I reported several weeks ago that I had been solicited to write an article about the future of Biglaw firms. But it was actually better than that: The invitation came from the “Sunday Review” (formerly “The Week In Review”) section of The New York Times, which is a pretty cool place to ask you to write.
Unfortunately, and apparently unbeknownst to the editor of the “Sunday Review” section, the Times ran a “DealBook” section on the fate of large law firms before my ditty could appear in print. This preempted my article (or at least that’s what the editor said, although maybe she was just sparing my feelings). So instead of having a piece in the NYT, I’m just another schlub typing away at Above the Law.
But if I took the time to write a 1,200-word piece on the future of big law firms, then I’m sure as heck going to get some use out of it. So here you are: “The Assault on Biglaw,” by yours truly, which damn near appeared in the Sunday Times….
Biglaw firms have had a good, long run: Fifty years of consistent growth, the last 25 of them explosive. Since 1987, total gross revenue for the 100 largest American law firms has increased more than tenfold, and Biglaw’s compound annual growth rate has been nearly ten percent. The average equity partner at one of those firms now earns $1.4 million per year, more than 23 times the average American employee’s pay. Not bad.
Those good times rolled through all economic conditions — the recession of the early 1990s, the dotcom boom and bust — and political environments. But many observers believe that Biglaw’s halcyon days are now past. Some analysts predict that Biglaw revenues are about to drop dramatically and firms could fail in unprecedented numbers.
Recent data arguably support those gloomy predictions. From 2004 through 2007, revenue at law firms grew by almost 40 percent; in the next three years, revenue actually dropped by several percent. The demand for legal services similarly grew rapidly before the Great Recession and has shrunk since, and law firms’ realization rates show the same trend. If those key metrics continue along that trajectory for any extended period, those who predict havoc in the halls of Wall Street could well be proven right.
But perhaps the reports of Biglaw’s death are greatly exaggerated. Was the recent Great Recession truly different from past economic hiccups, so that Biglaw life has now, in the words of the poet, “changed, changed utterly”? Or is the recent recession akin to those past, from which the overall economy soon recovered, along with law firm growth and profitability?
Count me among those who think that times have permanently changed for Biglaw firms — but largely for reasons unrelated to the recent global economic woes.
Entirely apart from transient economic conditions, Biglaw firms face a challenging future. First, the historic growth rate of these firms was unsustainable. That’s just a matter of arithmetic: For nearly three decades, the American economy grew at less than three percent annually, while Biglaw was growing at nearly 10 percent. That pattern can continue for a while, but it can’t continue forever.
Second, advancing technology has eliminated many manufacturing jobs over the past two decades; it’s about to begin encroaching on service professions, including law. In 1990, a large lawsuit might have required the parties to exchange millions of pages of documents, all of which had to be manually reviewed to decide whether the documents were responsive to the opposing party’s requests for information or protected from disclosure by, say, the attorney-client privilege. Biglaw firms would ship teams of young associates to clients’ headquarters to sit for months on end poring through documents, and generating massive fees along the way.
Fast forward to 2012 and the legal world has changed. Documents — frequently more documents than in the past — must still be reviewed for major litigation matters. But those documents now exist in electronic, not hard copy, format. The e-documents can be reviewed by dedicated teams of inexpensive lawyers sitting at computer screens in Bangalore as readily as they can be reviewed by highly paid American lawyers sitting in expensive offices in Midtown. The document review portion of litigation is being transferred offshore as surely as manufacturing jobs have been, and that work is never coming back.
Indeed, advancing technologies threaten the livelihoods of even the lawyers in Bangalore. Today, human eyes still review most documents before they’re disclosed in litigation. But litigants and courts have begun to realize that computers are increasingly able to evaluate the content of documents largely unaided by humans. Computers can instantly determine whether a document contains a lawyer’s name — which raises the possibility that the document might be protected by the attorney-client privilege — and artificial intelligence can now fairly reliably predict whether documents are relevant to a specified case or legal issue. Technology will never eliminate entirely the need for human beings to review documents, but the teams of young lawyers historically used to perform these monumental jobs have been displaced permanently. The demand for these types of legal services will not return after the recession ends.
It is not just advancing technology, but also disruptive business models, that cloud the horizon for Biglaw firms. Historically, big firms handled transactions and lawsuits from soup to nuts, performing routine tasks that required limited skills as well as sophisticated work that required the services of a specialized, experienced, and expensive lawyer. Within the last decade, however, new institutions have blossomed that are trying to break the legal market into segments. These new institutions — firms that specialize in reviewing documents; firms that handle routine transactions (or routine aspects of transactions) for low, fixed fees; firms that loan lawyers to corporations for specific tasks, as needed — threaten to capture from Biglaw firms much work that they’ve previously handled and from which they’ve profited.
As just one example, after peace broke out in Northern Ireland, the government began subsidizing businesses to induce them to move to Belfast. Hordes of young Irish lawyers are now being recruited to sit in the offices of subsidized firms in Belfast generating corporate transactional documents at deeply discounted rates. The Troubles may have ended in Ireland, but business models such as these spell trouble for traditional law firms.
Crystal balls are naturally cloudy, and mine is no clearer than others’. But I’ll predict that my tale of possible woe for Biglaw firms may have a happy ending for creative firms and the lucky few law school graduates who land jobs at America’s leading firms. Innovative law firms will embrace new technologies and business models and thrive in a changed environment. And the news for young lawyers hired by those firms may be better still. Depending on the person’s generation, law students chose to pursue their careers because they wanted to be Perry Mason, or Arnie Becker, or Denny Crane. But no one invested three years and $150,000 in a legal education in pursuit of the dream of spending 10 hours a day, six days a week, obediently reviewing documents and clicking “responsive” or “non-responsive” on a computer screen.
If, as I’ve prognosticated, disruptive institutions and technologies capture routine legal work previously performed by large law firms, that shift may improve the professional lives of associates hired by elite firms. The majority of law students, working for less prestigious law firms or alternative legal service providers, may find themselves doing routine work. But the lucky few who land Biglaw jobs may be spared the tedium currently inflicted on each incoming class of new lawyers. If big firms are no longer asked to undertake routine work, then partnership-track associates will not be assigned those chores. New associates may be able to pursue their professional dreams more quickly, and they may be spared many of today’s routine professional nightmares. So long as Biglaw firms can learn to adapt to being part of a mature industry threatened by disruptive new players and technologies, the lives of professionals inhabiting those firms may in fact improve.
The Great Recession will end, and the American (and global) economies will come back up to speed. But Biglaw is now permanently part of a mature, rather than a growth, industry, and disruptive new competitors and technologies threaten the old guard. Some firms will surely evolve to meet the demands of a new age, and others will not, but the successful Biglaw firms of the future will not resemble those of the past.
Mark Herrmann is the Chief Counsel – Litigation and Global Chief Compliance Officer at Aon, the world’s leading provider of risk management services, insurance and reinsurance brokerage, and human capital and management consulting. He is the author of The Curmudgeon’s Guide to Practicing Law and Inside Straight: Advice About Lawyering, In-House And Out, That Only The Internet Could Provide (affiliate links). You can reach him by email at [email protected].