Law Firms And The No-Longer 'New' Normal: Insights On 7 Key Subjects

The fate of the billable hour, how small firms can compete with large ones, the evil of profits per partner, and more.

Thank you to everyone who joined us for our great event in Chicago last week, a discussion entitled “Law Firms and the No-Longer ‘New’ Normal.” Turnout was strong, despite the cold weather, and the panel discussion was spirited, insightful, and surprisingly entertaining. We look forward to a similarly successful event in Dallas next week (to which y’all are cordially invited).

Our Chicago event featured the following panelists:

Here are the main topics that they tackled:

1. How can we categorize the different types of large law firms out there?

Bruce MacEwen fielded this question based on his latest book, A New Taxonomy: The 7 Law Firm Business Models. The book grew out of his dissatisfaction with the commonly held misconception of Am Law 100 law firms as a homogeneous group. As it turns out, there’s a rapidly increasing dispersion of performance. As MacEwen put it, “Fifteen to 20 percent of firms are shooting the lights out, and everyone else is treading water or, adjusted for inflation or headcount growth, losing ground.”

In A New Taxonomy, MacEwen divides up the Biglaw world into seven types of firms, including global players, traditional boutiques, “kings of their hill,” and the dreaded “hollow middle” — generic firms, a destination for nothing in particular, and therefore not long for this world.

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2. How can law firms and other legal organizations harness the power of data?

Jason Shaffer said that JPMorgan Chase, with its incredibly large legal department, has a dedicated group of finance professionals, mainly MBAs, who analyze the bank’s litigation spending and try to figure out how it can be done even more efficiently. Gil Soffer explained that Katten similarly uses data for multiple purposes, to measure hours, originations, and which clients are responsible for which streams of revenue.

Joe Borstein said that Pangea3 — one of the world’s largest legal outsourcing companies, with 1500 lawyers on the payroll — helps law firms and in-house legal departments tame the data beast: “We take the utter insanity of data and hand it over to incredibly smart, dedicated people, who organize that data so it can be sent back to law firms or corporate clients in more manageable form.”

Pangea3 often helps companies in dealing with e-discovery issues, but its technology can be used outside of the litigation context too. For example, Borstein explained, for one bank Pangea3 created a “derivatives center” to document and track the various provisions contained in a huge volume of contracts for over-the-counter financial products. Technological tools like predictive coding and artificial intelligence can help take the practice of law back to something more manageable, he said.

3. What should we make of the closely followed metric of “profits per partner”?

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MacEwen didn’t mince words, calling PPP “one of the most toxic things our industry has ever come up with.” According to MacEwen, it’s used by firms as a marketing tool, not a financial reporting tool. It’s easily manipulated — for example, by decreasing the denominator, through de-equitizing partners or being stingy on making new equity partners — and it has fueled what MacEwen described as the “costly and ultimately ineffective lateral partner arms race.”

4. Business development: what works and what doesn’t?

Soffer drew a distinction between “soft” and “hard” forms of business development. “Soft” business development, which can include things like speaking on panels and writing articles, is good, but it tends to be gradual — “a slow boat to business,” and hard to credit for winning a particular engagement.

As for “hard” or more targeted business development, said Soffer, lunches or dinners with in-house lawyers don’t really work (see also Mark Herrmann on this topic). Instead, you need to integrate yourself into the client, through things like targeted CLE presentations or secondments of your lawyers to the client.

Shaffer agreed with Soffer on the value of secondments and targeted CLE. JPMorgan, through its “Chase Law Institute,” will have law firms present to its lawyers on a particular issue or problem. “Lunches can be fun,” Shaffer said, “but we are busy people, and in the end it’s not that effective at business development.”

5. How can small firms compete with large ones?

With the help of technology, including LPOs like Pangea3. Joe Borstein said that small law firms often come to Pangea3 to get the help they need to take on larger cases. Say a boutique firm wants to take on a mammoth matter but has just three lawyers on its payroll. Pangea3 can staff 50 to 60 lawyers on that case, giving the small firm the capability it needs to go toe to toe with bigger players.

6. Is the constantly predicated demise of the billable hour finally coming?

Borstein, sharing a joke he heard at a prior panel, compared alternative-fee arrangements to high school sex: “Everybody talks about it, but few are doing it — and those who are doing it are not doing it well.”

Soffer agreed that the buzz over alternative fees is overblown. Most alternative-fee arrangements are really not that creative, basically discounts off hourly rates but with kickers for success. Part of this is because of the clients: Katten will offer clients all sorts of different fee options, but often the clients just want a discount.

Shaffer said that, from where he sits as an in-house lawyer, alternative fees are “somewhere between rhetoric and reality.” But JPMorgan certainly does have fixed-fee arrangements for certain types of work. Sometimes it will bid out an entire portfolio of work to a firm, and that project can be profitable to the firm — provided that the firm is efficient.

7. What is the outlook for young lawyers just getting started in the profession today?

According to Soffer, it’s tougher today for young lawyers. Twenty-five years ago, it was enough to be a very good lawyer, skilled at your craft, in order to advance. Today you need the total package — good at your craft, but also good at selling to and servicing your clients.

Citing the way that technology is transforming the practice of law — a transformation that he and colleague Ed Sohn cover in their Above the Law column, alt.legal — Borstein sounded optimistic notes: “This is an exciting time for legal entrepreneurs. There is a lot of opportunity out there — and many of those opportunities lie outside the white-shoe law firm.”

(Flip to the next page for photographs from the event.)