Law People

Law People

Better Law Practice Through Better People Management

Competitors of the Future Arriving Now

Posted in Business Development, Compensation, Management, Profitability, Recruitment, Retention, Risk Management, Succession, Uncategorized

Maybe it’s just us, but the announcement of the departure from Fried Frank of a former managing partner and some of her department carries with it intimations of several current trends in the law business: the British are coming, the accounting firms are coming, and you’d better take a second look at both your profitability and your mandatory retirement policy.

Valerie Ford Jacob, the head of the capital markets group at Fried, Frank, Harris, Shriver & Jacobson, and until very recently the head of the firm, has left with two partners to join Freshfields Bruckhaus Deringer in New York.  After a poor showing in 2012, Fried Frank increased profitability in 2013 by 3.3% and profits per equity partner by a whopping 24.3 %.  The question is whether those recent financial improvements will stop the exodus of major partners, with 17 having decamped just so far this year. Shades of Dewey & LeBoeuf and other high-profile implosions are starting to haunt visions of the firm’s future.

On the other hand, Freshfields is succeeding in adding high-powered US lawyers in a strong expansion from across the pond, with now more than 180 lawyers in the US. Prior to the Fried Frank announcement, several high-profile laterals were successfully brought in to Freshfields’ US fold, including from Skadden, Arps,  Wachtell, Lipton, and Shearman & Sterling. While competing with US compensation has been a challenge for UK firms in the past, the potential impact of alternative business structures (ABSs) that UK law firms and other service professionals, like accounting firms, now have access to is starting to rebalance and even tip the playing field for future growth in favor of the Brits. And Freshfields has “flexed” its lock-step compensation several times when courting US partners, so that Fried Frank’s recent average profits per equity partner of $1.6 million may not be much of an obstacle any more. Similarly, Fried Frank has a mandatory retirement age of 65.  The number of US law firm mandated retirement programs have declined precipitously over the last ten years, helped along by age discrimination lawsuits, as baby boomers rail against them. Those firms who retain them risk their high-performers moving on to fill their recession-depleted coffers elsewhere before going out into that dark night.

One of Fried Frank’s losses last month was tax partner Kevin Keyes, who left for KPMG.  When Sarbanes Oxley prohibited accounting firms from offering legal services to audit clients, most accounting firms stopped offering legal advice in the UK and the US, while some continued to offer it in Russia and some European countries. Now that accounting firms can use the UK’s ABS structure to give legal advice, they are standing in line to join the legal fray.

PricewaterhouseCoopers successfully applied for an ABS license in February, and acquired a boutique Canadian law firm the following month.  Its law firm arm, PwC Legal, currently employs over 2,000 lawyers in 80 countries and intends to double its global legal revenues to $1 billion over the next five years, which would place it in last year’s American Lawyer’s Global top 30. It recently hired two partners from King & Wood Mallesons, the Australian firm that has put international law firm expansion on the map with Australia’s own version of ABSs, to launch an Australian legal services arm and has opened offices offering legal services in

Both Ernst & Young and KPMG are also considering either acquiring law firms in an ABS subsidiary or converting the entire organization to an ABS.  EY, as it is now known, hired 250 lawyers in 2013—including partners from top international law firms, and one specializing in international transactions from Freshfields–increasing its total attorney head count by almost 30 percent, to 1,100. Last year it launched legal services in 29 countries, more than doubling its coverage from 23 to 52 international jurisdictions, with a longer term aim to be in more than 80 jurisdictions by 2020. Deloitte established a Chinese legal arm in early 2013 with hires from several domestic firms.  Several partners at the Qin Li Law Firm are simultaneously partners at Deloitte China and Deloitte Legal.

As one reporter points out: “For midmarket law firms and even international giants such as Baker & McKenzie and DLA Piper, the Big Four accounting firms make daunting competitors. They have global networks comprising hundreds of offices; global brands that are far stronger than those of any top law firm; much greater sophistication in technology, training and business support; and client lists that dwarf even those of the largest law firms.  The Big Four are simply in a different league when it comes to scale. Baker & McKenzie, the world’s largest law firm by head count, has just over 4,000 attorneys worldwide. Deloitte has almost that many staffers in South Africa alone.”


