The evolution of the legal services market: Stage 1

I recently delivered my 15th and final presentation of 2012 about the changing legal market. Over the past 12 months, I’ve given speeches and keynote addresses to large firm retreats, sole practitioners, bar leaders and regulators, chief justices, law students, CLE providers, law librarians, and other groups and organizations throughout the United States and Canada. If I had one piece of advice to share from all these excursions, it would be that you will never regret bringing backup versions of everything electronic, especially should you accidentally spill a full bottle of water onto your laptop just before a presentation.

I haven’t just been speaking to these groups, however; I’ve also been listening to what these diverse stakeholders in the legal marketplace have to say. And I’ve taken away two sets of impressions.

The first is that a very wide spectrum of knowledge and perspective exists regarding the nature of change in the legal market. I’ve met lawyers and legal professionals who flatly dismiss any suggestion that the market is changing in ways that are revolutionary and permanent. I’ve met others who saw these trends developing years ago and have already re-engineered their businesses to adapt. The vast majority of audience members lie somewhere in between. Most of the people I’ve spoken with, however, have been surprisingly and encouragingly interested in what’s going on in the wider legal world and what it might mean for them.

My second takeaway, and the one I’d like to explore in greater depth over the next five days, is that there’s no real consensus within the legal market about just what’s happening to it. We don’t appear to have a collective sense of what kind of road we’re traveling, where it’s taking us, and at what stage of the trip we currently find ourselves. This is important, because without a shared understanding of both our journey and our destination as marketplace participants, it’s difficult to talk about how to make the trip better, shorter, and more productive.

So I thought I would set out for you my views on the state of the legal market and how change is rippling through it: where we’ve been, where we are, and where we’re likely to go. It seems to me that there will be five stages in the ongoing evolution of the legal market — and by extension, of the legal profession itself. By my reckoning, we’re about halfway through Stage 2. Today’s post will explore Stage 1; each of the next four phases will be examined in separate posts over the course of this week.

Stage One: The Closed Market


  • Law is a protected industry, with one legitimate, authorized, self-regulating provider (lawyers).
  • Legal knowledge and tools are largely inaccessible without lawyer involvement.
  • Lawyers regulate the market, policing their own conduct but also investigating and eliminating non-lawyer competition.
  • Lawyers “compete” with each other in genteel fashion, rarely undercutting other practitioners on rates or introducing systemic improvements to methodology or workflow.
  • Lawyers, facing no real competition and under no real pressure to innovate, create inefficient enterprises to deliver legal services, measure cost in hours, and price their services on a cost-plus basis.
  • Lawyer jobs increase proportionately, if not out of proportion, to legal service demand — the lawyer population grows year after year, like an expanding balloon.
  • Most legal services are expensive, and most lawyer careers are highly remunerative.
  • Legal technology is almost entirely “sustaining,” offering more convenient ways of carrying out traditional tasks without re-engineering those tasks.
  • Legal education is almost entirely academic and delivered to baccalaureate standards; professional experience is gained through on-the-job training, at clients’ expense.

Era: From most of the 20th century up until no later than 2008.

This is the legal market as most of us found it when we were called to the bar. In Stage 1, we run the show, and we run it to our liking. Not only do lawyers own the only saloon in town, we’re also the local sheriff, keeping the peace by prohibiting anyone from opening up a competing tavern. We enjoy the luxury of running our businesses as we please, safe in the knowledge that our collegial competitors in the profession will not create undue disruptive pressure through pricing or service delivery innovations. We deliver good products and half-decent service to a very limited, deep-pocketed clientele. Most lawyers make a fine living, and in many larger firms, they make an astoundingly fine living. These are good times for lawyers.

But they aren’t perfect times, of course. Our reliance on cost-plus pricing, our desire to increase profit, our aversion to risk, and our unwillingness to innovate all combine to create an over-reliance on individual hourly labour as an engine of growth. This in turn leads to burnout and emotional problems among lawyers and growing dissatisfaction with the lawyer’s life, not to mention frustrated clients who seek greater price certainty and more proactive interest from their providers. It also leaves us vulnerable to the possibility of competitors who might choose to play by different rules; we fail to develop any natural defences beyond regulatory action.

