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BigLaw v. NewLaw: Latest Reports From the Battlefield

October 15, 2013

Custer's Last Stand

The legal blogosphere is all atwitter predicting the winners and losers of the mighty battle being waged over who is going to provide 21st Century legal services.  At this point in the battle between BigLaw and NewLaw, no one knows who the ultimate victor will be, although many have strong opinions. Conflicting reports are streaming across the newswires from the numerous firefights on the front lines. Below is a brief summary of the various camps and their views:

The “Keep Calm & Carry On” Camp

The safe pick many feel is to bet on the status quo.  BigLaw has had quite a run and its demise has been wrongly predicted many times before.  The 3 Geeks (Not So Fast…) and The American Lawyer (Will Law Firms Adapt — or Go the Way of the Dodo?) are reporting that the rebels, despite some small successes, are not a real threat to the combined firepower of the BigLaw regime, at least not anytime in the foreseeable future.  The latter concludes that BigLaw, as a whole, is safe for one fundamental reason — BigClients need them:

Are law firms, particularly big law firms, the dodos of the professional services sector?  The short answer is no. And the reason is pretty simple. Big clients need them.  And unless and until a substitute provider of legal services at the high level appears, big law firms will have a future.  Here are the caveats: The future of any particular firm is not guaranteed—it never was—nor will this future be free of change.

Under this theory, BigLaw exists to represent and defend “big blocks of power and money.”  BigClient is not about to hand over the keys to the new kid on the block when billions are at stake.  In fact, this may just be BigLaw’s best defense.  No matter how wonderful the NewLaw alternatives, at present, none of them can come close to meeting all of a BigClient’s needs.  While BigLaw may not be perfect or efficient, it has one thing NewLaw doesn’t – a proven track record with BigClients.

The Geeks (or at least one geek, Toby Brown) argue that the NewLaw bandwagoners need to rein in their “irrational exuberance” that the Johnny-come-lately rebels are anywhere near to overrunning the well-entrenched BigLaw positions:

Instead watch for steady, incremental changes in the way law firms function and deliver their services. Next generation providers will continue their growth, law firms will merge and things will generally keep changing.

Toby compares the NewLaw Express to the coming of the railroads to 19th Century America.  Despite the initial exuberance and wild speculation in the potential of railroads, it took at least 50 years for the “revolution” to become “business-as-usual.”  While Toby thinks it won’t take 50 years for the legal industry transformation to play out, he expects change to proceed in a civilized and orderly fashion. Another Geek generally agrees with Toby (in a comment), but also notes that:

Change always takes longer to get here than you expect, but when it happens, it happens faster than you would otherwise believe possible.’

The proverbial $64,000 question then hinges on exactly what stage the current NewLaw invasion is on the change curve?  Are we still early in the curve, which leaves BigLaw plenty of time to dawdle, or have we already reached the tipping point?

The “Man the Lifeboats” Camp

Recent posts by Dr George Beaton (The rise and rise of the NewLaw business model & Last days of the BigLaw business model) and myself (What Clients Want and Why BigLaw Can’t Deliver) believe that the BigLaw ship is taking direct hits from the NewLaw gunboats, and is perilously close to sinking.   Dr. Beaton bases this conclusion on a variety of factors, including his modeling showing that firms’ high PEPP numbers are likely to fall substantially in the near future, and that at least “two-thirds to three-fourths of the revenue of BigLaw firms . . . is under threat from New Law.” (see his reply to comment #7.)  Recent proof of these trends are evidenced by the 30%-and-up growth of Axiom Law, Riverview Law and Novus Law, and the recent reports in Legal Week that Berwin Leighton Paisner’s (BLP) 2012/13 PEPP fell 40%, while their Lawyers on Demand services rose 28%.  In other words, the NewLaw business models are “being rewarded by clients.”  So much so, that Dr. Beaton predicts Axiom Law could be the largest legal service provider in the world by 2018.  Hard for BigLaw to “keep calm” in the face of  those numbers.

The “Feast or Famine” Camp

Dr. Beaton’s post has elicited a large number of high quality comments on both sides of the debate that are simply too varied to adequately summarize.   While all of the comments are great, one in particular (comment #13) stands out.  Jordan Furlong notes that:

Growth is not dead — it’s just changed addresses.  Law firms are suffering not from a drop in demand, but from a drop in demand for what they sell, at the price they sell it, in the way that they create and deliver it.

