"It was much pleasanter at home, when one wasn't always growing larger and smaller ..."
- Alice in Wonderland
by Lewis Carroll
How do law firms remain competitive in an economy where uncertainty is the only consistency? It's a question many in Big Law often reflect on. Do we restructure and get bigger and more global, as in the recently announced mergers of Norton Rose and Fulbright & Jaworski or SNR Denton, Salans, and Fraser Milner Casgrain? Or do we become smaller and more nimble, by reducing overhead and relying more heavily on technology to deliver client services?
As it now stands, the 23 most successful firms in the nation - firms like Skadden and Latham - average profits per partner that are $1.1 million higher than those ranked in spots 26 to 53 of the AmLaw 200. The gap grows larger moving down the list, and firms below the top tier also continue to lose market share to boutique and virtual law firms.
Though the emergence of boutique law firms has captured headlines lately, they are not new, particularly in California. In the 1970s and '80s, the firms now known as Wilson Sonsini Goodrich & Rosati and Cooley focused on representing emerging technology companies and the venture capitalists who fund them, while Townsend, Townsend & Crew (now Kilpatrick, Townsend & Stockton), and Fenwick & West served the computer law and IP needs of companies in Silicon Valley and the Bay Area. All four firms realized so much success that they began diversifying their range of offerings, in the process expanding their client bases until they too became Big Law firms. Now these firms are being challenged by the next generation of boutique law firms.
So, just as Lewis Carroll's Alice drank a potion that made her small and ate a cake to make herself big, when many Big Law firms look in the mirror they still struggle to find the ideal size. Increasingly, however, they are taking a cue from their smaller counterparts, narrowing their focus to act more like boutiques while exploiting the wide range of resources that Big Law firms traditionally boast about.
In practical terms, here's what big firms need to do:
Focus on core areas of skill and expertise.
For too long, Big Law has tried to be all things to all types of clients. Boutique firms have taken advantage of this by competing effectively in practice areas where Big Law firms are seen as overpriced or lacking in vision or nimbleness. Big firms, then, need to make tough decisions about which areas they wish to focus on, and pare back capabilities that do not support those core areas.
Change operational models.
In recent years, most Big Law firms have modified their practice operations from those primarily centered on geography to a model focused on practice or industry sectors. This is partly the result of their clients increasingly becoming national or international. But this approach also plays to Big Law's strength: A wide and deep array of legal talent across many locations and practice areas can quickly and effectively meet clients' needs based on their particular industry's unique demands.
Go beyond the Fortune 500.
Big Law cannot stay viable simply by relying on bet-your-company litigation and highly complex cross-border transactions for their Fortune 500 clients. According to the popular legal blog Law21
, just 10 percent of all legal work falls into this "mission critical" category. Such a narrow business base cannot sustain Big Law in a highly competitive marketplace. Large firms now routinely seek to represent clients - especially international ones - that have historically been represented by regional or boutique firms.
Big Law has become significantly more receptive to the full range of alternative fee arrangements. These offer substantial discounts to clients who use a diversity of services across multiple practice areas, or vary the pricing of services based on whether the client needs help with a complex cross-border transaction or a simpler contract negotiation between business partners. Savvy Big Law firms should be able to use their size to negotiate lower prices with technology providers or other vendors based on the larger number of licenses or hand-held devices needed, for example, in much the same way their clients do.
Lewis Carroll once wrote, "If you don't know where you are going, any road will get you there." But that's not something big firms today can count on. Still, these firms have demonstrated that they are, over time, remarkably adept in responding to new market conditions and challenges. Their battles with boutique law firms will thus continue for decades to come.
Kaye Scholer litigation partner Dan Grunfeld is co-head of the firm's Los Angeles and Palo Alto offices.
In an environment where clients are under constant pressure to manage legal expenses and where RFPs have become a favored way of sourcing legal services, large law firms must be creative and flexible about recruiting, managing, and retaining their talent. Long gone are the days when all associates were hired, promoted, and compensated through a standard grid based on the number of years out of law school. Instead, large firms today must hire and rely on a pool of "diversely tracked" associates, including contract attorneys, alternative-track associates, and traditional-track associates.