Delay in Delivering Blog Entries Resolved

Posted in Announcements

Gentle Readers, there has been a glitch recently in the delivery software program of this and other blogs serviced by LexBlog.  Apparently as of today that issue has been resolved. We at LawPeopleBlog apologize for not being able to get our regular blog entries to you over the last while but promise that they will now be forthcoming.  Our best wishes for a profitable fall!

Muir Moderates Panel at Women Leaders in Life Sciences Law Conference

Posted in Announcements

On July 28 and 29, Women Leaders in Life Sciences Law held their first annual conference in Boston.  Billed as “Promoting Diversity and Increasing the Prominence of Women in the Life Sciences Legal Community through Substantive Legal Discussion, Professional Development, and Woman-to-Woman Networking,” this group was packed with outstanding credentials and life stories on the value and impact of diversity in all aspects of their practices.

Muir co-moderated a workshop panel of impressive representatives from law firms and corporate legal departments that addressed “Combating Gender Stereotypes in the Life Sciences Legal Community: Open Forum and Working Group on Overcoming Implicit Bias.” See one of our recent posts on implicit bias for a flavor of some of the discussion.

The panel will be issuing a set of recommendations gleaned from the group on how law firms and law departments can realize the benefits of diversity.  Stay tuned!

Challenged by Ethics

Posted in Client Service, Coaching, Culture, Ethics, Leadership, Management, Mentoring, Professional Development, Risk Management, Teamwork, Uncategorized

Stephen Glass, the infamous journalist whose writing career collapsed under an avalanche of lies, is not being allowed to practice law in California. The California Supreme Court concluded early this year that Glass, then a law clerk for a Beverly Hills plaintiffs firm, had failed to meet ”his heavy burden of demonstrating rehabilitation.” Glass admitted to fabricating parts of more than 40 articles published in the late 1990s, including for The New Republic and other journals that touched on hot-button topics such as race and politics and won him worldwide recognition.

“The ruling today vindicates the idea that honesty is of paramount importance in the practice of law in California,” State Bar President Luis Rodriguez said in a prepared statement, in that a “significant deceit sustained unremittingly for a period of years” cannot be excused.

In the UK, an ex-Paul Hastings partner was disbarred this year instead of being given a 3-year suspension over an embellished résumé with a slew of phony accomplishments. Dennis Thomas O’Riordan, a former Cadwalader Wichersham and Taft regulatory partner, claimed to have been admitted to the bar in New York, earned two bachelor’s degrees and a doctorate from Oxford University and a master’s degree from Harvard University, and received the designation of an Eldon Scholar at Oxford Law, all of which he did not dispute were false.

Sara Down, head of professional conduct at the UK’s Bar Standards Board, said in a statement that “the BSB felt strongly that the sentence of suspension did not go far enough and that allowing Mr. O’Riordan to return to [practice] would, given the extent of his dishonesty, have diminished public confidence in the profession and discredited the bar.”

Perhaps you’ve heard in the news lately the tale of Ajai Mathew Mariamdani Thomas, who was born in Michigan, raised in Florida, and graduated from Duke University in 1995 with a degree in biomedicine, ethics and public policy.  Note “ethics.” After graduating from college he worked at the National Human Genome’s Office of Genome Ethics in Bethseda, where he wrote three papers on the topic of medical ethics. Ethics again.

Mr. Thomas entered Harvard Law School in 1997 where he was a semifinalist in the annual moot court competition, was an editor of the Journal of Law and Technology, and cofounded the school’s Society of Law and Ethics. Yes, ethics.

Although Thomas received “excellent grades” while attending Harvard, he allegedly created a phony transcript giving himself some As in place of some Bs and B+s, and used that transcript to apply for a federal appellate court clerkship. After his transcript was determined to be touched up, Thomas fabricated a forensic report in support of his appeal to the Harvard disciplinary panel.  The Harvard Law School faculty voted to expel him on September 17, 1999.

In 2003, Thomas received an MBA from Stanford Business School and went to work first for a Boston hedge fund and then SAC Capital. Along the way, Thomas changed his name to Mathew Martoma, which you may recognize as the name in the news. According to The New York TimesMartoma received a $9.4 million bonus in January 2009 as a reward for his performance the prior year in SAC’s health care group.  But having lost money for SAC in 2009 and 2010, he was fired in September 2010.