Legal education, meanwhile, underperforms its potential: most faculty have little experience with practice, and almost all faculty view the practicing bar with a certain degree of contempt, leading to generations of law graduates singularly unprepared for a legal career. Self-regulation, while critical to our independence, breeds bad habits of protectionism and self-indulgence. And it perhaps goes without saying that access to justice belongs primarily to those with the money to afford lawyers and the time to see legal matters through the labyrinthine legal process.

You could certainly argue the cut-off point for this era. Some might trace the beginning of the end to 2004, others to 1999; if you practised residential real estate, you can go back considerably further than that. There was no single “light switch” moment at which everything changed and a new paradigm emerged fully formed; evolution isn’t like that. Some of these tendencies weakened throughout the 2000s, while others are still going strong today. But it seems fair to assert that by 2008, when the financial crisis was breaking and the first provisions of the Legal Services Act were being enacted, the longstanding era of the lawyer-centered legal marketplace was drawing to a close.

An observer from outside the market could easily see how this artificially calm state of affairs might be ruptured, and would hardly be surprised to learn that such a breakage was imminent. Tomorrow, we’ll take a look at what happens when this long-closed market is abruptly breached by numerous external forces.

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 College of Law Practice Management’s 2012 Futures Conference

The College of Law Practice Management does a lot of great things — honours the pioneers and brightest lights of legal management, sponsors the InnovAction Awards, supports various access to justice initiatives, etc. But next month, you have the opportunity to participate in one of the College’s most high-profile and important projects: The Futures Conference.

From October 26-27, 2012, at Georgetown University Law School in Washington, DC, scores of the legal profession’s thought leaders and decision makers from around the world will gather to hear cutting-edge presentations from some of the most influential players in the legal market. The entire brochure for the Futures Conference can be found here (in PDF format), while Ron Friedmann has an excellent post summarizing the presenters and their presentation.

I’ll content myself merely with listing the speakers, to give you a sense of the star power at this event:

That is a powerhouse lineup you won’t find anywhere else this year. If you haven’t booked your reservation yet, I strongly encourage you to register today for the College of Law Practice Management’s 2012 Futures Conference. As Richard Susskind says, “The best way to predict the future is to create it.” This is your opportunity.

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.

Back when we used lawyers

My father was born in 1922. When he was 7, and the stock market crash triggered the Great Depression, cars were still an unusual sight in his hometown. Forty years later, he watched a live broadcast of Neil Armstrong walking on the surface of the moon. Less than 40 years after that, he used Skype to speak with his grandchildren halfway across the country for free.

It’s easy to forget just how astonishing the last century of scientific and mechanical progress has been. And the younger you are, the easier it is to forget it, or to not even recognize it in the first place. My own children are now 7 and 5, respectively, and they’ve never known a time when you couldn’t get the answer to any question by typing a few words into a portable device with a touch-activated screen. My stories about doing research with bound encyclopedias might as well be tales from the Stone Age.

This says something about our ability to become accustomed to the previously miraculous. But it also speaks to our sociological amnesia. The nature of things, when we first notice them, is the way we assume they’ve always been and how they always ought to be. We mistake “familiar” for “normal,” “the latest” for “the last,” right up to the very moment of revolutionary change.

But once change happens, it then becomes difficult to remember that we ever did things differently, or why we ever would. You’ve probably seen TV shows like The Worst Jobs in History and thought, “People actually used to do these things?” But at the time, that was just the way things were. It was normal. Imagine what our descendants, decades or centuries from now, will think of us when they look back at what we assume is normal today.

The most recent edition of The Economist‘s Technology Quarterly offers three excellent illustrations of  how easily “the way we’ve always done things” could vanish. Take a few minutes to read about (a) the Gates Foundation’s support of three new types of toilets that require neither clean water nor sewer infrastructure, (b) a plethora of affordable solar-powered portable lights that require neither transmission grids nor flammable fuel, and (c) most amazing of all, the rapid progress towards cars that don’t require drivers.  These are innovations that might be able to prevent one million driving deaths from human error every year, prevent 1.5 million children’s deaths from diarrhea every year, and provide light to 1.4 billion people worldwide without access to grid electricity.

Once you’ve finished these articles, stop and take a moment to think about what constitutes “normal” in the legal marketplace today. Then think about what your law firm will look like in 10 to 15 years, based even on the technology we’ve already developed. Will the future legal marketplace still require lawyers? If so, for what purposes? Within the next few decades, we will very likely have light without fuel, sanitation without water, and growing numbers of cars without drivers. Is it really a stretch, in that context, to imagine law without lawyers? Is it realistic to believe that “the way it used to be” is also “the way it’s always going to be”?

