Law People : Law Practice Management, Organizational and Personal Dynamics; Talent Management : Ronda Muir of Law People Management, Inc.

Thomson Reuters recently announced that it was buying legal process outsourcing provider Pangea3 for a price that has been estimated at between $35 and $40 million. At the same time, Thomson put up for sale BAR-BRI, the bar exam training and preparation company it purchased several years ago.  And several days earlier Indo-American LPO UnitedLex bought LawScribe, which also operates in India.

According to Law21, "It’s difficult to overstate just how important this [Thomson] purchase is — it will transform at least two legal industries and quite possibly the whole marketplace."

Here's the reasoning:

Simple publishing as a major product category has a limited future, so companies like Thomson and LexisNexis are branching out into complementary areas, with uneven results--the LPO that Lexis set up in Chennai years ago essentially failed.  

Thomson's acquisition of a large, robust LPO will likely give Thomson an edge over Lexis and the like and also make it hard for other outsourcing companies to compete against Pangea3, both outside the US and here at home--Pangea3 has already made it clear it intends to use its new backing to set up a significant practice within the United States.  So we may well see a movement towards consolidation among the young LPO competitors and a fine tuning of the business model and pricing.

While a healthy, savvy LPO offers both clients and law firms an additional resource, law firms are now in the position of having the company that once provided them with practice tools competing with them where firms have often made a good profit--off of the work of junior lawyers. 

While Thomson doesn't provide legal services, its size (55,000 employees in 100 countries), resources and stable of legal-oriented companies make it well poised “to help the legal system perform better, every day, worldwide,” as its mission states, right up to that line.  And well situated to go beyond, if there is a regulatory opportunity.

"What Thomson's recent acquisition of Serengeti and now Pangea reflects is the power of the buyer's market in driving down costs of legal services. The former is a matter management system that produces data and metrics to guide the purchase and management of  legal services. The latter is a cost effective means of procuring services that are capable of being standardized - basically transaction processing, rather than services that require judgment and experience." 

While potentially useful in law practice, neither capability sounds like a direct threat to the trusted advisor role that many lawyers aspire to.

Of course, the question of how young partner-track attorneys are going to be trained in a world of outsourcing becomes more insistent when a colossus like a Thomson-backed Pangea3 enters the US market, but it is also one that has already been brewing for some time now.

What may be the most striking aspect of this acquisition of Pangea3 is what it will do to Thomson's legal consulting business. Hildebrandt Baker Robbins is a combination of two consulting groups, one historically bespoke and the other more mass-oriented.

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At the Washington College of Law Annual Fellows Meeting and 2010 Futures Conference at American University, several presentations made on various challenges confronting the legal sector are worth noting. 

Developments in the Global Market

Peter Zeughauser, Chairman of the Zeughauser Group, predicted that "demand for legal services long term will grow" and that the U.S. will be a magnet for litigation involving global companies.  In his opinion, U.S. law firms should focus business development on the 1% of U.S. companies (2,270 entities) that are multinational companies, representing 48% of exports, 37% of imports and 74% of R&D.

He noted that China and India will eclipse the G-6 very quickly and American law firms should be focused on developing their practices there instead of in Europe.  In his opinion, if there were a Global 20 law firms, five Chinese law firms would be on that list today. One of them, also mentioned by other panelists, would be King & Wood, which has over 800 attorneys in 16 offices, including Palo Alto and New York. 

Zeughauser stated that there is a dearth of legal talent in the Emerging Markets - BRIC Countries (Brazil, Russia, India and China) and in the N11 countries (Indonesia, Philippines, Bangladesh, Egypt, Korea, Nigeria, Turkey, Vietnam, Iran, Mexico and Pakistan). To meet that challenge, a few Chinese law firms are presently recruiting U.S. law school professors to train their lawyers. 

Zeughauser also mentioned, as we have recently pointed out (see our entries "The Arrival of Outside Investment?" and "Reducing Regulation as a Productivity Prod"), that India will be a difficult market for American law firms to penetrate under current laws.  India extends reciprocity to  lawyers from countries that allow Indian lawyers to practice there. But because there is no national bar admission here-- admittance to practice law is determined state by state--U.S. attorneys may be the only attorneys in the world unable to practice in India. Panelist Will Hornsby, Counsel of the American Bar Association’s Division of Legal Services, contended that a U.S. national bar would be unconstitutional, with the ABA taking the position that Congress can’t regulate the practice of law under separation of powers. It has since been reported that ABA president Steve Zack requested President Obama address this issue during his trip to India this fall, but evidently nothing positive developed. 

Talent Management is King

Talent management was discussed as a key driver for law firm success and several presenters commented on various issues relating to legal talent.

American Lawyer Media’s Aric Editor-in-Chief Aric Press took the position that law firms do not take recruiting and retaining talent as seriously as their clients do.  

Caren Ulrich Stacy reported on working on research that would identify the best predictors of success for attorneys in law firms. Her new company, Lawyer Metrics, recently  founded with Indiana University of Law professor Bill Henderson and others, hopes to identify traits that firms can assess for purposes of selection and development. 

Patrick Lamb, founder of the Valorem Law Group, suggested that firms create attorney positions that are long term and provide career satisfaction even if they do not become partners.  Lamb also noted that just because partners have ownership rights, they shouldn't necessarily also possess management rights. 

