Mark Ross, in his blog post, makes an interesting ...

2009-03-22T15:55:00.000-07:00

Mark Ross, in his blog post, makes an interesting point, although I disagree, generally, with his conclusion and take a more cynical view of the problems facing big law. Why? Because law faces unique challenges caused by its culture, general rules, and ownership structure.

Culturally, law firms have continued to operate under a relatively quaint model of partnership that was based upon trust and commitment to each other. New hires were brought up through the ranks to become the next generation of partners. The practice was steeped in collegiality and tradition (and, certainly, bigotry and exclusion as well). Reputation among other lawyers was just as important as reputation within the client community. In the 80's and 90's, this model began a tectonic shift, one which has led us to today's utter lack of loyalty or collegiality.

This problem has been exacerbated by better information available to the workers and owners of law firms. In the "old days," associates suspected, but did not know what other firms paid, partners were not readily able to enter a "free agent" marketplace, and a necessary bond of trust held these firms together. However, with the advent of "greedy associates" internet boards and the AmLaw 100, this information is in the marketplace for all to see. There is little question that this better information has provided individual attorneys with greater bargaining power, but for anyone who lived through these times, it is clear that law firms have yet to figure out how to respond to these challenges effectively.

Why is this news? Because this crisis has severed the last remaining bonds of loyalty within a firm. Partners are recruited away by the promise of a better "global platform" or are asked to leave if their annual "take" takes away from the AmLaw 100 performance. Now, no matter how large your share is in a law firm, no matter how many years you have generated business for the firm, a downturn in your sector - and an accompanying reduction in your individual billings, can spell the end of your career.

Furthermore, being asked to leave a law firm, for both associates and partners, is to a certain extent a "scarlet letter" that adversely affects future employment prospects. This is particularly true for those firms that participated in "stealth layoffs," e.g., layoffs masquerading as performance reviews. In this day and age, any individual joining a large law firm must approach this process with far more suspicion than optimism.

Mobility like this has not proved troubling in other industries, so why is it a big problem in law? Because of the importance of conflicts within the law. This is often under-discussed, but increased mobility, particularly among partner classes, can create major problems in clearing conflicts. Sure, these are often swept under the rug or addressed with broad-form waivers, but it is only a matter of time before successful proceedings based upon client claims of conflict of interest begin to populate the legal press. Thus, absorbing these professionals back into "big law" will ultimately prove difficult.

Adding to this problem are significant reductions in the incoming classes. Until this year, law school grads, particularly top grads from top schools, could count on at least a few years of big firm experience after law school. That is simply no longer the case. This group of law students (and the ones immediately following) will be suspicious of large firms. Winning their loyalty will prove challenging at best, impossible at worst.

The ownership structure of law firms - a partnership or its equivalent, has also contributed to this problem. When one is a co-owner of a company and is asked to leave, the likely feeling in the no-longer-employed partner is that of betrayal. Again, the bonds that permitted the relatively unique stucture of law practice have been severed, but their successors - the shibboleths of the AmLaw 100 and the comparison of "profits per partner" have not served as an adequate replacement.

Instead, this approach has guaranteed a future of "Frankenstein" firms - where parts from other firms are bolted on when needed and cut off when no longer necessary. Unlike Frankenstein, however, it is important that the pieces of the law firm fit perfectly together and that their blood types (e.g., clients and their conflicts) don't conflict. And in this case, there are few universal donors and even fewer universal recipients.

In essence, by becoming "lean and mean," law firms have deprived themselves of people who can actually do the work when it comes back; practice areas that, while no doubt down, are cyclical and will come back; and their reputation among their future classes. Unlike Mark, I believe that this is a dire situation for all but the best-managed large firms - and there are precious few of those.

However, I agree with Mark that these factors may benefit legal process outsourcing, at least in the short term. When large firms get hit with a deluge of new work, a demand to cut costs and no lawyers to do it, a certain subset will call on outsourcing firms to fill such gaps. While it may not be a perfect fit, LPO's can provide "limbs for Frankenstein." However, law firms must still be careful about conflicts - and no broad consensus has been built around legal process outsourcing and potential conflicts of interest.

In the long term, it is not clear to me that the law firms, themselves, can or will be the gatekeepers for LPO relationships. Instead, I believe that this task must fall to the client companies. With law firms, there is still too much of an opportunity for conflict and too little management experience. Unless law firms are able to independently profit from LPO relationships, their adoption will be haphazard at best.

In conclusion, I believe that this recession will create a significant shift in the model of the firm. While such a shift may prove to be a great opportunity for some, taking the opportunity will require managers with foresight, authority and skill. Foresight, authority and skill, however, are characteristics not often associated with management committees of major firms.

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Mark Ross, in his blog post, makes an interesting ...