claims Direct, a slick and highly effective public portal for personal injury claims, and I’d not be surprised if Slater & Gordon considered that to be the jewel in the crown it just acquired. (See this acute analysis of the deal by Edge’s Sean Larkan and Chris Bull.)
  • Along with the RJW move, two other transactions under the finally-active Alternative Business Structures provisions of the UK’s Legal Services Act: technology and outsourcing company Quindell Portfolio bought personal injury law firm Silverbeck Rymer for £19.3 million, and private equity firm Duke Street shelled out as much as £50 million for majority ownership of Parabis Group, parent company of insurance litigation firms Plexus Law and Cogent Law. That’s almost £125 million in two weeks’ worth of law firm shopping, for those of you keeping score at home.
  • Finally, a move that’s not a merger but still matters: Nixon Peabody’s announcement that it’s retaining Thomson Reuters’ LPO division Pangea3 as its preferred provider of e-discovery services. You might remember a time when large US law firms wouldn’t even acknowledge the existence of LPOs, let alone suggest they might work with them. This is a tacit acknowledgement by a major American firm that much work previously performed by lawyers can no longer be done profitably by lawyers, which is absolutely correct. Nixon Peabody has broken the ice: expect similar announcements from other firms in future, and expect this relationship to evolve past e-discovery.

LPOs, private equity shops, publicly traded law firms and Sino-Australian giants are no longer theoretical participants in a future legal market. They’re here, they’re real, they’re sitting at the same table as (or partnering with) traditional law firms, and most importantly, they’re outsiders. They don’t carry all or most of the habits, assumptions and baggage of the traditional Anglo-American law firm, which leaves them free to be as aggressive, disruptive or innovative as they like. They think the future legal market belongs to those who approach and engage it differently. I think they’re right.

The fatal flaw of all market incumbents is a failure of imagination, the inability to perceive that what they currently do could be done differently and better by someone else. Many law firms eager to merge and expand seem to believe they’re still competing against other law firms in a market suffering a temporary downturn, and that size and reach are the cures for what ails them. I think they’re mistaken. They’re actually competing against new models, new approaches and new attitudes, in a market that has started to evolve beyond them. Size and reach alone simply aren’t going to be adequate responses to that.

Jordan Furlong delivers dynamic and thought-provoking presentations to law firms and legal organizations throughout North America on how to survive and profit from the extraordinary changes underway in the legal services marketplace. He is a partner with Edge International and a senior consultant with Stem Legal Web Enterprises.

The year of living dangerously

So there goes 2011, and from a legal marketplace perspective, you could probably call it the year of hanging on. Large law firms hung on in the face of flat-lined or diminishing revenues, in no small part through the wonders of de-equitization. Small law firms hung on despite an expanding sea of legal service providers targeting the consumer market. Corporate law departments hung on despite seeing their outside counsel budgets cut by as much as 25%, yet still managed not to force change in the market. Law schools hung on in the teeth of a growing storm of criticism that they had failed to look out for their students’ financial interests. Measured in terms of endurance and tenacity, at any rate, it was a pretty good year for the incumbents.

Now here comes 2012, and from where I’m standing, it looks like a year in which the limits of perseverance will be reached and breached. There are just too many places within the traditional legal community where resistance to change will weaken and ultimately collapse. I want to point out three in particular that strike me as especially noteworthy harbingers of some new realities.

Disappearing law firms: Mergers and acquisitions of law firms picked up pace in 2011, but here in December came word of some interesting variations on the theme. Bryan Cave “merged” with Denver-based Holme Roberts & Owen, while Arnold & Porter “merged” with San Francisco’s Howard Rice. I put “merged” in quotes because it’s a polite fiction to pretend that these were anything other than flat-out acquisitions of law firms that were experiencing serious pain. Holme Roberts suffered a string of partner defections and staff layoffs earlier this year, while Howard Rice had lost nearly half its complement of lawyers in the last nine years, including two senior partners in 2009.