People have always used lawyers for legal services, and everyone has always thought that was normal. But when new options emerge, and as they’re adopted, we see the idea of “normal” change almost overnight. I implore you to open your mind, today, to what will constitute “normal” in the future legal marketplace.

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 confidence of the dinosaurs

“When the platform changes, the leaders change.”Seth Godin

You’ve seen the same signs I have. The volume of pro se litigation continues to set new records every year, most notably in family law. Do-it-yourself websites for contracts, wills and divorces keep flourishing, with non-lawyer providers like LegalZoom and Rocket Lawyer boasting millions of customers and millions of dollars in venture capital investment. Foreign professionals and sophisticated software are surging onto lawyers’ traditional business turf. These trends and others show every indication of continuing throughout this coming decade.

The overall legal market, despite what you might conclude from all that data, is actually strong and growing. But as Toby Brown has noted, it’s growing with only minimal involvement by or financial gain for lawyers. Market growth is passing us by. Law firms of every size and description, in every jurisdiction, are experiencing flat or declining revenue or profit. This is mainly because lawyers and law firms have proven to be less accessible, more expensive, and less responsive than clients are increasingly willing or able to tolerate, and because those clients are now test-driving alternative options for legal services.

That’s fairly easy to understand. What’s not so easy to understand is why most lawyers haven’t responded to this emerging reality. More and more, month by month, the market is acting in new and unfamiliar ways that don’t follow the traditional script. Yet most of us keep acting as if nothing has really changed, or as if the change that we do perceive is merely minor and fleeting. We choose to ignore the growing evidence of new behavioural patterns among our clients.

The only reason I can think of to explain this is the serene confidence of incumbency. Lawyers still own this market, and we’ve owned it for longer than anyone can remember, a happy fact that we ascribe to our natural superiority. We feel a deep and untroubled assurance of our continued dominance over legal services.

Well, this is a bad time to be an incumbent in the legal marketplace.

If you or your firm or your organization or your model have been riding high in this market for years or decades, then a time of reckoning is at hand. Fundamental changes in the market for legal products and services are driving profound changes in the behaviour of legal service purchasers and other market participants. Those changes are coming to constitute a new environment, a fresh playing field, a new set of rules for legal service providers.

That’s a serious challenge. And it is especially a challenge to the providers and institutions that have long occupied the market’s pole positions — the perennial winners, the default choices, the clubhouse leaders. That is not limited to lawyers and law firms — it’s market-wide.

  • In-house counsel have been trying the patience of their corporate colleagues for years, through their inability to bring predictability, control, and budgetary discipline to the legal risk management function. That patience has run out in many companies, which are turning to procurement professionals to deliver the results the CEO and CFO want. Some corporate counsel have found themselves being “worked around” by their own employers.
  • Courts and judges have served as the ultimate arbiters of private disputes for centuries. But the ongoing, long-term breakdown of the litigation system has generated a host of alternative options for private dispute resolution, from familiar options like mediation and arbitration to newer entrants like online DR and game-theory-based dispute elimination. Courts are well on their way to becoming a largely irrelevant niche player in this market, their time consumed by cranks and corporations.
  • Law schools, for the 150+ years following the legal profession’s post-apprentice period, served as the only route into a legal career. This market monopoly, combined with academia’s natural inclination towards inertia, has made schools fanatically resistant to change. But the collapse of the traditional lawyer employment route is hitting schools hard; the 25% drop in applicants to US law schools over the past two years is just the leading indicator of trouble.
  • Legal publishers saw this trend coming sooner than most: the evisceration of print publishing by online technology forced these companies to begin expanding into areas like online research and knowledge management. But even with that head start, giants like Lexis and West face challenges from new companies like Bloomberg Law, new collectives like Legal Information Institutes, and down the road, consumer information leviathans like Google.
  • Bar associations were integral to the development of an organized profession and collective lawyer activity. But like other aging non-profits, many became more fixated on their own interests than on those of their members, and they came to prioritize the interests of their most influential volunteers. Worse, niche competitors began replicating their core offerings — networking, education, content — leaving bar associations struggling for purpose and identity.