In response to the message that they need to think more broadly and creatively in terms of talent management and client service, many large law firms have modified their hiring practices. In its latest Law Firms in Transition Survey, Altman Weil reports that in 2011, 79 percent of large law firms used contract lawyers, up from 62 percent the year before. In 2012, two-thirds of the surveyed firms responded that using more contract (i.e., "temporary") lawyers will be a permanent trend in the future. Firms have also increased their population of alternative-track (or non-partnership) associates. According to Altman Weil, 52 percent of firms with 500 to 999 attorneys reported they were likely to increase their hiring of non-partnership-track associates in 2012, a 14 percent increase over 2011.
Maintaining a diversely tracked associate population has a number of benefits. For firms, those benefits include price and staffing flexibility and the ability to retain experienced associates. A pool of associates with varying compensation levels, rate structures, and career paths allows firms to offer a broader range of services to valued clients, managing them in ways that meet the clients' goals, both in terms of work product and cost. For example, firms handling repetitive, commodity-type work under an alternative fee arrangement can staff these projects with alternative-track associates who are compensated and billed out at a lower rate than their peers on the traditional path. In addition, associates with a particular expertise can be directed to matters for which their skills will bring the greatest value to the client. Firms also gain flexibility with respect to an associate's career path, which may ultimately provide greater stability and consistency in a representation over the long term.
Alternative-track positions also benefit associates by offering varied job opportunities, career path options, and flexibility. When firms are not locked into hiring first-year associates at their grid base pay, it can provide opportunities for a broader range and a greater number of associates. Instead of hiring five first-year associates at an average salary of $160,000, a firm might instead hire three first-year associates, an experienced SEC specialist on a reduced 60 percent schedule, two lower-paid staff associates to handle small litigation matters for a client on a fixed-fee arrangement, and a senior attorney to provide labor and employment counseling. Such a hiring strategy provides employment opportunities for seven hires rather than five. Furthermore, an associate with expertise in a particular area who is paid and billed out at a lower rate may have different career options than those available to a traditional seventh-year associate with a salary at the top of the market grid but who is unlikely to make partner. And, finally, alternative-track associates may have greater flexibility with their schedules as a result of expectations for lower hours and nonbillable work.
These benefits do bring with them certain challenges. For example, firms must ensure that alternative-track associates are part of the organization's fabric and are not made to feel like second-class citizens. On the flip side, firms cannot hold alternative-track associates to the same expectations as partnership-track associates when, say, there is a trial or a large transaction for the clients or matters to which they are assigned. These are matters, however, that can be addressed through vigilance, communication, and/or compensation. All in all, the benefits to alternative staffing arrangements far outweigh the challenges.
Molly Moriaty Lane is the managing partner at the San Francisco office of Morgan, Lewis & Bockius.
Though companies are finally beginning to rebound from the global market collapse that rocked the U.S. economy, the years of economic uncertainty have transformed the legal services market. In-house legal teams have had to accomplish more with less, and it is incumbent on outside law firms to do so as well. Today, our clients are intensely focused on obtaining improved legal results, aggressive cost management, and more sophisticated reporting to their respective organizations - but with smaller staffs, reduced budgets, and less turnaround time.
Unfortunately, the traditional law firm model has not evolved rapidly enough to meet these challenges. For too long, the standard, old-line approach to business has left law firms fixated on billable hours. To fundamentally change this dynamic, firms must innovate and adapt.
At Seyfarth Shaw, we've embraced an approach that combines the core principles of the Six Sigma methodology with robust technology. Developed by Motorola and popularized by General Electric's then-CEO Jack Welch, this approach standardizes operations by eliminating process errors to increase productivity and quality. How big a difference can that make? For our clients, it's about strong outcomes and risk reduction, but it's also meant cost reductions of up to 30 percent for legal services. Adopting and implementing a firmwide management model that spans multiple practice areas may not be workable for every firm, but it does provide a useful framework for improving efficiency and better serving clients. Here are some of the core components.
Embrace project management.
Today's corporate purchasers of legal services want more than just lawyers who serve as trusted advisors. They also want legal project managers and information management professionals who develop data analytics and business solutions to address their legal challenges. Significant efficiencies can be achieved when outside firms focus on project planning, client management, and process.