You can expect to see a lot more of these kinds of deals in 2012, because a lot of firms are having a very tough time adjusting to the new rules of the market. Some firms, as I noted in a post last month, don’t even make it to the acquisition stage: they simply disappear. This AmLaw Daily article makes it even clearer that dissolutions of law firms took place throughout 2011, starting with Howrey LLP and continuing with smaller and midsize firms throughout the year. You can call it “consolidation” if you like, but it also bears a strong resemblance to a profession-wide culling of the herd. Many law firms are weaker than they appear from the outside, or even from the inside, depending on how transparent their internal financial disclosures turn out to be. Some bigger dominoes could start falling early in 2012.

The rise of Asia: It remains something of a puzzle to me that the merger of China’s King & Wood and Australia’s Mallesons hasn’t set alarm bells ringing across the global legal marketplace. Now the largest law firm based in the Asia-Pacific region, with more than 1,800 lawyers, King & Wood Mallesons is something we’ve never seen before. Put it this way: Mallesons was one of Australia’s biggest and most esteemed law firms, large enough to entertain lengthy merger talks with Clifford Chance and innovative enough to be the only two-time winner of the College of Law Practice Management’s InnovAction Awards. Yet which firm wound up with top billing? That should tell you something about how much influence Chinese law firms are set to wield.

Will King & Wood Mallesons be able to crack the rich Anglo-American legal market? I’m not sure that’s on their radar right now. There’s more than enough work in Asia and Oceania to keep them busy, and frankly, it would be understandable if they think that their corner of the world has more medium-term upside than the western corner. But other Chinese firms are quite happy to go west: in fact, the two biggest law firms in China, Dacheng and Yingke, are preparing to open bases in London. Then there’s small Chinese firm Broad & Bright, in merger discussions of its own with none other than Clifford Chance. Years from now, we’ll look back on 2011 as the year China began breaking into the global legal market.

Alternative Business Structures: And heeeere we go. Starting the first week of January, the UK’s Solicitors Regulation Authority will officially throw open the doors to applicants of all stripes that want to become Alternative Business Structures under the long-anticipated provisions of the Legal Services Act. Regular readers will know that the SRA expects at least a dozen applicants straight away, and that the initial group will include law firms, claims management companies, major retailers, accounting firms, loss adjusters,  private equity houses, legal expense insurers, banks, will-writing companies, and even, remarkably enough, in-house law departments. I don’t know about you, but that looks like a revolution to me.

It’s a revolution that won’t stop at the English Channel or the North Sea, either. There are too many UK companies and law firms with offices worldwide to believe that the contagion can be contained. We’ve already seen the influence of the Legal Services Act in the ABA’s planned endorsement of limited, lawyer-controlled multi-disciplinary partnerships (although the degree of innovation here is comparatively tiny) and the lawsuit launched by Jacoby & Meyers to the restrictions against non-lawyer ownership of firms. Whether these initiatives succeed is almost beside the point: even the specter of massive change in the UK is enough to drive limited reform efforts. What kind of response will the real thing generate?

Those are three reasons to think that 2012 will be the year that the pressure relentlessly building on the fault lines of the traditional legal marketplace will finally produce the quakes we’ve been expecting for a while. And here’s one more: macro-economic and geopolitical events will play a role in the legal market as well. Europe’s financial situation is unsustainable, and the odds of something truly ugly taking place there and spreading worldwide seem to increase every month. The 2008 Lehman Brothers collapse and the resulting western financial crisis was the first shock to hit the legal system and generated a tidal wave of change. The next one could be bigger.

If you like living dangerously, then by all means, plan for 2012 to be another year of raising rates, de-equitizing partners, downsizing staff and taking whatever other measures you feel will continue to prop up the artificial and increasingly archaic metric of profits per partner. Keep on doing what you’ve been doing lately, just more of it. You might yet manage quite well, if your financial position entering the year was rock solid,  your firm culture intensely positive and your relationships with clients extremely sound. But if you feel like your foundation is a little shaky, your strategic direction has meandered, or your morale is brittle, then I think you’d be well advised to pay close attention to what comes next. We were warned.

Jordan Furlong delivers dynamic and thought-provoking presentations to law firms and legal organizations throughout North America on how to survive and profit from the extraordinary changes underway in the legal services marketplace. He is a partner with Edge International and a senior consultant with Stem Legal Web Enterprises.