Over the last few months Martoma has been on trial for his role in what prosecutors have called “the most lucrative insider trading scheme ever charged,” culminating in over $275 million in profits and avoided losses, over 4 times the amount of insider trading gains that Raj Rajaratnam was sent to prison a record 11 years for.  He is set for sentencing later this month, and the prosecutor is recommending 8 years.

These and other instances of questionable to absent ethics may seem a little over the top in so far as their relevance to your practice. You haven’t, after all, altered your CV, or changed your name to obscure problematic details about your past, or absconded with millions of ill-gotten gain. But there are plenty of examples out there of questionable ethics that may hit closer to home.

Early this year, The Legal Intelligencer reported that, after the assertion of 17 separate defenses in a 298-page brief and a mediation procedure, K&L Gates agreed to settle for $24 million a $500 million malpractice suit.  Beverage manufacturer Le-Nature’s bankruptcy trustee Marc S. Kirschner alleged that K&L Gates and managing partner Sanford Ferguson were hired in 2003 to conduct an internal investigation of possible insider fraud and failed to detect any. Kirschner claimed that failure allowed the company to sink deeper into debt for the next three years until a massive insider fraud came to light, the company went bankrupt and its former CEO Gregory Podlucky was sent to prison for 20 years.

According to other news reports, “Kirschner ripped the firm’s former management committee chair Sanford Ferguson… calling him a corporate attorney who had not been actively practicing law for a number of years before helming the investigation. Kirschner pointed to Ferguson’s time both chairing the management committee and subsequently working directly for a software company and a resort company before returning to the firm and heading the investigation as evidence that he was unprepared for the task. Kirschner also said that Ferguson violated Pennsylvania’s rules of professional conduct by failing to bring a lawyer with experience in complex fraud investigations into the inquiry.

“Instead, according to Kirschner, Ferguson left the bulk of the day-to-day work in the investigation to the firm’s associate Paul Berks, who lacked key experience in corporate fraud issues. Kirschner said that Ferguson frequently left interviews, or did not participate at all, leaving Berks fully responsible.”

We can be assured and maybe even proud that regulatory boards here and across the pond have standards about ethics that they aren’t afraid to enforce, at least in some cases.  But are we doing enough when it comes to dealing with and even preventing the less glaring, less obviously optic instances of ethical lapses?

A  report commissioned by the UK legal profession’s three main watchdogs – the Solicitors Regulation Authority, the Bar Standards Board and the Institute of Legal Executives’ Professional Standards–was delivered June 25, 2013 after two years of preparation.  In part, it calls for students to be taught an enhanced sense of ethics and professionalism so they have a better understanding of “the relationship between morality and law, the values underpinning the legal system and the role of lawyers in relation to those values.”

We could start by requiring that sort of dialogue in all law schools and then by including questions about subtle ethical dilemmas on all bar exams.  But ultimately this is a firm-by-firm, lawyer-by-lawyer issue that strikes at the heart of your and your firm’s integrity and reputation and that determines the extent of your clients’ loyalty.

There are steps to take to minimize the risk of ethical lapses.  Are you taking them?


The Intersection of Law and Psychology

Posted in Client Service, Coaching, Communication, Conflict, Culture, Decision-Making, Emotional Intelligence, Leadership, Management, Mentoring, Productivity, Professional Development, Profitability, Recruitment, Retention, Risk Management, Teamwork, Uncategorized, Wellness, Work Satisfaction, Work/Life Balance

On February 21-22 of this year, the Boyd School of Law and Saltman Center for Conflict Resolution at the University of Nevada at Las Vegas held a very interesting conference on Psychology and Lawyering.  Attendance and enthusiasm were high and organizers anticipate future conferences well-fueled with the expanding research on these related areas.

Here are some excerpts of the rationale for such a pairing:

“The field of psychology has a tremendous amount to offer practicing attorneys. In this two day conference leading academics and practitioners from both law and psychology will discuss how insights drawn from multiple fields of  psychology, as well as from neuroscience, can improve specific lawyering practices.  Panels will focus on client relations and perceptions of fairness, applications of psychology to lawyer decisionmaking, legal persuasion, the courtroom, legal ethics, and lawyer wellbeing.  A special luncheon session will highlight how law professors can teach relational competencies and emotional intelligence.  Tom Tyler, the Macklin Fleming Professor of Law and Professor of Psychology at Yale Law School, will give the keynote address entitled ‘Legitimacy and the Exercise of Legal Authority.’

