Is It Finally Over? (Not Quite)

Chris Mondics at the Philadelphia Inquirer wonders if the legal market has seen the worst of the biggest recession in the legal industry since the Great Depression,

For law firms, the devastation that swept through the legal marketplace in 2008 and 2009 has come to an end. Layoffs have stopped or at least have been sharply curtailed, firms that suspended hiring are recruiting once again, and profits, though flat or down, have stabilized at numbers that would make average middle-class American wage earners click their heels with delight.

Even the sky-high starting salaries for first-year lawyers, long the source of client frustration and complaints, appear to have come through largely unscathed.

But Mondics notes that changes in compensation fail to provide the complete picture of what law firms are experiencing. He cites James Leipold of the National Association for Law Placement, who reveals that law firms have been cutting costs elsewhere, through exploring more opportunities in legal outsourcing. They’re also looking to remove non-equity partners from the firm structure. To my knowledge, only a small handful of Canadian firms employ the non-equity partnership model.

He also cites Larry Ribstein, associate dean at the University of Illinois College of Law, who suggests that billings are not increasing, and are not likely to increase in the coming years. Ribstein specializes in law-firm management and economics, and recently published a paper in the Wisconsin Law Review, The Death of Big Law, where he provides a very thorough (over 60 pages) explanation why the traditional model of large firms is in trouble. Some large law firms will continue to exist, but many will splinter into smaller, more specialized firms. Although firms require outside capital survive, most are not structured to develop the infrastructure needed to attract this capital.

Ribstein identifies four major implications for law schools from his observations:

  1. Shifting demands in law graduates will affect the demand and price of legal education. Law schools will have to find more cost-effective models to meet market needs.
  2. Much of the training often delegated to law firms will have to occur in law school. (See the post on the Canadian Clinical Legal Education Conference)
  3. Law schools will have to offer more business backgrounds to account for the changing roles of lawyers, with increased emphasis on in-house counsel. Providing technical legal advise without a proper business context won’t work any more. He points to Richard Susskind’s The End of Lawyers?: Rethinking the nature of legal services to suggest a move from custom advice to sale of legal commodities.
  4. The demand for regulation of lawyers might be reconfigured by greater dissemination of legal information.

According to Ribstein, the last factor of legal regulation is probably the most significant. He points to three major principles which impede dissemination of legal information:

  1. Legal regulation has historically focused on the solicitor-client relationship, which can at times conflict with the goals of big law firms.
  2. Legal advice is restricted to those who are licensed, which impedes alternative methods of delivery.
  3. Legal regulation focuses on the jurisdiction where a lawyer is licensed, which requires greater multi-jurisdiction uniformity for firms to evolve along organic business structures.

He explains how each of these principles provide unique challenges to big law firms, and offers some ideas of how they can be addressed.

If “necessity is the mother of innovation,” there might be some upside to the financial difficulties experienced by big law. Ultimately the pressure on the legal industry might be the impetus for restructuring and change that many of us have been waiting for.

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