The stewardship crisis

Over the legal news wire this week came a report of the closure of a US law firm. The full report of the firm’s demise was restricted to those with a premium account that I have no interest in acquiring, and in any event, the details of what happened weren’t relevant to what caught my eye. It was the one-line description leading off the wire report, which looked something like this: “Law firm ABC is closing next month; its name partners will retire and the rest of its lawyers will form smaller boutiques or join bigger firms.”

That’s the capsule story of the end of a law firm. More importantly, though, it’s also a template — the founding partners’ retirement, coupled with a scattering of the remaining lawyers — that I expect to be repeated frequently throughout the legal profession over the coming decade, especially among small and midsize firms. It’s the natural outcome of the widespread inability of law firms to deal successfully with succession issues. And it reflects what can only be described as the failure of hundreds of law firm leaders (by which I mean founders and power brokers more than “managing partners”) to look beyond their own short-term interests to the long-term survival and success of the firms they created.

It’s a given that law firms exist to generate profits for their partners. The addition of leveraged associates, the admission of new partners, the arrangement of origination credits, the expansion of the firm to new regions and new practice areas — all these activities are undertaken in order to maximize partner revenue. Nobody really doubts this or has a serious problem with it.

The difficulty arises when the interests of the founding partners inevitably begin to diverge from the interests of everyone else in the firm, especially lawyers at the start or in the middle of their own careers. These lawyers’ own timelines extend beyond the expected career arcs of the partners who hired them, and they have an interest in seeing the firm continue to develop and thrive after the founders have moved on. This interest is primarily financial, of course — they want their turn occupying the most profitable seats — but it’s often also personal: they like the idea of taking up the mantle of a respected firm and leading it into a new age. I think most people would find these sentiments reasonable.

What has struck me over the past few years — what has shocked me, to be honest — is the number of founding partners and senior lawyers who don’t care all that much what happens to the firm after they leave. I mean, these partners talk a good game about legacy and continuity and a bright and promising future and so forth, and I’m sure that their well-wishing is sincere enough. But ask them to take steps to ensure that future in ways that might compromise their near-term revenue — especially as the economy worsens — and the conversation comes to an abrupt stop.

These partners essentially place their personal interests, even near the end of their careers, ahead of the long-term prospects of the firms they helped found. They do not share clients. They do not delegate work. They do not mentor juniors. And they do not approve compensation system changes that would motivate the next generation of leaders if those changes might also reduce the size of their own slice of pie. They couldn’t make their priorities much clearer. (My Edge International colleague Nick Jarrett-Kerr has written an excellent analysis of law firms’ challenges in this regard.)

This state of affairs creates immense levels of frustration and disillusionment among those members of the firm whose retirement is not in sight, for whom the firm is at the least a steady employer and at the most a stage for their own flourishing careers. These members of younger generations look at their leaders from an older generation and it begins to dawn on them: the founders weren’t creating an institution that could stand the test of time. They were creating a vehicle for their own financial interests, and once those interests draw to a close, so too does the need for the vehicle.

I don’t think it’s an accident that inter-generational tension within law firms has grown over the past several years, in both good times and bad. I don’t think it has much to do with the clichés about Generation Y and its “sense of entitlement,” except to the extent that younger members of the firm felt entitled to inherit some of the prosperity earned by the firm’s founders and leaders, in exchange for their own contributions and loyalty to the institution over the years. They’re now coming to conclude that there never was an institution — just a platform for founder prosperity. I expect them to react accordingly.

There’s a word you hardly ever hear mentioned in discussions of law firm leadership and succession planning these days. That word is “stewardship” — the sense that those who lead an organization have a responsibility to leave it in better shape than they found it, to ensure its future success for no other reason than that future generations will benefit.

Stewardship, among other things, requires the stewards to relinquish at least some of their own powers and priorities near the end of their terms in order to assure a better future. There are some stewards among law firm leaders today. There are not many.

Jordan Furlong delivers dynamic and thought-provoking presentations to law firms and legal organizations throughout North America on how to survive and profit from the extraordinary changes underway in the legal services marketplace. He is a partner with Edge International and a senior consultant with Stem Legal Web Enterprises.

Too many partners

Law firms, facing a formidable array of external trends and pressures, are simultaneously experiencing a series of internal shocks and shakeups. The most prominent of these is an ongoing reconsideration of the role played by each member of the firm — a process of asking, “What function do you play in this enterprise, and could that function be performed differently?”

