Remaking Law Firms: 10 reasons BigLaw managing partners are not sleeping very well

We have heard at least 10 reasons why BigLaw managing partners are not sleeping very well in recent one-on-one conversations and our beatonlive conferences. Some are deeply worried. Others are truly excited. This post is  a summary of why this dichotomy exists. In no particular order these are 10 reasons BigLaw managing partners are not sleeping very well [1].

Like many of my posts on Dialogue, ’10 reasons BigLaw managing partners are not sleeping very well’ is based on the research undertaken in the preparation of Remaking Law Firms.

Let’s be clear at the outset, this glass is either half full or half empty. And to mix the metaphor, the coin has two sides. Which it is for you will depend on your view of the legal services ecosystem and where your firm is currently positioned.

10 reasons BigLaw managing partners are not sleeping very well

Consider how you are responding to each of the following:

1. Client power is rampantly on the ascendancy. Keeping legal spend in-house, the #dolesslaw movement, use of NewLaw providers of many stripes, and intensifying price-down pressure on outside law firms are all contributing to BigLaw receiving shrinking slices of the pie. Bad news for firms with a traditional view of their position in the client’s value chain. Good news for firms focusing on ‘the job to be done’ for clients, using analytics, taking the lead in co-opetition with NewLaw providers, and adopting elements of the NewLaw business model to improve their client focus and operational efficiency.  
2. New competitors are not only taking share of a largely stagnant market, they are also teaching clients about new ways of procuring legal services. These new forms of competition are both substitutes (what Beaton has named the NewLaw providers) and new BigLaw business model-based entrants (i.e. international firms). For many of the reasons in 1. above this is bad news if you still believe NewLaw is a passing fad, and great news if you see the opportunity to learn from and work with NewLaw.
3. The Big Four are back in law. And in a big way too. And this time round they are getting it right, as they did in management consulting 15 to 20 years ago. These behemoths have the platforms, the brands, the client bases, and the appetite to take a large share of traditional firms’ work. The Big Four are diversified professional services firms, no longer accountants. This paradigm makes most facets of law fair game for their voracious growth and competitive rivalry. For most ‘business law’ firms the Big Four are a big threat. For those that position in those (few) parts of the market where the Big Four won’t readily attract the talent or will be conflicted, there is good news. 
4. Technology is becoming ever more substantial in delivering value to clients. The rapid uptake of AI-based apps is one of many examples of this. This trend poses cultural and capability challenges, the like of which the profession has not previously encountered and for which it is ill-prepared. The firms that adapt rapidly to tech-savvy cultures and embrace disruption as an attractive way of being will win. Those conservative cultures based on status quo-ism, profit today imperatives, and risk minimisation will struggle.
5. 
   Firms’ brands are inexorably becoming relatively more important than those of lead and rainmaking partners, as has occurred in other professions. This trend is being driven by the interactions of clients’  buying patterns (1.), technology (4.), globalisation (6.), and talent (7.). Building a distinctive brand is more about culture and discipline than anything else. Custom and practice legacies and inertia are the enemies of brand-building.
6. As the world globalises, so are the procurement practices of regional and multinational clients. Many firms are responding by increasing their physical and virtual footprints and capabilities. This is one of the factors driving consolidation – and, somewhat perversely, fragmentation. Any firm can turn globalisation to its advantage through technology and leverage of knowledge.
7. For talent the universal allure of life-time partnership in a BigLaw firm is no more. The implications range across the cost of recruiting, training and retaining solicitors, the risks of breakaways, the appeal and dangers of laterals, the challenges of salaried partnership, and the imperative to develop variable cost human capital frameworks. Building a portfolio of business models, each with a distinct human capital framework and suite of technologies, is not for the faint-hearted or firms without visionary leadership and first class execution capabilities. Those so endowed will win.
8. Effective change management is a capability now mission-critical for survival. Likened to changing an engine on a 747 in mid-flight at 40,000 feet, change management in law firms is still joked about as the difficulty of herding cats. The stark reality of these metaphors now faces every firm. Most are not well equipped. Those starting from scratch or, more likely, those thrown together in a big bang ‘merger’ may well be the ones most likely to succeed as the slate is clean or at least cleaner.
9. The partnership structure of BigLaw firms was once a major strength, but increasingly cultural inertia and lack of real equity on the balance sheet are making partnership an impediment to real change for most, and perhaps even survival for some.  Sensations of the Dewey & LeBoeuf kind do not help the cause of those partnerships seeking to use delegations to give effect to more nimble decision-making and investments in strategy and business model initiatives. It’s perfectly possible to lead a partnership on an effective journey; it’s just hard and many fall by the wayside frustrated and exhausted.
10. Equity management (i.e. partner remuneration) has always been a (the) major lever available to BigLaw leadership in aligning partners with the desired culture and direction of the firm. The post GFC years have seen progressive de-equitisation in many firms to maintain PPEP and right-size in response to market conditions. Ironically, there are now early signs of re-equitisation as firms seek capital contributions to de-risk their balance sheets and, to some extent, to try to lock in partners. Experiments to provide capital value for partners within jurisdictional constraints may well yield some of the most exciting opportunities for individuals and those entrepreneurs making the investments.   