It bears repeating: these are the winners we’re talking about. These are the companies, organizations and professionals that defeated other contenders over the course of many decades by developing models that delivered top performance in their respective environments. They’ve been around for so long that we (and, dangerously, perhaps they) assume that their dominance is natural. But it’s not; it’s environmental. They adapted best to their prevailing circumstances, and they did it so well and so completely that now, as their natural habitat begins to break down, they’re finding it harder to breathe.

These front-runners are highly vulnerable precisely by virtue of their front-running status. Their infrastructure, business culture and operating assumptions are inextricably linked to the status quo prevalent during their formative years; they flourished by adapting to these first environments they encountered. As those environments change, incumbents must find their way in a world for which they are increasingly not suited. This is the fundamental, and most frightening, insight that Clayton Christensen delivers in The Innovator’s Dilemma: industry leaders are regularly overthrown because their operating models could not adapt to their industry’s inevitable evolutions and innovations.

If you are or belong to a successful legal market participant today, it is most likely the case that your organization adapted to (and perhaps even helped bring about) the ideal environment for its success. What will you do when that environment changes?

  • If your entire business model is premised on pricing your services and paying your lawyers according to time spent on tasks, what do you do when clients stop dealing in that currency and demand a new one?
  • If your sole stock in trade is students who spend three years receiving basic law primers, what do you when both your inventory and its purchasers require a radically different product?
  • If your core purpose is to resolve private disputes, what do you do when new providers deliver the same outcomes much faster and much more cheaply than you could hope to manage?

Dinosaurs, to borrow a popular analogy often used to describe traditional lawyers, dominated the Mesozoic Era because they were perfectly suited to the world as they found it. Then the asteroid hit. But the asteroid didn’t kill every dinosaur in the world upon impact — it couldn’t; it wasn’t that big. What the asteroid did was cause extreme disruption to the environment in which the dinosaurs had evolved. The world around them changed, and the dinosaurs couldn’t adjust, and they disappeared.

What do you suppose is going to happen next in the law?

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 limited-profit law firm

What if your law firm were legally prohibited from making too much money? What if there were a fixed profit ceiling for equity partners, and any profit exceeding that amount had to be distributed to others? What if your firm explicitly placed social goals ahead of revenue goals — what would change about your firm’s culture, structure and position in the marketplace?

This is, perhaps needless to say, mostly a thought experiment, since the number of law firms clamouring for this kind of setup are vanishingly few. But a recent article in The Economist about an emerging corporate form called a “benefit corporation,” or B Corp, got me thinking. B Corps, the article explains, “must have an explicit social or environmental mission and a legally binding fiduciary responsibility to take into account the interests of workers, the community and the environment as well as its shareholders. It must also publish independently verified reports on its social and environmental impact alongside its financial results.”

Companies seeking to establish themselves as B Corps are those wishing to place social or environmental goals above profit and revenue objectives, but which find it difficult to do that under the traditional corporate form. These aren’t non-profit organizations, but you might call them limited-profit, qualified-profit, or “yes,but” companies: yes, they want to make money, but they want to accomplish other things more. The Economist cites other corporate vehicles in this vein like flexible purpose companies (FlexCs), low-profit limited-liability companies (LC3s) and in the UK, community interest companies.

Could a law firm become a B Corp? Several small firms in the US have already done so, but there are complications. Carolyn Elefant explores the problems with B Corp law firms in a detailed post that points out a fundamental conflict: lawyers are required to place their clients’ interests ahead of all others, so a firm whose founding documents placed the highest priority on, say, the environment, would be breaking the profession’s ethical rules.

For example, consider a situation where a client receives a generous settlement offer in a contingency matter against the Sierra Club or some other environmentally conscious company popular in the community, but the client, reasonably, does not want to accept the offer because of certain conditions attached to the offer. However, pursuing the case to trial will be upsetting to the community and further, force the lawyer to lay off several employees to conserve cash flow for remaining discovery and trial and could potentially limit the Sierra Club’s conservation efforts due to lack of funding.

Ethically, so long as the client’s rejection of the offer is reasonable (which it is here), the lawyer must abide by the client’s decision. But under the b-certification framework, equal consideration of the interests of firm employees, the community and the client would militate in favor of the lawyer either strong-arming the client to accept the settlement or withdrawing from the case.