This process, which has been underway for a couple of years now, is behind the move of back-office and middle-office jobs to outsourcing companies (both offshore and onshore) and the transfer of associates’ jobs to LPOs, free-agent project lawyers, and innovative offerings like Axiom and Lawyers On Demand. (Some of these functions are also being replaced by technology, at a rate that will steadily increase in the next few years.)

The impact of these efforts is already clear, ranging from the emergence of new “capitals of law” outside the major financial centers to the steady decline in the partner-associate ratio (leverage is now just below 1-to-1 in the AmLaw 200). There’s nothing sinister about this: it’s the natural market-driven process by which labour shifts and reconstitutes itself to its most efficient and effective use.

But I suspect that the partners driving this process forward haven’t thought about where it’s inevitably going to wind up. When you’ve finished asking, “What’s the point of an IT department?” and “What’s the point of all these associates?” there’s really only one question left: “What is the point of a partner?”

Asking that question — and every firm is either asking it now or will have to ask it shortly — raises some uncomfortable issues. We know what function the payroll clerk performs, and we know her job can be done in Wheeling or Belfast. Ditto the paralegal, whose job can be outsourced to someone working from home in a small town in California. We know what the associate is for: either to be groomed for future partnership and leadership or (far more likely) to do highly leveraged work and generate partner profit until eliminated, voluntarily or otherwise.

Positions like these, whose role in the overall  scheme of things is clear, can be understood and moved around as needed. But what about partners? What are they for? I can think of three possibilities.

  • Do they bring in big business? (That is to say, enough business to sustain much more than just their own practice?) A small percentage of partners do, and they’re incredibly valuable. (A friend of mine in a big firm estimates that the best rainmakers are probably underpaid by a factor of 10.)
  • If they don’t bring in big business, are they superb client relationship maintainers? (And I mean superb.) Most great “relationship” partners are rainmakers covered by the first category, but this possibility should still be raised.
  • If they’re not critical to client relationships in either of the two preceding senses, are they tremendous managers? That is to say, are they highly valued and indispensable managers of the organization, its people, or its processes?

To my mind, at least, those three categories cover virtually all the justifications for inviting a lawyer into a law firm partnership. These are the key roles that make a firm profitable and successful — they constitute the essence of what “partner” status is supposed to describe. But by no means do all or most law firm partners today qualify under one of these headings. And if a “partner” doesn’t fall into one of those three categories, then what precisely is he or she doing in the partnership?

I suspect that a lot of “partners” in law firms today are in that position because the firm didn’t know what else to do with them, because the other partners liked them, and because times were good — in short, they were made partners because it pleased the firm to do so. Not a few younger lawyers in law firms have glared upwards at the people above them and groused, “How did they become partners?” And in more than a few cases, they’re right to wonder, because these lawyers aren’t partners so much as they’re superannuated associates who came along at the right time. It’s my belief that, speaking from a labour utilization perspective, these partners are not occupying the correct role, either for them or the firm. They need to be reassigned.

And they are. Earlier this year came a report about increased profits at AmLaw 100 firms achieved at least in part by thinning the ranks: 2% of partners de-equitized over the previous two years. A recent survey reported that fully half the UK’s top 30 law firms are now either de-equitizing partners or considering doing so, a development predicted back in January by Hildebrandt and Citi Private Bank. In addition to steadily reducing the partnership ranks, firms are taking steps to ensure that future cohorts are smaller: Eversheds, for example, has gone so far as to create a brand new position (legal director) as an alternative to becoming partner.

There’s a growing belief among many firms that they invited too many people into the partnership over the past years and decades. Those firms are now starting the process of unwinding those errors. Record low realization rates being reported for some of the biggest US firms, as low as 85%, will only spur that development, because there’s nothing else left to cut and no one else left to reassign.

Nor is it likely that partner ranks will swell again in future, following some highly anticipated but nowhere-in-sight economic recovery. Partnership, as Stephen Mayson argues, is neither an appropriate nor a viable way to manage enterprises of the size and complexity of most law firms. The imminent arrival of Alternative Business Structures in the UK and the outside ownership they’ll bring with them should ensure that the partnership model will henceforth be reserved for smaller firms, as it was originally intended.