“The conference is an effort to coalesce academics and practitioners from a variety of fields who together are increasingly recognizing the broad relevance of psychology to lawyering.  Traditionally, those who connected law and psychology focused primarily on juries, trials, and criminals’ states of mind. But today, researchers from various sub-disciplines of both law and psychology are broadening their focus to examine the additional ways in which psychology can be of use to a wide variety of common lawyering practices in both civil and criminal settings.”

A review of the topics discussed at the conference illustrates the dimensions of the research that overlaps these two subjects. Panel topics included Lawyer Decision Making, the Psychology of Client Relations, Client Perceptions of Process and Fairness, the Psychology of Courtrooms: Lawyer Performance and Judging, Witness Testimony, Teaching Relational Competencies, the Psychology of Persuasion, Lawyer Well Being, and the Psychology of Legal Ethics.  Material presented included power points on subjects like “From Lemurs to Lawyers: The Role of Evolution in the Psychology of Lawyering,” “Using Principles From Cognitive Behavioral Therapy to Reduce Nervousness in Trials, Oral Arguments, and Other Court Appearances,” and “Resilient Lawyering: Lessons for Lawyers from the Science of Positive Psychology to Boost Performance and Work Satisfaction.”  There is even a power point on “The Zombie Lawyer Apocalypse.”

The era of industries that do not account for the human element effecting performance, dynamics and satisfaction is fast fading.  Economics is the most recently visible convert, evidenced by Nobel Prize winning Daniel Kahneman’s Thinking, Fast and Slow and perhaps the legal industry is not that far behind…


Telling it Straight

Posted in Culture, Diversity, Emotional Intelligence, Leadership, Management, Productivity, Professional Development, Profitability, Retention, Risk Management, Teamwork, Uncategorized, Wellness, Work Satisfaction

Jennifer Alvey “is a recovering lawyer who was once one of the 20% of Feelers in law firms.”  Now she coaches other lawyers in the Nashville area, many of whom are miserable practicing law. In her post “Why Are There So Many Asshole Lawyers?”, she tells it straight about her and her clients’ experiences in “dysfunctional” law firms, citing aspects of Muir’s work at Law People Management on lawyer personalities as a way to understand some of the dysfunction.  BigLaw firm Kirkland & Ellis comes in for particular scrutiny.

This post illustrates the narrow personal style profile that dominates the practice of law, a topic that Muir spoke on at the Center For Legal Inclusiveness Summit earlier this month, and that can make those outside that profile unhappy in their practice.

For those looking for strategies to enhance both firm culture and function and personal performance and satisfaction, a good place to start is by examining personal style. Let us at Law People Management help you achieve a higher functioning firm and individual practice.

Diversity in Personal Style

Posted in Announcements, Conflict, Diversity, Emotional Intelligence, Ethics, Leadership, Management, Productivity, Professional Development, Profitability, Recruitment, Retention, Risk Management, Teamwork, Work Satisfaction, Work/Life Balance

Muir spoke at the Center for Legal Inclusiveness Summit  in Denver, Colorado on Monday, May 12, a well-run event drawing people from all directions, despite a spring snowstorm.  Muir’s topic was “Achieving the Advantages of Diversity in Personal Style,” a review of the narrow personal style profile that prevails in many legal organizations, the hazards that narrow perspective presents and the advantages of broadening our personal style profiles.  Kudos to Karen Hester, the new Executive Director, her second in command, Michael Barajas, and the others who made the event so interesting and successful.



The Decline of the Seduction of Practicing Law

Posted in Compensation, Law Education, Professional Development, Profitability, Recruitment, Retention, Uncategorized

If there were any question as to whether there is an over-supply of lawyers in the US, the recent spate of reports should lay that to rest. As Steve Harper noted in a January American Lawyer article, “Eighty-five percent of today’s newest lawyers are carrying six-figure law school debt. Only about half of all those graduating from law school in 2012 found full-time long-term jobs requiring a J.D. The most recent U.S. Bureau of Labor Statistics employment report indicates that between December 2012 and December 2013, employment in the ‘all legal services’ category actually declined by 1,000 people…. While the profession was losing 1,000 jobs last year, law schools graduated a record number of new lawyers—46,000—and more large classes are in the pipeline…and recently revised BLS estimates suggest an ongoing lawyer glut for years to come. In the midst of this disaster, law school tuition keeps increasing. It’s all quite perverse.”

