Biglaw

Biglaw Surprises Some With Record Profits In 2020 -- Now What?

The Renaissance is here, the 'do-over' is possible, and the positive 2020 momentum can be continued.

By Nancy B. Rapoport and Joe Tiano  
on

In a recent Above the Law post, Kathryn Rubino points out that, on average, the 100 highest-grossing Biglaw firms (Am Law 100) increased their revenue by 6.6 percent. When we read Ms. Rubino’s post which linked to a Law.com article by Dan Packel (“Against All Odds, The Am Law 100 Were Stunningly Successful in 2020”), three thoughts entered our minds.

First off, we say, “Bravo!” We’re happy to see our industry and many of our friends doing so well (at least in this slice of the legal industry, and we’re rooting for the rest of our industry to succeed, too). If there ever was a year when excellent, cutting-edge legal advice and services were needed and worthy of handsome compensation, it was 2020, a once-in-a-lifetime year with unimaginable challenges.

Our next thought is a shameless, self-laudatory “we told you so” point. Last spring, most media reports were all forecasting doom and gloom for the legal industry, reporting on compensation cuts, layoffs, furloughs and the like. On the other hand, a year ago, nearly to the day, in this Above the Law post, we predicted the opposite, saying (among other things):

Until the dust settles, most would agree that the near-term demand for legal services will be only in “essential” areas, such as healthcare, employment, bankruptcy, and criminal law. The dust will eventually settle, though. Then there will be an UNPRECEDENTED level of demand for legal services. Unlike the aftermath of the 2008 Great Recession, where the legal industry was unable to drive any aspects of a recovery, the U.S. legal industry can be a critical force in the aftermath of the COVID-19 pandemic. Legal industry professionals will pore over mounds of insurance policies, contracts, and other documents to assess the legal rights of the afflicted, to be followed by years of lawsuits. These lawsuits will be complex and multi-jurisdictional (or multi-national) and, quite literally, without precedent. Demand will skyrocket, giving the entire legal industry a serendipitous “do-over” to re-imagine new ways to deliver legal services.

We suggested that law firms think about reallocating their professionals to areas of immediate need (“surge lawyering”), considering tele-lawyering (which, of course, we all have now been doing for a while), and embracing innovation.  Many firms implemented much of what we suggested during 2020, some out of necessity and some out of strategic forethought. The reality is that, in turbulent times, lawyers tend to rise to the occasion, and talented lawyers are in high demand. The profession’s understanding of the dynamic nature of the law is critical to novel challenges, and good lawyers’ problem-solving skills are essential to navigating complex issues. When it comes to COVID-19-centric matters and other matters put on hold during the pandemic, we’re still in the early stages of the legal industry’s Renaissance Period that we had predicted.

Our third thought is: Okay, Biglaw: The pandemic forced your hand and afforded you some cover on making some long overdue (since 2008) “hard” decisions, and you made some of the changes that needed to be made. You’ve gotten the “do-over” that we predicted and made many positive moves.  We noted that, in 2008, the legal industry’s fairly quick economic recovery didn’t force any lasting, needed change but allowed for an industry-wide sense of complacency in which the industry could return to its “old” regressive habits.  The “do-over” has arrived, and it’s time to strategize on continuing the positive momentum to advance our industry during the “Renaissance Period.”

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Every week, we talk with countless legal professionals — in all areas of practice, in all sectors, at all levels — about challenges and opportunities in the legal industry; we consume as much content as we can about the legal industry; and we think constantly about how we, as legal professionals, can take positive, meaningful steps to make the legal profession the best that it can be. In this regard, we have some thoughts and suggestions on how to continue the positive momentum:

  1. If you want to do a good job for your clients, you need to make sure that you mentor (train) and sponsor (promote) a truly diverse workforce.