Law firms are in the process of reinventing themselves, but the easy work — cutting staff and laying off associates — is long past. Removing lawyers from the partnership is (or should be) an extremely difficult experience for all concerned, but as times continue to be tough and worse, the stronger members of the herd will not hesitate to cull the weaker. But most firms have yet to face up to the hardest part of all — re-engineering the firm’s workflow, delivery, pricing and compensation systems in order to compete in a new marketplace. That’s a bridge, I suspect, that few firms will find themselves willing or able to cross.

Jordan Furlong delivers dynamic and thought-provoking presentations to law firms and legal organizations throughout North America on how to survive and profit from the extraordinary changes underway in the legal services marketplace. He is a partner with Edge International and a senior consultant with Stem Legal Web Enterprises.

Learning to run

There’s an old expression among professional sports coaches: “You can’t teach speed.” It’s usually meant to indicate that there are things you can train athletes to do well (skills) and things that are simply God-given (raw talent), and it encourages the traditional view that talent is more valuable.

I’ve come to believe differently. In most markets, athletic and otherwise, there’s no shortage of talent: the physical and mental attributes of today’s new recruits surpass what most members of previous generations could boast. What’s missing, in many cases, are the skills, the knowledge of how to deploy those talents to maximum effect as a performer. Almost every good athlete coming out of high school and college can run fast; relatively few, however, learn to run well.

These thoughts came to me while reading (and commenting upon) an excellent post by UK law professor John Flood, in which he laments the complete disconnect between the legal education system and the rapidly evolving profession into which that system’s graduates will be deposited. If you asked your average law school professor to identify names like Axiom, Acculaw, Lawyers On Demand or any leading LPO, as John suggests, they wouldn’t know what you were talking about.

Law schools are so far behind the legal market’s evolutionary curve (and apparently so uninterested in catching up) that they seem extremely unlikely to lead conversations towards a better legal education and training system. But if so, where do we start fresh? I’d like to suggest that we begin by re-examining some fundamental assumptions about “talent” versus “skills” in the legal profession.

Virtually everyone in law school and the legal profession today has talent: some combination of raw intelligence, analytical and logical adeptness, and/or communication ability. That’s primarily thanks to the undergraduate education systems that produced these lawyers, the Law School Admissions Test that judges them, and the law school admission personnel who value these criteria head and shoulders above any others.

So the talent is there. Virtually everyone who’s in or preparing to enter the legal profession has speed. But not everyone in the legal profession can run well. And the newer you are, the more this is true. It’s almost universally the case for law students and new lawyers, in fact, who have received almost no training to help turn their talents into skills with which they can serve clients and make a living. (And I don’t just mean “practice” training; the tools with which you become a great lawyer include a really solid grounding in jurisprudence, legal history, and ethical philosophy, and not many law degrees can say they deliver that.)

Law schools haven’t been much help in this regard; but in fairness, it really wouldn’t have made much difference even had they spent the last 20 years teaching students “how to be lawyers.” That’s because the market for which those fantasy schools would have been preparing students is quickly disappearing. Nobody (not least me) can say with certainty what law practice in 2026 will look like, but it seems a pretty safe bet that it’s not going to look remotely like it did in 1996. Just as well, then, that we have mostly raw talent that doesn’t need to unlearn old habits before acquiring new ones.

But we still need someone to lead the way in the new skills-acquisition process for the legal profession — and that leads me to think there’s a huge market opportunity, right now, for a legal skills training company geared towards early 21st-century law practice. Never mind preparing students for Skadden or Linklaters; prepare them for Axiom, Lawyers On Demand, Clearspire, Quality Solicitors, Eversheds Legal, and similar operations that look like they’ll be offering an increasing percentage of legal jobs over the next couple of decades.

But — and this is important — we need to skill lawyers up, not down. We don’t want to be developing data entry clerks or automated-contract proofreaders here, and tomorrow’s best legal employers won’t be hiring those people. We need to train new lawyers in leadership, problem solving, project management, cultural fluency, emotional intelligence, technology, entrepreneurship, and other traits that have a decent shot at being the skills future lawyers will need. Give them the tools with which they can harness their talent and take it into any high-value or socially meaningful career, whether it involves the sale of legal services or not.