(A similar sentiment was recently posted by Jason Moyse [Growth is Dead? for Who?] on Slaw.)

Further, the larger problem facing BigLaw is not surviving the crisis caused by the Great Recession, but rather surviving the fallout the Great Recession created:

I don’t think it’s necessarily this current downturn that’s the major issue; it’s that this downturn is effecting and ushering in a new set of market conditions that make the environment essentially unsuitable for the traditional law firm business model, and that most firms lack the wherewithal to adjust to the new environment without tearing themselves apart in the process.

In the end, Jordan’s analysis may help us make sense out of the conflicting results being reported. Certain firms may be safe because of the reasons set forth in The American Lawyer – the biggest deals still need high-level lawyering that none of the NewLaw contenders can yet provide.  The same can’t be said, however, for for the the majority of firms, i.e.,  the AmLaw 11-200, who are at serious risk of going the way of the Dodo:

But if I were in a firm from AmLaw 11-200, I would be concerned, and as I go down that list, my concern would edge into panic. These firms are like houses of cards, impressive to look at from the outside but extremely vulnerable and structurally unsound at their core. They may survive the crisis — most are stumbling through alright — but I don’t see them surviving the change process that’s to come.

Even worse, a recent article from the Harvard Business review suggests that even the AmLaw 10 may be at risk of losing business.  In Why Law Firm Pedigree May Be a Thing of the Past, the authors discuss a recent survey of 88 GCs of major companies in which 74% responded that they would be willing to move “high stakes” work away from the “most pedigreed law firms” to a good lawyer at a “non-pedigreed” firm, assuming a 30% savings could be delivered (A counter argument was recently posted here).  While saying you are going to do something, and actually doing it are two different things, these types of survey results are become increasingly common in the New Normal, and are causing sleepless nights for all but the most myopic of BigLaw partners.

The “If You Can’t Beat ‘Em, Join ‘Em” Camp

While the status quo is usually a pretty stable place to set up camp, in the free-for-all environment that has emerged in the wake of the Great Recession, resting on your laurels is a very dangerous place to be.  Unfortunately, as both Jordan Furlong (Law firm innovation: From idea to implementation & Comment #13) and Pam Woldow (Adventures in Magical Thinking, Part I) have shown, bringing about real change in a law partnership is an incredibly difficult proposition given the unique cultural environment of traditional firms.  As I discussed in my last post, a couple of traditional firms, Seyfarth Shaw & Akin Gump (Jordan adds Littler Mendelson to the mix), appear to be embracing the new normal, and are either developing their own LPM and LPO programs (Seyfarth Lean), or are joining forces with the rebels (Akin and Novus Law).  Ron Friedmann (The Speed of Change) recently summarized Addelshaw’s future vision that the 2020 legal market “will have 25% fewer lawyers and 20% fewer firms, with new business models and disruptive legal technologies sitting at the core of the provision of legal services.”  Thus, rather than one or the other model, BigLaw or NewLaw prevailing, the future may be a conglomeration of both.

The BigLaw vs. NewLaw battle continues to rage, and only time will tell who will ultimately prevail, and which of the prognosticators best read their crystal balls.  There already is, however, one surefire winner, and that is the client.  The seismic changes that the legal industry are undergoing are all providing clients with better value options than they have ever had.  The vast majority of 21st legal services, whether delivered by BigLaw, NewLaw, or a combination of the two, will be delivered with a higher predictability of better outcomes at a fairer price than ever before.  Win-Win-Win.

12 Comments leave one →
  1. October 15, 2013 10:17 pm

    Thanks for this Mike. I believe I’m in the camp you identify yourself in too. I’ve equally critiqued BigLaw as well as ReinventLaw. I believe BigLaw has an opportunity (perhaps now dwindling and likely to recede) to adopt internal efficiences and build top line revenue – but it likely won’t happen in large measure so we’ll see alternatives gain more market share. Where I see an exciting potential trend would be BigLaw partners (George Beaton mentions this in the comments section of the post you cite) establishing boutiques that generate more revenue than they made in BigLaw. Great piece Mike. Thanks for sharing it.