Profile Search Group’s Ken O'Brien (to whom we extend credit for a succinct summary of the conference) noted that often firms have only themselves to blame for disastrous outcomes in hiring lateral.  Many firms have reduced their investment in professional development during the recession, significantly cutting their PD staff and/or budgets. Firms often fail to conduct comprehensive due diligence of incoming lateral partner candidates and do not have a robust lateral integration program that monitors the lateral’s business plan and actual business intake. In addition, firms often fail to track the cross-selling opportunities that the lateral’s proponents promised to deliver. His experience also supports the position that focused professional development programs will help firms develop alternative staffing models which yield competitive financial results. 

Mark Robertson, past chairman of the ABA’s Law Practice Management Section, made the point that attorneys need to develop project management skills to help understand costs, provide accurate estimates and deliver more value in a timely manner at lower cost.   

Simon Chester, former president of the College, an English solicitor and partner in the 500 attorney Canadian firm of Heenan Blaikie, noted that General Counsel are moving more to the center of company management and the Trusted Advisor role is moving inside the corporate law departments, which may require General Counsel to strengthen their management systems and management teams.  

Outside Investment in Law Firms

This continues to be a topic of discussion, as we have noted often.  Australia has permitted outside investment in law firms since 2007. The law firm of Slater & Gordon is listed on the Australian Stock Exchange and has tallied up significant financial gains.The Legal Services Act which becomes effective in 2011 permits British law firms to go public. It also allows U.K. firms to sell ownership in the firms to private investors and merge with other non-law firm entities. Lyceum Capital, a London-based investment firm, has already raised $500 million to target opportunities in legal services.

In the U.S., the Washington DC bar now allows attorneys and non-attorneys to join together in law practice partnerships, but so far other major jurisdictions have not followed suit.  The big question is what impact outside investment will have on how law firms are governed and managed. What managment role will outside investors insist on?

InnovAction Award

Every year the College sponsors the InnovAction Award intended to identify innovation and ingenuity in law practice management. Pro Bono Net, a national nonprofit organization working to increase access to justice through innovative uses of technology and increased volunteer lawyer participation, was the 2010 InnovAction Award recipient for their product, Law Help Interactive, which provides a national infrastructure for online document assembly and helps tens of thousands of low-income people each year complete needed legal forms. 

In closing, Aric Press noted that firms in the recently released AmLaw 200 survey were asked if they anticipated a fundamental shift in the legal services industry. The overwhelming response was “YES.”  Then when asked if they anticipated their firm changing its strategy, those same respondents overwhelming responded “NO.” 

And therein lies the rub.

Seize the competitive advantage by refining your firm's strategy. 

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Seat-of-the-pants projections by Hildebrandt as to the loss of associate positions over the next 5-7 years were published this fall to much hullabaloo.  By their lights, a very specific 27% of the 65,000 AmLaw200 nonpartner positions, or approximately 17,500, are likely to be cut or recategorized downward under the influence of the current market's prevailing winds.

The general notion that law firms are going to have to grow leaner and more efficient in both the associate and partnership ranks, which could well include reducing their numbers at least in the short term, has certainly been the gospel at our shop for over a year now (see "What the New Law Firm Looks Like") and the most recent data is showing the truth of that view.  Evidently assigning specific numbers to the net loss, however inexact the process, has jolted some to the potential bottom line impact on the industry.

The data over the last year or so is starting to demonstrate in stark real numbers the leaning of the traditional legal workforce.  The National Law Journal's recently released annual ranking of the 250 largest U.S.-based firms by headcount showed that total lawyers dropped by 1.1% this year, or approximately 1400 positions, compared to a decline last year of 4%--the biggest two-year decline in the 33-year history of the survey and only the second time on record that total headcount has dropped for two consecutive years.

Significant declines reached more than half of the firms surveyed, with the biggest drops at the largest firms. Of the 50 largest firms, 34 had headcount decline, and three lost more than 100 lawyers

Much of this year's decline came in the associate ranks — which fell by nearly 1,000 lawyers, for a drop of 1.5%, marking the lowest point for the number of associates since the survey started tracking them in 1985. Percentages of associates in lawyer positions has now dropped from a high of over 60% in 1987 to @ 48% this year. 

Partner numbers increased, but only slightly, by 0.6 percent, continuing a major slowdown over the last few years in the making of new equity partners.

NLJ 250 firms also reported this year employing an average of 49 "other" attorneys, compared with 46 in 2009, or a 6.5% gain. Steptoe & Johnson LLP reported that 34.9% of its attorneys were "others," and Covington & Burling reported 23.7%, while the law firm employing the highest number of "other" attorneys was Jones Day, with 274.

"Other" attorneys are defined as nonpartner and nonassociate lawyers and do not include temporary or contract attorneys. This year's jump continues a recent history of fluctuations in "other" attorneys. Last year, the average plunged by nearly 10%, while in 2006 and 2007 "other" attorneys increased by 15% and 1.4%, respectively.

During the recession, in order to keep the troops busy, law firms may have given their associates work that would have normally gone to contract attorneys.  But as the economy continues to improve, the ranks of "other" attorneys are likely to continue to swell, due to their lower cost and often more targeted experience.

As for the future of partners, a recent ALM survey of heads of the AmLaw200 firms found that 67% of those surveyed plan to ask partners to leave their firms next year; 31% plan to de-equitize others; and 57% are realigning compensation to reward partners who cooperate in change-agenda initiatives. The anticipated de-partnering is a significant but traumatic part of the resizing and the compensation step is a critical one in the competition wars (see in both cases our entry "Why Partner Compensation Will Go Down"), but neither are likely to be welcomed by the partners in the trenches.

Does your firm have a growth and compensation plan that takes into account the new reality and a protocol for managing expectations and change?

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