Law schools, as mentioned, might as well not be in this discussion. I don’t have a great deal of confidence in the practicing bar, either, especially given CLE administrators’ continued fondness for offering legal updates and calling it “professional development.” These are yesterday’s approaches; we need to find tomorrow’s. Solo Practice University remains a powerful model for this sort of innovation; we need more organizations interested in training lawyers to be gainfully and usefully engaged as lawyers in the decades to come. We need far greater use of true, supervised, mentor-based apprenticeship, because “doing” has a multiplier effect on “training.”

What we need, essentially, is a new breed of coaches who can deliver future-oriented professional development. There is no lack of opportunity awaiting them. There are thousands upon thousands of lawyers out there who can run fast but aren’t getting anywhere. They need someone to teach them how to run well.

Seen and (on one occasion) heard

Before launching into a roundup of what I’ve written elsewhere, I wanted to let you know that I’ll be in Chicago next week for a series of meetings, in particular the College of Law Practice Management‘s 2011 Futures Conference at the University of Chicago-Kent College of Law. In addition to presiding over the 2011 InnovAction Awards ceremony, I’ll be moderating a panel titled “Law Practice Without Borders,” with Simon Chester, BeiBei Que and my Edge International partner, Pam Woldow. If you’re in Chicago October 28-29, you should make time to attend the whole conference: it’s an extraordinary lineup of speakers and topics that you won’t find anywhere else.

On to the roundup: here’s a list of the articles I’ve written (and in one case, the conversation for which I was recorded) in the last several weeks.

Stem Legal’s Law Firm Web Strategy Blog:


The Lawyers Weekly:

Attorney At Work:

The Lawyer (UK):

CBA PracticeLink:

Freedom is The New Rich:

Edge International Review (Co-authored):

As always, I hope you enjoy reading these entries as much as I enjoyed writing them.

The franchised future of small law firms

Today’s dispatch from England & Wales, the world’s legal laboratory, informs us of a new company called Evident Legal that is setting up the latest in a series of law firm franchises. Simplify the Law (STL) aims to create a national network of law firms with between 2 and 20 partners that serve both individual and commercial clients and produce annual revenue of between £2 and £10 million. STL figures there are about 440 firms throughout the UK that fit that definition and that could use the franchise’s help to “stand up against the brand-heavy big hitters,” as the company’s home page puts it. Quality of service and client communication will be STL’s primary selling points to the buying public, while solicitors are offered exclusive territory and marketing and branding support to draw them in.

Simplify The Law joins several other British companies that are setting up chains or franchises of sole practices and small law firms. Quality Solicitors (QS) was one of the first out of the gate — it describes itself as a collection of “the UK’s best law firms who have come together to create a national legal brand with locations nationwide.” Not precisely a franchise, QS already boasts well over 100 firms in its orbit and made a significant breakthrough earlier this year when it signed a deal to open kiosks in 150 WH Smith bookstores throughout Britain (with an eye on an eventual total of 500). These “Legal Access Points” represent a key approach of consumer-oriented franchises: go where the customer is and meet him or her on familiar ground.

Then there’s face2face solicitors (f2f), which specifically self-identifies as a franchise and, like other franchisors, offers small law firms the benefits to match, including IT infrastructure, case management, billing and collections support, time recording, IT backup and disaster recovery, and perhaps most importantly, centralized marketing and branding. f2f essentially promises to relieve franchisees of the burden of running their business so that they can focus on practising law. f2f focuses on smaller firms than STL or QS, targeting those with annual turnover of £1.5 million or less. As an example of the financial arrangements between law firm franchisors and franchisees, firms pay f2f a one-time fee of £25,000 and 8% of their annual income thereafter.

Other franchises like Lawyers2You and High Street Lawyer have already come out, and more will establish themselves in future. They are driven in part by the very difficult economy in the UK, but even more by the advent of Alternative Business Structures and the specter of massive chains like The Co-Operative getting into the consumer legal business through its banks and potentially its supermarkets. (Disclosure note here: STL has received business plan and start-up advice from Chris Bull, a partner of mine in Edge International).