    [Originally posted on LinkedIn group International Business Development]

    • October 16, 2013 10:12 am

      John, I agree with you on the potential for super boutiques arising, especially when the PPP numbers start to drop. Right now, most “star” partners are too used to being coddled at their BigLaw firm (or worshipped when they move laterally). All they have to do is practice law and big checks are handed to them. Starting a new firm takes an entrepreneurial spirit that few “stars” possess. However, once they take big hits to their PPP, this option will become far more enticing.

  2. October 16, 2013 7:06 am

    Mike, great summary of all the blogs/articles/comments on this topic. I think I fall into the Jordan Furlong camp – that some members of BiggestLaw will be relatively safe as the up and comers take pieces of complex work away (and much of the less complex work).

    In the AmLaw20-50 group, however, I think some will go the way of the dodo (or merge, or adapt).

    The AmLaw 10 will, and should, keep racing to be the best provider for highly-critical, highest-stakes work. It remains to be seen which members of this BiggestLaw group thrives in the future. It’s worth the competition – doing complex, strategically critical work and charging premium prices is a sweet place to be.

    [Originally posted on LinkedIn group What will be the 21st Century Law Business Model]

    • October 16, 2013 10:28 am

      Catherine, thanks for the comment. Here is my problem with the view that the AmLaw 10 is above the fray, since they only work on the most “highly-critical, highest-stakes work.” We all know that even in this work, say a $5 billion M&A, that 90% of the work is still mainly process. Thus, you may well want Cravath partners for the heavy lifting, but do you really need their $300-$800 associates doing all the due diligence grunt work? Wouldn’t that be money better spent on a lower-cost NewLaw provider?

      I see a day in the near future where a NewLaw M&A specialist becomes do adept at what they do on the due diligence and other process work, that they become the lead and sub out the “heavy lifting” to key partners or teams that have the best experience/connections/influence in that particular industry. Further, it will be very likely that these high level partners will offer fixed prices (because it will be more lucrative for them), perhaps a percentage of the deal, for their work. This seems a much more honest way of doing business than overcharging by the hour for a majority of the work done on these deals.

      P.S. Love what you are doing over at AdvanceLaw.

  3. James Partridge permalink
    October 16, 2013 8:00 am

    Mike, Thanks for summarizing the relative positions of the various camps. As someone who has worked in both sides, I have to say that BigLaw is adopting, but that the change will be evolutionary, not revolutionary. Many of the BigLaw firms with which I’ve worked have asked how they can change things up and deliver better predictability and outcomes to their BigClient’s business. Oddly enough, in my experience, the sticky wicket is in fact the very BigClient who claims to be dissatisfied with the status quo. In other words, there is a conflict between what BigClients say publicly (“Change, and Change Now!”) and what they do privately (Whoa! Slow down there! I don’t have time to figure out an alternative billing arrangement? I’m too busy putting out fires over here! Just bill me by the hour or, better yet, give me a 10% discount.”). I think as a generation of younger, more technologically-adept and business-savvy attorneys rise to leadership positions in corporate law departments, this attitude will diminish.

    On the bright side, change IS coming and when it does arrive, there will be no turning back. It just may not happen on the same timetable many of us would like.

  4. October 16, 2013 11:18 am

    James, thank you for adding your insights from the trenches. As to a “slow and steady” evolution vs. a rapid revolution, I’d like to add that there is a relatively new school of thought in evolutionary biology called “Punctuated Equilibrium.” This concept argues that evolution does not proceed gradually and uniformly, but instead happens in rare and rapid bursts necessitated by the ability to survive dramatic changes in environmental conditions.

    Sounds eerily like BigLaw, which has enjoyed a tremendous run of relative stability with very little change. The Great Recession awakened clients who are now demanding dramatic changes to the status quo. New providers, able to adapt quickly, have already streamed into the marketplace. BigLaw, much like the dinosaurs, are lumbering and having trouble adapting.

    We all know what happened to the dinosaurs, and it all went south very fast.

    • James Partridge permalink
      October 16, 2013 12:27 pm

      I like the concept of “Punctuated Equilibrium” and think it is apt in this situation as well. I agree that the evolution will come in fits and starts, rather than one long slow One nit I have, however, is the oft-repeated comment that the Great Recession awakened clients who are now demanding dramatic changes. There is a kernel of truth there, I’ve found, but the changes are being demanded from forces outside of the corporate legal department, notably procurement and finance. From what I have seen and heard from colleagues of mine, though, is that many corporate law departments are resisting these changes internally (if not actively undermining them), even as they trumpet their purported demands for change to the media and anyone who will listen.