[1] For each of these paragraphs we have provided a range of links that will take you to more granular posts and resources to provide detail, light and colour for the summaries above.  

1. Client power 
   • Applying Clayton Christensen’s theories to BigLaw vs NewLaw 
   • What most law firms don’t know about their clients, Part 1
   • Price is positively correlated with the value perceived by clients 
   • Two hard questions about law firms’ fee strategies
   • In law, there’s a case for co-opetition
   • Life cycle maturity and the professions
2. New competitors 
   • The rise and rise of the NewLaw business model
   • Fresh thinking on the evolving BigLaw–NewLaw taxonomy
   • 2018: The year Axiom becomes the world’s largest legal services firm 
   • Uberisation of professional services
   • The rise of LSO to change the shape of traditional law firms
   • Impressions from the recent ‘Clients and Firms of the Future: How to Compete’ Seminar
   • Will it be the LPOs that drive #BigLaw business model change?
   • How relevant are NewLaw firms in Asia?
3. Big Four
   • Big Four vs BigLaw: Clash of professions
   • The Big 4 are putting down roots in the legal sector
4. Technology 
   • An industrial revolution is coming to law
   • #LegalLean… coming to the legal services ecosystem near you?
   • Neota Logic announces the launch of ComplianceHR joint venture with Littler Mendelson
   • The dawn (and the imminent explosion) of AI on law and legal services
   • Allen & Overy legal tech initiative – R&D at last but a question
   • The new member of the “C Suite” – the Chief Disruption Officer!
5. Firms’ brands 
   • Branding in professional services – the new battle front
   • Brand purpose in professional services firms 
   • What international law firms can learn about brand purpose from corn flakes
   • What’s the premium in your firm’s brand?
   • Professions, acquisitions and brand permission
6. Globalisation
   • What lawyers learn from clowns: Blue Ocean strategy
   • Australian law – do the first movers have it?
   • Top 20 Australian law firms, Part 1: Australian legal industry reaches the globalisation tipping point
   • International and indigenous law firms scrimmaging in the Asian Century
   • Will we see a $10 billion law firm?
7. Talent 
   • Becoming an Ex
   • The time to start planning succession in Australian law firms is now
8. Change management 
   • Origins of the modern law firm: Insights and omens
   • Without diversification, how will law firms survive?
   • Last days of the BigLaw business model?
   • Future Shock: which law firms will survive? 
9. Partnership structure 
   • 9 ways to change the carnivorous partnership model and save BigLaw firms
   • How capital structure influences partnership culture
   • When is a partner not a partner?
10. Equity management
    • Why the economics of free agency should worry partners
    • Law firm balance sheets: A tale of a Magic Pudding?
    • PPEP levels are doomed without re-invention
    • BigLaw profitability needs a new approach

Contact me if you’d like to pursue the conversation – and understand what more you can do to enjoy a better night’s sleep.

Author 

This post was written by George Beaton, a partner in Beaton. George is also on LinkedIn and tweets at @grbeaton_law and @NewLawNewRules.

A version of this post first appeared on the Beaton Blog in August 2015.