Our clients deserve the best advice and best service that we can offer.  This happens when service and advice is provided by a truly diverse workforce. We’ve all been in rooms in which people come to agreement on a plan quickly, and the plan falls apart later or yields suboptimal results. One of the likely causes is that everyone in the room has a mostly overlapping set of experiences (or put otherwise, they lack diversity in the broadest sense). If everyone has the same set of experiences, there’s no one in the room to say, “wait a minute — you haven’t factored in X or Y.” The more diverse your team and your team’s set of experiences is, the broader and deeper will be the strategies, tactics, and options that the team will pursue and implement. (One caveat: everyone on the team needs to feel comfortable with speaking up to discuss ideas. Silenced or unmentored diverse teams don’t help you make better decisions. When diverse legal teams are empowered to share their smart ideas, clients wind up receiving the best advice and service.)

  1. Solicit more client feedback.

Despite what one sees far too often in the media, clients and their lawyers ARE on the same side. It’s a principal-agent relationship guided by robust conflicts of interest principles to make sure that client interests come first. In other aspects of our lives today, we cannot escape customer feedback surveys, polls, likes, thumbs-up, thumbs-down, smiley faces, and frowns. Feedback loops in the legal industry, however, are rare even though client interests are not secret and clients will share what they value most. . They already share some views in the form of billing guidelines, by signaling what they prefer that their outside firms do (and how it’s done). But if a firm spends time — non-billable time — sitting down with major clients to solicit feedback and ask them what industry changes they foresee, it’s immeasurably easier to be able to partner with them to prepare for those changes. Clients don’t resent paying for a well-spent billable hour when they feel that it meets their standards and provides value. When clients see firms spinning wheels with inefficient workflow, though, that doesn’t lead to feelings of good hours having been billed. Misallocation of professionals (too many or the wrong experience level for particular tasks) won’t lead to good hours. Clients don’t expect firms to operate at a loss, but they expect their counsel to behave as true fiduciaries, with their best interests at heart. With a better feedback loop, you can help them help you.

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  1. Invest in legal tech that provides a measurable client benefit.

Law firms must invest in legal technology tools that extend beyond their own internal operational needs (Office365, billing & matter management, Zoom, etc..) and drive direct client benefits (e.g., contract automation, document review tools, etc….). There are just some things that computers do better than humans do. We already know this about things like the first cut in document production. Computers don’t get tired or hungry; they don’t get distracted out of boredom; they do things consistently, time and time again. Clients benefit from and encourage tech-enabled document review, which is more cost-effective than human first-cut reviews. As fiduciaries, lawyers are supposed to make decisions in their clients’ best financial interests as well as their best legal interests. Though we espouse this proposition as being in the best interest of clients (and law firms), we are mindful of a “knock-on” effect: it runs the risk of creating a legal “lost generation” of legal professionals. If law schools aren’t giving their students practical training, and if the work of a first- and second-year associate doesn’t include those tasks that trained all of us to know what to look for as we draft, or cull through documents, or take depositions, or negotiate, then those new associates won’t have a good foundation for developing their legal skills. Which leads us to:

  1. Biglaw (via the ABA) needs to remind law schools to train students to practice law (yes, Yale, we’re even talking about you).

Law schools are great at teaching theory, and great lawyers use theory to develop advances in the law. We applaud theory; however, theory devoid of a practical framework just trains people to be law professors (and there are precious few new law professor jobs out there). Everything that we know about pedagogy says that students learn best when they get to apply what they’re learning in new ways, when they get regular feedback, and when they learn in a variety of modalities. Historically, law schools have done nothing of this nature. During the pandemic, though, law professors have had to develop new ways of communicating material: pre-class videos or narrated PowerPoints; quizzes; small-group exercises, and the like. As law schools revisit online education with the ABA’s Section on Legal Education, it’s time to develop the “applied theory” side of the equation to train students in a practical manner. If law professors are too far-removed from today’s practice of law, they can partner with adjuncts to provide some real-world lawyering practice. Why not “Contracts lab,” a one-hour course that lets students try their hands at drafting basic agreements? “Professional Responsibility lab” could give students a chance to deconstruct situations to see if any ethics issues arise and then try to resolve the issues. If we don’t want a lost generation of lawyers, then we need to bridge the gap between what law schools are teaching and what lawyers need their new colleagues to know.