      Many law firms, on the other hand, have heard the public outcries of their clients and attempt to provide their corporate clients precisely what they claim they want: value-based billing, greater predictability, and improved results. Many corporate law departments balk at these initiatives from their law firms and reject them for one reason or another – suggesting perhaps that the proffered solution is too complicated, too difficult to administer, or too lopsided.

      My point is simply this: Law departments can’t simply demand change from their law firms and call it a day.

      If real, sustained change is going to occur (and I definitely agree it is necessary), then law departments must actively participate in bringing about that change. They can’t simply pay lip service to it. It is incumbent upon the law department to create a culture that fosters creative approaches to legal billing and to the provision of legal services in general, whether it be from alternative providers such as Clearspire, Valorem or Axiom, or whether it comes from unbundling the simplest of services such as deposition scheduling. They need to commit to using making data-driven decisions using tools from CT Tymetrix, DataCert, Sky Analytics, etc. rather than emotional decisions.

      I could go on, but I think I’ll stop here. Maybe one day, I’ll write a blog of my own with further observations.

  5. October 17, 2013 9:06 am

    Fabulous summary Mike. I really like the reference to Jordan Furlong’s comment that “Growth isn’t dead. It has just changed address”

    [Originally posted on LinkedIn group Alternative Fee Lawyers]

  6. October 17, 2013 6:43 pm

    I think the bloom will come off the BigLaw lateral rose when firms start seeing how consistently those laterals manage to bring with them only about 2/3 or less of the book that the firm thought it was buying. So many of these putative BD stars made their bones during the 20-year boom in legal service demand that ended in 2008. When they move laterally, a portion of that book remains behind, and few of the affected laterals will have the skills to replace the attrition.

    [Originally posted on LinkedIn group International Business Development]

  7. October 19, 2013 10:07 am

    Loved the article as usual Mike. Keep them coming. Viva the revolution.

    [Originally posted on LinkedIn group Alternative Fee Lawyers]

  8. October 20, 2013 12:24 am

    Great post Mike; not sure about the graphic though! I prefer a barbarians at the gates metaphor.

    Seriously though, with the stake owners of BigLaw firms have in their businesses and decades of culture and a proud history, their capacity to adapt should not be under-estimated. What can be certain, I believe is this. There will be many more losers than winners among the larger firms in the BigLaw sector (at all times I refer to BigLaw as a business model, not a size of firm: http://www.beatoncapital.com/2013/09/last-days-biglaw-business-model/).

    This imbalance stems from the limitations of the partnership structure. It is a major impediment to change, especially transformational change.

  9. October 24, 2013 9:50 am

    Mike, I agree with many of these comments, including George’s last post: no-one should underestimate the leadership of BigLaw firms. They understand the need to balance the demands from their clients to reduce costs and the demands from their partnership owners for profits. I personally don’t see this dynamic as much different from the NewLaw firms owned by institutional investors who typically invest one year and seek to maximize profits and exit just a few years later. Based on my own experience, I believe that most of BigLaw has a longer term view of the legal sector than most of NewLaw. 10 years ago or so when I started working with BigLaw firms like Clifford Chance, DLA, etc. on their legal efficiency initiatives, it was fair to say that most managing partners hadn’t yet identified the structural changes in client buying behaviors that were emerging, (though leaders at some firms like Baker & McKenzie and Orrick were far-sighted enough to do so and to do something about it). While BigLaw firms were initially slow to put together the picture of how their clients were changing the way they managed their legal budgets and spend, that gap was quickly filled by nimble entrepreneurs at a handful of alternative providers. Most of the investors in those alternative providers have already sold their stakes (or are trying to sell) and overall I see a net exit of outside capital. But BigLaw hasn’t been sleeping, as your blog post touches on, they’ve actually been quite busy experimenting. I am working with a number of BigLaw firms adapting to the changes in the sector. In some cases they are adopting NewLaw business model initiatives (e.g. alternative resourcing and LPO). In some cases they are simply improving efficiency, (e.g. LPM, process efficiency, automation, outsourcing or relocating support services). Despite the popular commentary to the contrary, they aren’t standing still.

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