Our clients have embraced with particular enthusiasm process mapping, an exercise that organizes and streamlines client matters. This is done collaboratively by meeting with clients to talk about their business goals and exactly what steps need to be taken to accomplish those goals. In short, we identify steps that deliver the right business results and identify where we need to modify or re-engineer the process. These steps are then put in writing for all sides to see and edit as the process moves forward.
Project management and process mapping include defining the client's internal steps in key process areas and incorporating them into an overall plan that clearly defines the roles and responsibilities of client and outside counsel. It works for a variety of legal matters, ranging from single-plaintiff litigation to foreclosure issues to securitizations.
Invest in technology.
Clients today have access to an array of complex dashboards, analytics, and metrics that track all aspects of their business, including their legal proceedings and budgets. It's important for law firms to have their own dashboards or platforms that can support clients' appetites for analytics as part of corporate America's "big data" movement.
Utilize new staffing models.
To lower costs, law firms will have to increasingly use different staffing models, electing to contract select forms of substantive legal work - such as immigration, real estate, and brief-writing - to legal process contractors.
Create new ways to develop talent.
Law firms must also remain focused on innovative talent-development programs that attract, retain, and maximize their investments in their own attorneys. For example, a couple of years ago Seyfarth launched its first fellows program for our Labor and Employment department, a materially different approach from standard summer clerkships. This program gives second-year law students an opportunity to develop hands-on skills in employment law that build upon and complement their formal education. It involves a specialized training curriculum that combines substantive labor and employment law, ethics, client service, marketing, legal writing, communications, and finance. It also creates opportunities for clerks to collaborate and strengthen relationships with clients as participants work on active cases and client projects, and to "job shadow" with in-house counsel contacts.
These are just a few examples for law firms interested in reshaping themselves for the future. There are certainly many others to consider, but one thing is clear: Clients have forever changed the way they purchase legal services - and this means a tremendous opportunity for firms everywhere to develop thoughtful and systemic strategies for creating real business value for everyone.
Laura Shelby is the managing partner of the Century City Los Angeles office of Seyfarth Shaw.
In a world that is becoming smaller and smaller with each passing day, the concept of globalization may seem almost passé. But in the legal sector, where innovation and change sometimes move a bit more slowly than they do in the rest of the business community, it continues to be a work in progress.
Of course, global expansion is not for every law firm. Client needs are as unique as snowflakes, and for many, regional or boutique representation is the ideal course. However, that isn't the path we chose at DLA Piper. In 2005, we announced a merger of unprecedented scope, bringing together the U.S. firms of Gray Cary Ware & Freidenrich and Piper Rudnick, and the UK firm DLA (themselves the product of the combination of a number of legacy-firm mergers, which put them on the front lines of another trend that goes hand in hand with globalization: consolidation).
Our merger was a paradigm shift for the industry, ushering in a new era of globalization. But going global for the sake of being global is obviously not a business model. At its core, this kind of growth has to be driven by client needs. And client needs are generally driven by the shifting waves of the global economy and the resulting flow of capital in and out of the business and financial centers of the world. How can an expanding firm accommodate these needs and still successfully manage its business in a market where the demand for legal services remains essentially flat?
First and foremost, accommodating client demands requires collaboration and communication. No firm, big or small, is worth its salt if its lawyers and practices are not operating in lockstep with one another. And being in sync requires communication, which comes in a variety of forms: top-down communication from leadership about the firm's strategy, goals, and responsibilities; communication among practices and offices to ensure that all stakeholders are fully aware of the firm's capabilities; and communication across administrative departments to share best practices and operate in concert to support business and client goals.
Much of the responsibility for all this lies with us as law firm leaders. It means a lot of travel, a lot of speaking, and a lot of writing. In this way, we serve not just as the lead ambassadors of the brand, but the glue that holds the firm together as it continues to grow and evolve. This sets an example for the rest of the members of the firm to become brand ambassadors, both internally and externally, and helps contribute to the growth and cohesion of the firm.
All of this leads to a single, unified platform with multiple entry points, allowing a firm to better understand the business needs of its clients. It also helps to keep costs down by taking advantage of economies of scale.
Of course, in the end, the goal is to serve clients. But the only way a firm can do that well is by thinking of itself seriously as a business, with the requisite efficiencies and attention to the bottom line.
Jay Rains is co-chairman (Americas) for DLA Piper in San Diego.