The law school market has certainly taken note of these developments. Law school applications have plummeted. The National Law Journal reported late last year that for the fourth year in a row, the number of those taking the LSAT in October dropped–falling to 33,673 in 2013, down from 37,780 in 2012, but down astoundingly almost half—45%—from the high of 60,746 who took the October LSAT in 2009.

In many cases, that profound decrease in applications has meant a smaller number of matriculants at law schools. A Kaplan Test Prep Survey, released in Oct. 2013, found that while law schools had a combined 602,300 applicants in 2010, only 385,400 students applied in 2013, the lowest level of applicants in decades. Kaplan further reported that 54% of law school admissions officers said that in response to the lower level of applications, they have decreased the size of their incoming classes for 2013-2014, meaning a second year of falling class sizes, after 51% smaller classes for 2012-2013. “The trend does not seem to be pointing upward either, as 25% say they already plan to cut class sizes for 2014-2015 as well.”

Clearly some law schools are suffering more than others from the reduction in applicants, as the list of 18 law schools whose enrollment has gone down 30% or more since 2010 attests.

Nonetheless, Harper assures us that “law school applications are down, but acceptance rates have gone way, way up to compensate.” According to him, schools in trouble are “picking their poison. Either they can maintain admission standards that preserve LSAT and GPA profiles of their entering classes, or they can sacrifice those standards in an effort to fill their classrooms and maximize tuition revenues…  the rankings methodology has presented many schools with a Hobson’s choice: If they preserve LSAT/GPA profiles of their entering classes, they will suffer a reduction in current tuition dollars as their class size shrinks. If, on the other hand, they admit less qualified applicants, they’ll preserve tuition revenues for a while, but suffer a rankings decline that will hasten their downward slide by deterring applicants for the subsequent year.”

In January of this year,  the ABA Task Force on the Future of Legal Education released its (final) Report and Recommendations [PDF], a 41-page document that supersedes two prior documents. As Matt Leichter, who operates The Law School Tuition Bubble, reported, “Much like task forces set up by bar authorities in various states, the ABA panel was created to study the rising cost of law school tuition, the decline in job opportunities for lawyers and even the effects of structural changes to the practice of law and lawyer supply [PDF]. As with examinations of the reports produced by its state bar counterparts, analysis of the ABA report’s most salient topics depicts a mix of good ideas and disappointing confusion.”

He notes, among other things, that “the final report no longer describes the training of lawyers as a ‘public good,’ but rather something that provides ‘public value,‘  and clearly comes down against formal legal education as providing public value when training lawyers. It is in favor of the limited licensing of legal practitioners, fewer undergraduate requirements for lawyers, fewer law school requirements, the uniform bar exam, more law school ‘heterogeneity’, and substantial accreditation reform allegedly aimed at reducing the cost of law school. The task force even implies that law schools aren’t providing students with core lawyering competencies and that law schools aren’t benefiting society by absorbing federal loan dollars.”

And yet the report does not deal with what Leichter describes as long-term structural problems in the legal business model and the federal loan program that props up law schools and gives students who have little chance of gainful legal employment an incentive to nonetheless go to law school. “Demand for private legal services grew rapidly until about 1990. It recovered only slightly amid the stock bubble, and has been in decline for the last ten years. This information is publicly available (pending BEA data revisions) and largely beyond dispute. Why bar authorities won’t acknowledge it when discussing the ailing legal sector is, to me, the biggest baffler of the task force’s report.”

