Corporate & Securities Law

The Law Firm Model - April Fool?

By John Wallbillich

No, it’s not a joke: it’s an appropriate day for some law firm leaders to speak candidly.

In the New York Times, what starts out as another look at associate pay actually gets to the root of the problem.

Rather than the usual platitudes provided to the press, we have two insights on the traditional law firm model:

First, Douglas Cogan of Fenwick & West says it was:

“…invented by lawyers who were not very good at business.”

Ouch.

Next, Robert F. Ruyak of Howrey goes further, admitting the underlying “talent” fallacy (based upon the pretext of partners hiring associates who would work toward partnership on an eight year track):

?But they weren?t really selected for that purpose,? he said. ?They came in and did rudimentary work for two or three years. Clients were overpaying enormous amounts for that work.? He added: ?Associates were thrown in to sink or swim. Maybe they got good work, and maybe they didn?t. Maybe they worked for partners who cared about their advancement, and maybe they didn?t.?

Double ouch.

So 20 years of the BigLaw model are effectively demolished in two paragraphs.

The cherry on top of this upside-down cake is provided by Cisco GC Mark Chandler:

?…the attitude at firms has always been, ?We can have every cost we want and simply pass it along to the client, then rely on our leverage model to produce the profits we need.? ?

The NYT writer, Dan Slater, summarizes how this is playing out in some circles:

When the recession pinched corporate budgets, in-house legal departments were told to cut costs. Chief legal officers, in turn, called for reform at law firms.

To be clear, however, GCs have been focused on costs for the better part of the last decade. It’s just that all the low-hanging fruit was grabbed years ago. To keep costs in line with competitive pressures, GCs have to look hard at long-standing law firm relationships, improve some and end others. This opens the door for different firms, new service providers, and creative process improvement.

The first part of change is admitting you have a problem. While some firms “get it,” you can’t under-estimate the challenge in changing a culture. And it’s more than that. Most large law firms will have to change their business model.

And that’s the hardest thing: it has to be done on the fly, with a bloated cost structure that has staffing, offices and other overheads better suited to 1980 than 2010. And through it all you need to keep productive partners in the fold (who are weighed down with all the overhead) and valuable associates in the queue (who see little chance of “partnership” in the historical meaning of the term).

That’s change you want to believe in.

So give a kind word today to your friendly neighborhood managing partner. He or she will appreciate it.

Full post as published by The Wired GC on April 01, 2010 (boomark / email).