Mid-market law firm brouhaha

Mid-market law firm brouhaha is my stream of consciousness arguing the illogicality of the concerns about the thinning ranks of mid-market firms.

Dictionaries define brouhaha as a noisy and overexcited reaction to something. That, in my opinion, is exactly what happens every time a mid-size (aka mid-market) firm ‘merges’ with larger, often international, firm.

Recent examples in Australia include Henry Davis York to Norton Rose Fulbright and (most of) DibbsBarker to Dentons. And TressCox to HWL Ebsworth. The list goes on… and this is occurring in other regions too.

Are the smaller firms (effectively the ‘acquirees’) in these mergers failed firms in the sense we analysed in Why BigLaw firms fail? No they are not, at least to my knowledge.

Are all the partners’ reasons for their decisions known? Absolutely not, certainly in the public domain.

Mid-market law firm brouhaha.

So, why does it happen? There is and has been for many years, wide-spread angst about the viability of mid-market firms seemingly fuelled by:

• On average, their profitability declining, as it is for large firms,
• Breakaways to form boutiques occur, as they do from large firms,
• Challenges in attracting top talent, much of this is caused by increasing numbers of young lawyers preferring careers in places other than law firms, and
• The belief that bigger is better.

Theories abound. This is just another cycle, with history repeating itself. To those who lose their identity in the ‘merger’ the grass seems greener…

Read the official statements (e.g. in the links above) and it’s mostly about the clients getting a better deal. Is it really? To my knowledge, there isn’t a skerrick of systematic evidence that all / most clients of these mid-market firms are saying “It’s desirable that your services are delivered by you in a firm with a bigger / international footprint / greater scale / wider range of services“. Certainly, some clients (in reality they are few in number) require seamless national service. What proportion of the corporate legal services market does this represent? I am not sure, perhaps one percent?

Here are some facts from our research, including annual surveys of thousands of corporate and commercial clients over the last 15 years in Australia:

• Clients report and show in their behaviours slow-moving trends that mainly adversely affect firms of all sizes, not just those of the mid-market.
• The number of firms used by clients is ever-so-slowly declining, creating more intense competition amongst all firms.
• Numbers of in-house lawyers are growing, removing work from the open market in which all firms compete to varying degrees.
• Clients with law departments are making increasing direct use of LPOs, LSOs, like Elevate Services, and NewLaw (law company) providers, like LOD, removing work from the open market.
• No one knows precisely what proportion of the B2B legal services market is constituted by organisations with in-house law departments.
• This is a very closely watched and reported part of the market, so much so that it’s often taken to represent the whole market.
• It doesn’t. Very large segments of the market go unnoticed in the brouhaha, but have and will continue to have needs that are best (on cost-benefit grounds) met by external providers. Many of these segments are growing.

The consequences of these trends were captured in my 2016 Delphi study of expected changes in shares of the legal services total market out to beyond 2025. In one sentence, traditional business model firms (which represent 99.9% of all firms) will flourish if they ‘remake’ themselves. ‘Remake’ is my language for adjusting the business model to win business more effectively, serve clients better, and reduce fixed costs (See Remaking Law Firms: Why and How published by the American Bar Association).

How many mid-market firms ‘get’ this

A few mid-market firms I know do ‘get’ this and are flourishing, and I suspect are quietly laughing.

This morning I read this case study of Centil, mid-Asia law firm. Here are few extracts:

• “The entire legal market in Central Asia is a red ocean…”
• “All firms continue to repeat the mantra of ‘quality’, which is an unmeasurable and ephemeral concept that adds no value as a proposition…”
• “A major pain point for foreign investors and financial institutions … is the lack of reliable analytical data that would help them to make better decisions”
• “We stopped hiring ‘star’ lawyers, as they often bring more hype than actual value. Instead, we hired more young and undervalued lawyers…”
• “Instead of expanding into other legal specializations, we invited a group of economists and analysts to join the team…”
• “(We offer clients market analysis, cost-benefit analysis, policy impact assessment and strategic planning…”

Read it all for yourself. Centil has positioned itself to serve large clients with a differentiated value proposition.

While a sample of one, this is a great example of the saying that real insight lies where ‘N = 1’.

George Beaton

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