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From Across the Desk: Corporate-Centric Firms

Ed. note: This is the latest installment in a series from Bruce MacEwen and Janet Stanton of Adam Smith Esq. and JDMatch. “Across the Desk” takes a thoughtful look at recruiting, career paths, professional development, human capital, and related issues. Some of these pieces have previously appeared, in slightly different form, on AdamSmithEsq.com.

Our third installment in the “Law Firm Taxonomy” series addresses corporate-centric firms. With malice towards none and candor towards all, I must confess that I find this species the most problematic of all seven in our taxonomy. I’ll explain why in a moment, but first let me, following Linneaus, simply describe these firms. By and large they:

  • are headquartered in non-global cities
  • cater to desirable upper/middle market clients, mostly non-financial corporations and very high net-worth individuals (the 1%)
  • and are solidly embedded in their local markets

There are a host of such firms, and some of them are quite large indeed, ranking comfortably within the Am Law 50, but in an odd way they are a residual category consisting of firms that don’t fit credibly or plausibly anywhere else.

Where did these firms come from and where are they going?

First, where they came from is the easy question: As any thoughtful reader well knows, Biglaw had a golden age from ca. ~1980 until September 2008. That economic environment, sui generis in our lifetimes (and absorbing the entire career of some fortunate souls), will never return. In those palmy times, it’s no surprise that some favored firms found themselves rooted in fertile ground and grew accordingly. It came with the territory.

Understand what I’m not saying: I’m not saying firms couldn’t exploit their blessed circumstances more or less effectively, and I’m not saying that individuals don’t matter. Individual leaders matter, and the only reason we don’t think of firms that failed to take advantage of the incoming tide is because, well, they didn’t. So they’ve been passed by and dropped off the radar. Call it survivorship bias, call it tautological, or merely call it res ipsa loquitur, but firms that lagged in the tailwind-fueled race aren’t big players today.

Now, where are they going?

This requires balancing the pros and cons of what these firms have going for them.

Pros:

  • They have a desirable, upper/upper-middle-market client base — and a base that is not super-aggressive or, frankly, sophisticated, in putting pressure on rates.
  • They know themselves, their home turf (if they’re regional), what they do and who they do it for.
  • Being (by hypothesis) in non-global metropolises, they have a built-in cost advantage.

Cons:

  • They’ll never work on the biggest, sexiest deals or litigations and will never attract superstars.
  • They’re in a perpetual battle for market share, with the corollary that they have no choice but to maintain high-caliber talent without pushing their rates into uncompetitive territory.
  • For most, their client base is slowly eroding (think the U.S. Rust Belt, the U.K. outside London), with no obvious brake handle available.

I said at the beginning that I find this category the most problematic. Why so?

I’m afraid it could become a self-liquidating group: That is to say, I’m not confident there’s any available long-term equilibrium strategy available to these firms to grow or even to stay even where they are. They can pin their hopes on their clientele being desirable on the one hand and (ironically) unsophisticated about exerting market power in terms of rate pressures on the other, and that can sustain a good long run, but my intuition, and economic history, suggest that this niche has a finite half-life. To put it bluntly, relying on your clients to be both rich and ignorant doesn’t strike me as an informed and winning long-run bet.

Yet this category continues to trouble me, because clearly an impressive number of successful firms would stake a claim to being here. We must be missing something, no?

This brings us to the heart of the matter when we put Corporate-Centric Firms into the larger taxonomy context: They may be a residual category of firms that don’t obviously fit anywhere else. They’re not global, not capital markets centric, not category killers, not traditional boutiques and not super-boutiques. They’re what’s left over.

I don’t know about you, but for a classification system to have intellectual and real-world integrity, I find this a dubious way to populate a category.

I am more than prepared, indeed eager, to be proven wrong.

What am I missing about these firms? What gives them strategic legs? What is their unique value proposition to clients?

Experience teaches me that — although comments on Adam Smith, Esq. are always open — our readership tends to be shy and retiring about putting their names to anything published online, so we will have a snappy alternative at the end of this series: We’ll be offering an anonymous survey posing a very few basic questions about the law firm taxonomy and your thoughts on it.

In the meantime, if you’d like a more immediate non-public dialogue, just e-mail me. Don’t be shy.

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