There are at least two likely conclusions we can draw at this stage of the emergence of law firm franchises. The first is that this looks very much like the future of the small and solo law practice. The challenges facing small law firms these days — including downward price pressure, non-lawyer online competition, and the same range of business, technical and regulatory requirements that large firms can tackle with far more resources — will only be exacerbated by the difficult economic decade ahead. More ominously, solos in particular are older than average, are disproportionately based in smaller, stagnating or declining populations, and have few younger practitioners to whom their practices can be passed. New lawyers who might otherwise welcome the chance to hang out a shingle are discouraged by heavy debt loads, a lack of business experience, and the well-known risks of running a small enterprise.

Franchises are in a position to counter many of those concerns. They promise to take away the hassles of billing and marketing and file management. They provide the security of a branded name and logo and the advertising budgets to go with them. In some cases, they even provide training and a degree of knowledge management that all franchisees can take advantage of. Those are the kinds of lifelines that existing practices need and the kind of safety nets that could attract new practitioners by reducing their startup risks. Franchisors figure, probably correctly, that the same lure of reliable, secure, well-known brands can draw not just clients but also lawyers into their orbits.

There are potential downsides, to be sure. One of the reasons that marketing is so important to a law firm is that it forces the lawyer to give some real thought to identifying his or her personal and professional attributes and scanning the marketplace to determine the clients he or she should be targeting; it’s not something to be outsourced lightly. Taking the financial side of a law practice out of a lawyer’s sight can lead to taking it out of the lawyer’s mind; there are great risks to a small business whose owner is too distant and disconnected from cash flow and other daily financial realities. And any lawyer who practises franchise law will tell you that relationships historically between franchisors and franchisees have been, shall we say, a little fraught. But the pros of this sort of arrangement appear to give the cons a good run for their money.

The second observation is that this trend is by no means limited to the UK. The challenges facing solos and small firms in Britain are scarcely different from those bearing down on similar practices in the US, Canada and elsewhere. Solos value their independence, but they also recognize that the flip side of independence is isolation, and they know the harsh reality that if you start to sink, no one’s going to extend a hand to catch you. The benefits of franchising look intriguing no matter which side of the pond you’re standing on. (I recall, back in the mid-1990s, an attempted national law firm franchise called First American Law that wasn’t able to gain traction outside its native Florida; but it might simply have been ahead of its time in both market and, more importantly, technology and connectivity terms.)

Significantly, to my way of thinking, franchises also represent a way to bring in outside non-lawyer support to small firms in North America without running afoul of the rules on non-lawyer ownership of law firms. ABSs are now legal in the UK (although thanks to hangups with certification at the Solicitors Regulation Authority, only one conveyancing firm has so far received ABS approval). ABSs might eventually expand globally enough that US authorities will need to respond; alternatively, the Jacoby & Meyers lawsuit could be the powder keg that blows it all apart. But assuming that non-lawyer ownership restrictions remain in place in the US for the foreseeable future, franchises could be an alternative to outright non-lawyer control that still manages to give small firms an infusion of well-financed professional business support.

I still believe that solos and small firms have a bright future — brighter, in many ways, than most of the national and international giants whose business models are too archaic to survive a new century and too rigid to allow adaptation to new market demands. Small law firms, far more than big ones, can be financially and systematically structured with the kind of client focus that will be required for survival in the years to come. When I speak to law students — as I did again just last week — I advise them to plan their future legal careers as if they’ll be solos, because the skills they’ll acquire in that process will serve them regardess of their eventual work lives, and because it really is pretty great being your own boss.

But increasingly, the future for solos and small firms need not exclusively be the free-wheeling, fully independent entrepreneur of yesterday and today. In the long run, large consumer chains will be allowed to sell at least basic legal services in all major jurisdictions, and the challenges facing solos and small firms at that point will be similar to what your local variety store faced when Wal-Mart moved into town.

A number of small firms — not all, by any means, but more than a mere handful — will become part of a branded chain or franchise with centralized marketing, management and administration. These solos will find themselves in a franchised suburban or shopping center law office, or operating a purely virtual firm from home under a centralized brand. In the new legal marketplace, there will be worse places to wind up.

Jordan Furlong delivers dynamic and thought-provoking presentations to law firms and legal organizations throughout North America on how to survive and profit from the extraordinary changes underway in the legal services marketplace. He is a partner with Edge International and a senior consultant with Stem Legal Web Enterprises.