This is a strong objection to the use of B-Corp status for law firms, and if push came to shove, I could see a regulatory body ordering a law firm to abandon a corporate form that explicitly placed someone other than the client at the top of the priority pyramid.

Nonetheless, I wonder if there might not be other solutions. Slater & Gordon, for instance, the Australian personal injury firm that floated on the stock market several years ago and is now an international behemoth, makes for an interesting case study. As my Edge colleague Gerry Riskin pointed out at the time, Slater & Gordon’s initial prospectus was very clear with potential shareholders where its priorities lay:

“Lawyers have a primary duty to the courts and a secondary duty to their clients. These duties are paramount given the nature of the Company’s business as an Incorporated Legal Practice. There could be circumstances in which the lawyers of Slater & Gordon are required to act in accordance with these duties and contrary to other corporate responsibilities and against the interests of Shareholders or the short-term profitability of the Company.”

This seems to me a good way of making clear to shareholders that their profits are a tertiary concern for the firm: the firm believes (correctly) that its first duty is to the courts and its second is to clients. A modified form of B Corp or other limited-profit corporate form could be envisioned that would similarly arrange the peculiar priorities of a fixed-profit law firm. Might this kind of qualification address the ethical concerns that Carolyn raises? I’m not certain, but it’s worth thinking about.

For myself, I keep coming back to ponder the strengths and weaknesses of a limited-profit or fixed-profit law firm. Disadvantages? Legion: rainmakers and high earners would desert a firm like that immediately, knowing that their hard work would quickly strike an immovable low ceiling of financial returns. The firm would be unable to recruit ambitious lawyers or high-potential law students for the same reason. Clients who want the very best lawyers would turn away from a firm of anti-capitalist do-gooders. As a vehicle for anything more than a modest mid-sized firm, it’s almost certainly a non-starter.

But there’s upside, too. A law firm that was precluded from chasing ever-higher profits would have to find some other guiding business purpose. Maybe, as with many B Corps, it’s an environmental target, a quest to reduce its ecological footprint and those of its clients. Maybe, more likely for a law firm, it’s a social purpose: serving only clients in low- or middle-income brackets, making access to justice its higher calling.

Alternatively, maybe the firm simply rearranges how its profits are spread. Partner profits would be fixed at the start of the year on a percentage basis (lockstep or otherwise), so that beyond a certain dollar figure or percentage of total revenue, the partners couldn’t make any more money. Accordingly, the excess would be divided equally among associates or staff — everyone gets a bonus when the firm succeeds, driving everyone to make the firm’s success the top priority. And if you want to really go around the bend, make clients the beneficiary of success: every extra dollar at the end of the year is returned to clients per capita, like a co-operative. How’s that for a marketing tactic? Hire our firm and you might get a refund on your fees.

Yes, I know I’m dreaming in technicolour. And anyway, law firms don’t need a special corporate structure to do many of these things. But what these new vehicles really do is allow us to re-envision the purpose of the corporate entity, enabling reasons for existence other than the generation of wealth for ownership. The great majority of problems afflicting modern law firms, it seems to me, come down to money: competition for revenue, fights over profit, arguments about who makes more. Imagine a law firm that was structurally relieved from any of those concerns. You think we could live with a few of those in the legal market today?

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.

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 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.

Goodbye to all that

Last week, having written about the rise of online disruptors and the emergence of super-boutiques, I promised that the final entry in this de facto trilogy would identify how lawyers and law firms can ensure their profitability in this new environment. But then I spent three days at ILTA’s Rev-elation, the 2011 annual meeting of the International Legal Technology Association, and it seems to me that that ship is already sailing out of the port.

What I saw and heard at ILTA, about document assembly and contract standardization and reverse auctions and KM advances and outsourcing services and a host of other developments, is that the storm we’ve been warning about for the past few years has finally broken (read the linked articles for more details). Tired of waiting for law firms to lead change, the market has itself developed tools and processes to provide the certainty, efficiency, transparency and cost-effectiveness that legal services have long needed. Clients love these innovations and are telling law firms to use them, even (and especially) where they conflict with firms’ traditional ways of working and making money. And firms are obeying, with the vague but dawning realization that they’re now being told how to do their jobs.

What’s happening is this: law firms are finally losing control of the legal marketplace.