In March, Leichter followed up his analysis of that ABA Report with one of the Fellows of the American Bar Foundation preliminary findings from the third wave of the “After the J.D.” study (AJD). “That study tracks a robust sample of more than 3,000 people who passed a bar exam in 2000 after graduating from a wide variety of law schools, including some that were unaccredited. This cohort was first surveyed in 2003 (AJD I), again in 2007 (AJD II) and, most recently, 2012 (AJD III). The good news to be gleaned from the latest batch of preliminary findings: On a scale of 1 to 7, with 7 being highest, respondents gave the statement “I would go to law school if I had to do it all over again” an average rating of 4.91. Those queried gave relatively higher ratings to questions about whether they felt attending law school had been a good investment and whether they were satisfied with their decision to become lawyers. The not-so-good news is that as of 2012, only a minority of respondents were still in private practice, and roughly one in four had left the practice of law entirely (by contrast, most respondents were in private practice in 2003). Moreover, the gap in median full-time earnings between graduates of elite law schools and those who earned their degrees at less reputable schools had widened considerably, as had the gap in earnings between graduates of nonelite schools based on GPA.”

“There are two other striking comparisons to make between the Census Bureau and AJD earnings data. AJD participants earned more when working in nonlawyer business positions than lawyers in many practice areas did. Also, depending on their employment category and percentile, many lawyers made less money than the median bachelor’s or master’s degree holder in the same age bracket.”

What might be even more disconcerting for those thinking of entering law as their life-long career are the stats coming out this month about the minuscule number of new equity partners being made at even the richest, most successful law firms.Life-long career in deed.

Of course, that assumes that Gen Y and the Millennials are even interested in a long-term career. One of the reasons given for Greenberg Traurig’s new “residency” program, where new lawyers are denominated “residents” and not “associates” –with the clear implication that they are not on any kind of partnership track– is that these youngsters aren’t that interested in staying in the same place, anyway, so why make it seem like they might?

Wouldn’t they be better off, anyway, with another degree–even a bachelor’s or master’s degree–in a different, nonlawyer position?


The State of the Marketplace

Posted in Business Development, Client Service, Leadership, Management, Profitability, Recruitment

Ladies and Gentlemen, looks like we have consensus about our situation.  Or almost.

The Report on the State of the Legal Market (Peer Monitor/Georgetown) came out in early January followed by the Citi Private Bank 2014 Client Advisory (Hildebrandt) a week later. The Report on the State of the Legal Market noted an overall drop in demand for 2013 of slightly more than 1%, with a substantial shift to in-house work as part of a general reduction in engaging outside legal services and a further trend to move work that does go outside away from more expensive top tier firms to less expensive, more efficient ones. The conclusion was that there has been a permanent change in the marketplace that firms will have to recognize and adapt to. “The current trends… reflect fundamental changes in the nature of competition in the legal market, changes that have been increasingly evident since 2008… The first and perhaps most obvious change is that the legal market has become much more intensely competitive than it was five years ago.”  

Included in the report were statistics from the 2013 Altman Weil Chief Legal Officer Survey that indicated that 44% of over 200 CLOs surveyed had shifted work to in-house lawyers during the prior 12 months, and 30.5% had reduced the total amount of work sent to outside counsel. “Moreover, some 29 percent of respondents indicated that they intended to decrease their overall use of outside counsel in the next 12 months, and only 15 percent said they expected to increase such use. Consistent with these responses, 47 percent of CLOs indicated that they had decreased their budgets for outside counsel during 2013 (a figure that compares  to 39 percent in 2012 and 25.4 percent in 2011).”

The report concludes that: “[G]rowth-for-growth’s-sake strategy makes little sense…  Even if there can be assumed to be some economies of scale… there’s little proven correlation between size and profitability – and at some point there are even diseconomies of scale.” As one commentator noted: “There are plenty of issues facing the law firm industry; this report makes the argument that the one strategy that firms seem to be consistently applying to address those issues – growth through mergers and lateral hires – is simply not going to meet the challenges.”

Debunking the growth-will-solve-everything approach is certainly not new.  Bigger is not better is more recently the recurring mantra, and that started well before the Great Recession.  Latest are the reports that Big Law is declining and mid-size firms are increasingly winning market share.  An HBR author titled his blog entry “Law Firm Pedigree May Be a Thing of the Past,” quoting one GC who said: “I would absolutely fire anyone on my team who hired Cravath.”

