LAWBIZ COACHES CORNER: Will the market change what bar associations won’t?

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Firms need to embrace technology and efficiency 

Although corporate law firms have seen business improve since the depths of the Great Recession, things hardly are robust even today.

Layoffs at major law firms are going to pick up steam once again because there simply isn’t enough traditional corporate work coming in the door. A major reason is that legal process outsourcers (LPOs) are beginning to take the bread-and-butter of large law firms – handling whole mergers and acquisitions, not just the due diligence aspects of deals.

According to law firm consultant Kent Zimmermann of the Zeughauser Group, as reported in Bloomberg Businessweek, clients are finding that for smaller deals “they don’t need perfect, they need good enough,” and increasingly are willing to hire LPOs rather than higher-cost traditional firms.

Now consider the ongoing litigation in New York, New Jersey and Connecticut by a major firm, Jacoby & Myers, seeking access to outside investors. This of course is prohibited by the Rules of Professional Conduct, which allow only partner ownership of law firms.

Jacoby & Myers contends that capital from outside investors would allow it to provide more legal services more affordably. But Economist magazine, commenting on the firm’s litigation, makes another point: “An integrated firm with professional managers and modern computer systems could develop processes that are repeatable. A few small American firms already are trying to run themselves more like modern businesses, and are delighting clients with quick, high-quality work and predictable fees. Allowing outside investment would boost the number and size of such firms.”

From LPOs to developers of e-discovery software that quickly analyzes millions of pages of documents, corporate law firms are facing competition that barely existed a decade ago. Most of these firms cling to the traditional billable hour/leveraged staffing model, and their clients are rejecting that.

Lawyers need to pay close attention to the needs and wants of their clients. Large firms didn’t grow without being attentive to client needs at first, and all lawyers will need to be more attentive in the future if they expect to retain the loyalty of their clients.

Technology and efficiency will the differentiators in the future. The firm that embraces these two elements to reduce the costs of its operation, and then passes those savings onto the client, will be more successful. And that will take investment — in capital equipment and in human capital.

Large law firms are trying to paper over this emerging dynamic by continuing their lateral hiring binges at a near-record pace. However, trying to maintain profitability by hiring another firm’s lawyers while the clients of those lawyers continue to defect is not a viable long-term solution.

The volume and fundamental nature of legal matters and problems always will be there as long as people need lawyers.

Whether matters are a commodity or not, creating systems to address these problems, reduce the cost of legal services and pass the savings on to the client will be the winning game plan for future survival of the great majority of the legal profession.

If outside investment, which Australia and Britain already allow through “alternative business structures,” will facilitate this process, the marketplace will soon come to demand it —no matter what the traditional rules may say.