Law firms used to dictate the terms upon which legal services were performed — work assignment, work flow, scheduling, timeliness, format, delivery, billing, pricing, and many others — because buyers had no other options. Those options have now emerged, powered by technology and driven forward by market demand.

  • They promise legal documents not just faster and cheaper but also, incredibly, better, in terms of quality and reliability.
  • They promise greater efficiency and transparency in the previously laborious RFP-driven process of choosing and pricing law firms.
  • They promise real-time integration of world-class legal knowledge into the legal work production process.
  • They promise alignment of a legal task’s value with its performer’s skills, qualification and location.
  • And at ILTA, they demonstrated delivery on all these promises and more.

But the emergence of these options isn’t the real story. The real story is that firms are buying these new products and services, not selling them. They’re taking marching orders about their use, not issuing them. They’re accepting the new realities of the marketplace, not inventing them. Law firms are now drifting to the periphery of the marketplace, trading places with technology-driven outsiders whose own importance increases daily. Law firms, whether they realize it or not, are settling into a new role: sources of valued specialists called upon to perform certain tasks within a larger legal system that they did not create and that they do not control.

New providers and new technologies are not going to replace lawyers. But they are going to marginalize lawyers and render law firms mostly irrelevant.

Lawyers are smart, knowledgeable, creative and trustworthy professionals who, unfortunately, suffer from poor business acumen, terrible management skills, wildly disproportionate aversion to risk, outsized revenue expectations, and a business model about 25 years out of date. The market won’t abandon them — they have unique and sometimes extraordinarily valuable skills and characteristics — but it will find the best use for them: expert specialists with limited influence over the larger process.

Law firms are widely decentralized partnerships that charge on a cost-plus basis, retain no earnings from year to year, and pray every morning that their best assets will walk back through the same doors they exited the previous night. That’s not good enough. The new legal market demands systematization, collaboration, transparency, alignment, efficiency and cost-effectiveness within and among its providers. A few law firms have already adapted these traits, and some more will follow. Some law firms are so powerful they won’t have to change. The rest are in grave danger.

Here’s a revealing thought experiment to illustrate these points. Consider the flurry of investments and acquisitions that have taken place in the legal technology area recently. I’ve already written about Google Ventures’ $18 million investment in Rocket Lawyer and LegalZoom’s acquisition of $66 million in venture funding. During ILTA, Aderant acquired Client Services and CompuLaw for an undisclosed but certainly massive sum. And in the biggest news of the week, Hewlett-Packard purchased Autonomy, which among other things is a leading e-discovery provider, for no less than $10 billion.

With those figures in mind, ask yourself: what would you pay for a law firm? What price would you meet for any of the world’s ten largest law firms? Some very smart people discussed that question during a conversation at ILTA, and we reached this likely conclusion: nothing. Not a cent. Because really, what do law firms have to sell? They have no patents. They have no unique business methods. They have little unique knowledge. They have few long-term client commitments under contract. They have limited goodwill. Their only real assets are a handful of partners with great technical expertise or amazing rainmaking skills, and these assets can leave anytime with no penalty. What, precisely, would you be buying?

I said at the outset of these posts that lawyers and law firms need to decide carefully what they do and how they do it if they want to remain profitable and valuable. Let me instead suggest more questions for lawyers and law firms to ask themselves in order to even remain in the conversation.

What: Identify your inventory — what you sell to clients — and determine how much of it involves the application of lawyers’ high-value performance or analytical skills. Assume that the price for everything else you sell will plummet, and that you’ll be able to stay in these markets only if you adopt various high-efficiency systems. Absorb the reality that you will need many fewer people within your law firm to be competitive in these areas.

How: Study the means by which you accomplish the work you sell to clients and determine whether and to what extent you can adopt new technologies and processes to be not just more efficient, but also more effective in terms of quality, relevance and responsiveness. Don’t think in terms of adapting your current approaches; think in terms of starting from scratch. Use your creativity and ask: How should we go about doing what we do?

Who: Identify every person who receives a salary or a draw from your firm and ask: what is their primary contribution to the firm? Good answers will include proven business development skills, outstanding professional expertise, and amazing management abilities. These are your irreplaceables, and you’re probably underpaying them. Everyone else will require a clear demonstration of why they occupy a place in your office.

Where: In association with the previous entry, determine the best physical location for the services you provide. We are past the time in which a law firm’s four walls house all or almost all of its functionality. Some services might best be performed in a suburban location, others in a home office, others in a low-cost center elsewhere in the country or in the world, and others from a server farm.

