There has been a great deal of buzz over Jeff Bezos’s recent purchase of The Washington Post for a fraction of what Facebook paid for Instagram, and also a fraction of what Yahoo paid for Tumblr. How can it be that a venerable old newspaper, guardian of the right of the public to know, with hundreds of employees and thousands of square feet of bricks and mortar be worth far less than smaller companies that simply deal with code?
If lawyers ever needed another reason to believe that the world has changed. This is it.
In my view, it is quite conceivable that in the next 20 years, a leaner, more innovative and tech-savvy law firm will be more highly valued than a lumbering international giant: as Renee Knake of MSU Law is fond of saying, “Do you want to be Kodak or Instagram?”.
Bill Taylor recently wrote in the Harvard Business Review blog that The Washington Post, Instagram and Tumblr transactions reflect three new realities: 1) the logic of economic value has changed forever; 2) the destruction part in “creative destruction” happens faster than the creative part; and 3) for old organizations to survive new ownership structures are required.
Applying these new realities to the legal industry is not difficult.
The logic of economic value has changed forever – read, the billable hour makes less and less sense as many portions of legal work can be done with less people in less time. The long-held advantage of large firms (the ability to scale up for large transactions) is eroding – reducing their value in the eyes of clients. Smarter clients and smarter lawyers have taken hatchets to the old notion that time spent equalled value received. The world is starting to re-think how to value legal services and there’s no going back to the glory days of pricing every single file by hours billed.
The destructive part in “creative destruction” happens faster than the creative part – we’ve seen American and UK firms continue to fail. And the word on the street is that there may be at least one Canadian firm that will disintegrate over the next 12 months. The failure of a good-sized Canadian law firm could be the best thing to ever happen to its lawyers as it could lead to a new innovative firm unencumbered by its past. But, as Taylor says, the creative part will take a longer to sort out than the destruction.
Old organizations need new ownership structures to survive – the myth among large Canadian law firms is that “even though we are a partnership we are run like a corporation so our management/ownership structure doesn’t need to change.” