A Crisis Of Confidence In Law Firms

A new survey shows lawyers doubting their ability to manage change.

Are law firm leaders across the industry paying attention to what’s happening in the legal market? Apparently not, at least according to the tenth edition of the Law Firms In Transition Survey published by Altman Weil. The survey, started in the wake of the legal market nosedive precipitated by the Great Recession, polls firms of 50 or more lawyers across the U.S. and asks a broad slate of questions about the general state of the industry.

Lawyers Questioning Their Own Abilities

The Altman Weil survey offers a wealth of insights on the thinking of large law firms and their clients, too many for a single column to digest, but one of the more pressing results is the abysmal numbers on law firm leadership’s confidence in their partners to change, adapt, and thrive in the coming years.

How abysmal? Take a look at the numbers on lawyers’ confidence in their law firm leadership in tackling the issues facing the industry. Back in 2011, optimism was abounding as the economy started clawing its way back. Only 7.8 percent of 2011’s survey respondents had low confidence in their leadership’s ability to navigate the new legal landscape, while 23.9 percent had high confidence. In 2018, the mood has gotten black. A full third of respondents indicated low confidence in their firm’s leadership, while only 5.6 percent had high confidence.

And the statistics only get worse from there. How do lawyers rate their partners’ awareness of the challenges of the new legal market? About 50 percent voted “low,” while only 2 percent voted “high.”

When asked how serious law firms were about changing their legal models to provide greater value, 57 percent of law firm respondents responded “low” compared to 2.6 percent “high.” But if you think attorneys have a poor view of their desire to innovate, our clients have an even poorer one.

A whopping 90 percent of clients rated their law firms’ seriousness about innovating their legal service model as “low.” You read that right. Despite the innovation-related buzzwords that fill the pages of law firm marketing materials across the country, clients aren’t buying it.

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Perhaps the most dispiriting figure of them all: when asked why their firm isn’t doing more to change the way it provides legal services, lawyers pointed to one thing more than anything else. Nearly 70 percent said their firms weren’t changing because their partners are resisting.

Let that sink in.

We know we need to innovate, we know the legal market is changing, yet we continue to watch ourselves and our colleagues do nothing about the problem. How is this happening? I’ve said it before, and I’ll say it again: law firms that fail to innovate do so at their own peril. As of today, the Altman Weil survey suggests the only firms that appear truly committed to innovating their product are the firms that are already in the top 1/3 of the market. There’s already a trend in the legal market of the rich getting richer while the rest of us fight over a shrinking pool of work. Failure to innovate among the legal industry’s middle class is only going to accelerate that trend.

I think it’s entirely possible that the problem with law firm innovation is that law firms are made up of lawyers. We tend to be a risk-averse breed, trained since our 1L year to spot potential problems and try to mitigate our way around them rather than chart bold new courses. If you want to make a lawyer’s eyes light up, give them a bright line rule to work with, or tried-and-true safe harbor language to include in an agreement. We’re so used to cautiously piloting our clients through ambiguous, dangerous waters that many of us probably can’t help but be overcautious in managing our own practices.

Getting Lawyers Out of the Way

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Some firms have been trying to mitigate this fundamental problem by introducing non-attorneys into the management structure. Non-attorney input is invaluable, but it’s often tricky and cumbersome to structure in a way that makes sense to folks from the larger business world. While ethics rules vary state-to-state, they typically prevent any sort of arrangement that looks like fee-splitting with a non-attorney. We don’t want non-attorneys, who don’t know the law and aren’t bound by our ethical rules, potentially influencing attorney decision-making.

The rationale is valid, but it nevertheless makes it hard or impossible to provide non-attorney managers a real equity stake in their firm, which limits their upside. If high-level managers can’t be rewarded with equity for working at law firms, why would they work at those firms to provide their innovations and business perspectives?

Luckily for us in the USA, we have some data to work with. Since 2011, the United Kingdom has been experimenting with allowing non-attorneys to have actual equity ownership in law firms. We’re dealing with a limited sample size, but so far the ethical apocalypse some predicted has yet to pass. One firm that took on non-lawyer ownership and investment, Knights Solicitors, has seen five-fold revenue growth and ten-fold profitability growth since bringing in non-attorneys. Another firm, Gately, had an IPO in 2015 and raised $45 million to invest into growth. That investment paid off, and its stock is up nearly 70% today compared to its debut three years back. That’s the kind of return even the stodgiest law firm partners would give a second look to.

The U.S. had a chance to jump onboard the experiment back in 2016, but the ABA quietly let the concept die without further discussion after the comments period yielded steep resistance from, unsurprisingly, attorneys. Once again, lawyers stood as the single greatest impediment to change in their own industry.

We can’t continue like this forever. Non-attorney-owned legal service providers like LegalZoom, Axiom, and the Big Four accounting firms are ascendant. The public is increasingly turning to non-attorneys for their legal problems, and if the Altman Weil survey is accurate, nine out of 10 legal clients already think their attorneys aren’t doing enough to try to provide them more bang for their buck. The genie’s out of the bottle. We can either keep fighting a battle that we’re so far losing, or we can admit that the time has come to try a different approach.

The ethical conundrums of firm ownership by non-lawyers have to be taken seriously and dealt with, but we’re not starting from scratch. The U.K. experiment is providing us valuable data that we would be remiss to ignore. We don’t necessarily need Kirkland & Ellis listed on the NASDAQ, but we do need, as an industry, to make ourselves competitive at hiring the best, most innovative minds available. We can start by opening ourselves up to the idea that not all great law firm managers need a name that ends in “Esq.”


James Goodnow

James Goodnow is an attorneycommentator, and Above the Law columnist. He is a graduate of Harvard Law School and is the managing partner of an NLJ 250 law firm. He is the co-author of Motivating Millennials, which hit number one on Amazon in the business management category. You can connect with James on Twitter (@JamesGoodnow) or by emailing him at James@JamesGoodnow.com.