Why are we stuck in the growth-as-a-solution ditch? According to the Report of the State of the Legal Market: “To address the concerns of clients for more efficient, predictable, and cost effective legal services, law firms must focus their attention on re-thinking the basic organizational, pricing, and service delivery models that have dominated the market for the past several decades.”  However, “the message that we need to ‘build a bigger boat’ is more politically palatable than a message that we need to fundamentally change the way we do our work.”   

The Citi Client Advisory comes to essentially the same conclusions about the current marketplace as does the Peer Monitor report.  Citi  reports that,“we do not project a return to pre-2008 levels of performance. We believe that we have witnessed a fundamental shift in the market for legal services, resulting in a changed and more muted demand environment for law firms. While some elements of demand are cyclical, the fundamental changes described in our Client Advisory will require law firms to embrace and respond to a new reality.”  Or as one commentator put it:  ”the growth curve has been permanently bent downward from the pre-2008 years.” (emphasis added)

But the Advisory is much more positive about law firms’ abilities to maneuver through the shoals. It characterizes growth as  more deliberate and strategic, with better planning and execution, than in the past.  Citi sees more firms moving from cutting expenses and prices toward actively pricing legal matters, using more sophisticated professionals and technology in the process.  And finally, “Unlike the commentary of many observers of the legal profession suggesting that today’s senior management do not ‘get it,’” it argues that law firm leaders have recognized the need for changes and have beefed up their management skills and staff expertise to effectuate them.

However,  the Peer Monitor Report makes the case for how uncommitted to the hard process of change law firms in fact are, noting “that few firms seem willing to go there, showing little appetite for new price models, staffing models, and packaging and delivery models.” Citing Altman Weil’s 2013 Law Firms in Transition Survey of 238 managing partners of U.S. law firms with 50 or more lawyers, “the law firm leaders surveyed clearly understand that the legal market has changed in fundamental ways, with substantial majorities agreeing that permanent changes in the market [are taking place]…  And 66.7 percent of respondents indicated that they believe the pace of change in the legal market will increase going forward. And yet, only a minority of firms has undertaken any significant changes to their basic business models.” (emphasis added)

What’s the hold up?  Fingers point rapidly away. When asked to rate their “partners’ level of adaptability to change” on a 0 to 10 scale, the median rating was 5 (in the “low” range), with only 2.2% indicating a “high” level of adaptability. “[A]sked how serious they believe law firms are about changing their legal service delivery model to provide greater value to clients (as opposed to just reducing rates)… respondents produced a median rating of 5 (in the “low” range).  That compared to a median rating of 3 given by corporate chief legal officers when asked the same question in October 2012.”  Woops.  Client perception is dangerously out of line with our own.

In fact, when asked to list “the greatest challenges their firms face in the next 24 months, the top four answers from respondents (which constituted just over 50 percent of all responses) were all internally focused issues aimed at protecting the status quo of the law firm and not at becoming more responsive to clients.” 

As the Peer Monitor Report concludes: ” [T]he legal market may be currently poised for what could be a dramatic reordering based on the same type of disruptive forces that have reordered many other businesses and industries.”

Almost a decade ago ClayChristensen authored a white paper on “Transforming Legal Services,” in which he noted that law firms have been able to successfully make outsize profits –40% on average for the AmLaw 100, or roughly twice the average margin of the country’s 100 largest publicly-traded corporations–without updating their product or their business model. He warned, though, that that success was unlikely to continue:  “In the parlance of disruptive innovation theory, corporations are ’over-served’ when they pay top-firm rates for routine matters… Corporations have reacted by fragmenting their legal spend… For the leading law firms, fragmentation means loss of market share.”

Christensen’s article in the October 2013 issue of the Harvard Business Review argues “that a disruptive transformation in the legal market may well already be underway… . The pattern of industry disruption is familiar: New competitors with new business models arrive; incumbents choose to ignore the new players or to flee to higher-margin activities… [A]lthough we cannot forecast the exact progress of disruption . . ., we can say with utter confidence that whatever its pace, some incumbents will be caught by surprise. The temptation for market leaders to view the advent of new competitors with a mixture of disdain, denial, and rationalization is nearly irresistible… As we and others have observed, there may be nothing as vulnerable as entrenched success.”

What was it that bankruptcy specialist Martin Bienenstock said, who toward the end was made a member of Dewey & LeBoeuf’s office of the chairman?  ”I think the world changed… and no one saw the new world coming.”