Why: This might be the most important question of all, and I posed it in an article last month: what is the point of your law firm? I don’t mean generating profits for partners; I mean your marketplace purpose. Why do you exist? What specific need for what specific audience do you meet? If you disappeared tomorrow, who would find the loss irreplaceable? Believe me when I say: The market is asking you that question right now.

We’ve begun crossing over from the old legal marketplace to the new one. Lawyers still have outstanding value to offer in certain quarters, but we need to concentrate our market offerings around that value, and we need better platforms for our services than traditional law firms provide. We need to understand what technology is doing to legal services and either adopt that technology, adapt to the client expectations it’s creating, or leave. We need to understand our role in this new market and appreciate that it does not lie at the center of the legal universe. We’ve missed our chance to lead the new market, but we can still flourish inside it. It’s up to us.

Welcome to the crucible.

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 rise of the super-boutique

Yesterday, I advanced the notion that lawyers’ profitability now depends on what they do and how they do it. One reason is disruptive internet-based providers that not only are grabbing commodity work and profiting from it, but more dangerously, are also changing the values clients associate with “good legal service” to emphasize speed, affordability and convenience, threatening to replace firms as platforms of choice for many legal services. Today, I’d like to look at parallel developments within the legal profession that further illustrate this point.

Earlier this year, I wrote about the stratified legal market and its implications, and more recently, for The Lawyers Weekly, I described the consequent need for law firms to do what they do best and outsource the rest. With a hat tip to John Wallbillich’s fee pyramid, I’ve put together the following rough approximation of what the market for legal services now looks like (click to enlarge):

So you have bet-the-company work at the top, ordinary course of business legal tasks in the middle, and low-value commodity work at the bottom (the stratified legal market post explores these tiers in more detail). The top tier is now shrinking — it’s probably on its way down to 10% of the total market — and the bottom layer is growing, soon to encompass about half of what clients need.

Clients enjoy seeing their legal needs settle into segments with different price points, but they still find most lawyers and law firms frustratingly amorphous and undifferentiated, both individually and collectively, in terms of skills, methods and attitudes. They sure would like to see the legal profession recognize and respond to the realities illustrated by this pyramid.

That’s why the news last week from CMS Cameron McKenna looks so significant. The London-based global firm announced that it was essentially outsourcing its entire immigration law department to an equally global but fully specialized immigration law firm, Fragomen, Del Rey, Bernsen and Loewy. Understand, Camerons isn’t sending some low-value aspects of immigration work to Fragomen — they’re sending everything, lawyers and all. Camerons will no longer provide immigration law services within its offices — but it will still provide those services to its clients, using Fragomen as its preferred supplier.

This, I need hardly tell you, is something new. It’s so new that we don’t have a verb for what Camerons has done. The Lawyer uses “divests” and “offloads,” LegalWeek uses “transfers” and “spins off,” Fragomen uses “acquires” and I used “outsourced,” but none of these really seems to fit. Fragomen is now a little bit Camerons, and Camerons is now a little bit Fragomen; they’ll always be separate entities but they’ll always be joined. We probably need a term borrowed not from business, but from biology.

John Wallbillich, again on the case, wonders if this is the end of the full-service law firm, and he may be right. But at the very least, it’s a major mutation in the full-service firm’s evolution. Camerons hasn’t abandoned immigration law altogether; it has simply recognized that immigration work was neither strategically nor financially significant enough to remain a core activity of the firm, yet was still important to the firm’s key clients. You solve a problem like that by figuring out what you do best and outsourcing the rest, which is exactly what Camerons did here. It’s closest to the Wave system pioneered by Lovells (as it then was), but a Wave circulates work from a major urban firm through smaller regional providers and back again; this is a different animal.