  1. Data can be your friend.

Businesses today use technology and data to measure previously unimaginable things and make lots of money from the related business intelligence that’s been generated. We’ve written recently about how auto insurers have been using telematic data to “watch” a driver’s driving behavior in real time to generate more accurate auto insurance underwriting metrics and how we could use the same principles in the legal profession. Law firms are slowly realizing the enormous value of the raw data in their network, particularly their billing and timekeeping systems. Biglaw firms have billions of lines of data that tell them how long various tasks should take and who should be doing them. Those lines of data are called “time entries.” Data can tell managing partners who’s efficient, who’s not, who’s billing on time, who’s delaying submitting bills, how each partner’s realization rate is faring, and other equally valuable data points. Maybe no one in your firm has time to deconstruct what the data are telling you, but there are companies that can do that (and one of us runs one of those companies). The old way of pricing matters (“what do I feel that I should charge”) is leaving money on the table for law firms or frustrating clients with inaccurate budgets. Why not use the data you have to do a better job of pricing legal services and evaluating the behavior of legal professionals?

  1. Budgets can be your friend, too.

The old trope that “there’s fast, good, and cheap, but you can have only two of the three” only works for non-fiduciaries. Fiduciaries (that’s us!) have to have “good.” That leaves only “fast” and “cheap” as variables. It’s better to have the discussion with a client about how much a matter is likely to cost (remember, you already have that data in your timesheets) beforehand than to engage in work that a client thinks was well out of whack with what you promised to do. Unlike a few years ago, clients are not wasting time negotiating hourly rates anymore.  Instead, they are asking for budgets and treating the budgets as hard caps on matters both by phase and in the aggregate. Tracking a budget during the work on a matter lets you give your client a heads-up when the variables on which your budget depended have changed. Communication is a fiduciary duty, too, and your budget can help you communicate with your client in real time.

  1. Speaking of budgets, why don’t you save for a rainy day?

Other businesses use retained earnings to save for a rainy day (or for the next pandemic). You can, too.  Where accounting, tax, or financial issues preclude a law firm from keeping cash in the firm, there’s no question that a smart CFO can figure out how to effectuate the functional equivalent of retained earnings through prepayment of expenses or the like. The firms that did not have the make the “hard” decisions during the pandemic were those that had plenty of cash on hand or access to cash.

  1. Your most important investment is in your people.

Every time a firm loses someone who has given up on Biglaw, the firm loses the time spent in training that person (and the revenue that walks out the door when the person does). We know that law firms often disproportionately lose their colleagues of color and their female colleagues, which in turn affects a firm’s ability to staff a diverse team. We also know that most people who start at Biglaw don’t stay there forever. If you value your newest colleagues, invest in them. If you value your senior colleagues, invest in them, too, by planning what to do if and when they depart. Great leaders don’t last forever. People die. They retire. They leave for greener pastures. A firm that doesn’t have a solid succession plan, both at the top and at the departmental level, is missing an obvious way to deal with future crises. Moreover, a firm that doesn’t develop both the breadth and depth of their associates’ training (more expertise and more across-the-board skills) is one that won’t be able to pivot during the next crisis. Firms can’t reallocate associates with exceptionally narrow skills. Likewise, sophisticated clients know that when their outside counsel team is made up primarily of senior-level personnel, they will have significant switching and/or training cost when the senior-level personnel depart. Think broadly about what new things your colleagues can do to make your firm crisis-resistant.

If the post-2008 era taught us anything in the legal industry, it showed us the potential danger of complacency. The Renaissance is here, the “do-over” is possible, and the positive 2020 momentum can be continued.  The Am Law 100 has, on average, 6.6% more funds to invest, and there are no obvious immediate scares on the horizon. Let’s use these funds and the relative calm to become stronger.

Nancy B. Rapoport is the Garman Turner Gordon Professor of Law at the William S. Boyd School of Law, University of Nevada, Las Vegas, and an Affiliate Professor of Business Law and Ethics in the Lee Business School at UNLV. Her specialties are bankruptcy ethics, ethics in governance, law firm behavior, and the depiction of lawyers in popular culture.

After practicing law for nearly 20 years, Joe Tiano founded Legal Decoder because he saw that clients and law firms lacked the analytic tools and data to effectively price and manage the cost of legal services delivered by outside counsel. He set out to build an intelligent, data driven technology company that would revolutionize the way that legal services are priced and economically evaluated.

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