What we may be seeing, in addition to the evolution of the full-service firm, is the rise of the super-boutique. Fragomen, as Ron Friedmann explains, is a walking illustration of what he calls Law Factory principles:

  • Focus on a single practice: with 250 lawyers, it is much bigger than its next biggest immigration firm competitor at 35 lawyers.
  • Handle high volumes: it has handled 50,000 immigration transactions annually for 3 years.
  • Keep overhead low: its offices are not fancy (and until a then-recent move, the offices sounded pretty shabby).
  • Leverage non-lawyer professionals: the firm has more than 500 paralegals, putting the ratio to lawyers at more than 2:1.
  • Work on fixed fees: 95% of its work is charged on a flat-fee basis.
  • Take legal technology seriously: the firm has provided web-access to case files for more than 10 years; its paralegals have access to a digital best practices library of key flowcharts.
  • Keep lawyer pay in check: new associates earn $125k, not $160k and do not come from top-tier schools.
  • Be global: the factory is global with 15% of work outside the USA.

You know what leaps out at me from that list? Fixed-fee work is ninety-five percent of Fragomen’s business. You can charge fixed fees when you only practise one type of law and come to know the area intimately; you have to charge fixed fees when your margins are so thin that you need to know exactly how much it costs you to carry out a given task. That’s the world Fragomen lives in, and it has adapted itself accordingly. It’s a world foreign to most law firms, who like to do everything and charge it all at cost-plus. But it’s a world that’s growing.

Take a look at the insurance defence bar, at least in the UK (which, thanks almost entirely to the Legal Services Act, is now the world’s legal laboratory). This article in The Lawyer describes the rise of insurance defence mega-firms, most recently highlighted by Clyde & Co.’s merger with (acquisition of) Barlow Lyde & Gilbert to produce a firm with 280 partners and revenue just south of half a billion dollars. Think about that for a second: $500 million a year largely from insurance defence work, possibly the least remunerative and most demanding corporate legal practice area in existence. And that merger simply lets the new firm tackle rivals that are about to grow in a hurry: Irwin Mitchell (soon to convert to an ABS), Parabis Law and Minster Law (both with aspirations in that area). Says The Lawyer:

This change is being ­driven by savvy in-house counsel,?who?can see ­financial savings to be made from their service providers. … Clydes chief executive Peter Hasson said the ­merger was driven in part by the anticipated reduction in panel places for global insurers. “The insurance industry is consolidating suppliers on a global basis. The UK insurance industry is much more international. Our clients are saying, ’We’ve just opened in Canada – we want you there’,” he said. [And so Clydes is, recently acquiring Montreal-based Nicholl Paskell-Mede to become the second global firm to enter Canada.] …

The insurance legal ­market is changing the way legal services are being delivered. This is a change that is being driven by the volume markets squeezing profit margins and forcing their peers to play a different game. Consolidation can only continue in this sector for a limited time before it starts to seep into other key legal areas.

And so it will. Take a look at Littler Mendelson, 71st in the 2011 AmLaw 100 with 750 lawyers in 50 offices across the US and annual revenue of $381 million, and the only thing it does is labour and employment law. Like other super-boutiques, Littler is a sharp, savvy firm that knows how to maximize the value of its investments. Just as an example, read this description of Littler’s CaseSmart system, nominated for an InnovAction Award this year:

“[It] streamlines the way that cases are managed and provides attorneys with a ‘smart system’ designed to anticipate their needs as they investigate facts, conduct research, prepare responsive documentation and perform their legal and risk analyses. The system also provides clients transparent, online access to information about the status of their individual legal matters, as well as key performance indicators regarding the overall work being performed in this system.”

How many full-service law firms do you suppose create and support something like this? Not many. Yet firms like Littler, Clydes and Fragomen make investments like these, because they’re responding to the realities of a legal marketplace that demands better and more cost-effective ways of producing legal work. That’s why Camerons’ move is so significant: it has created a visceral and structured relationship with a super-boutique, increasing its effective reach and capacity while simultaneously reducing its size and spend. That’s a pretty neat trick, one that other firms may find hard to duplicate.

So we come back to the theme at the start of this post: how do lawyers and law firms ensure their profitability in this environment? That’s going to take more space and time than I have right now, so it looks like this series will have to stretch to Part 3 next week.

But I want to emphasize the trend that seems to me undeniable: as commodity work grows in volume, more law firms are stepping up to take that work and profit from it through a relentless focus on volume, specialization and systematization. Go back to the pyramid: these firms are eventually going to dominate that third tier of client work (or at least, that percentage of the work that doesn’t leave the legal profession altogether). The first tier, mission-critical work, is shrinking, and the very top law firms have already locked in on it.

What’s left for the vast majority of non-specialist law firms? What do they get? In my opinion, they get an existential crisis. More on that next week.

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.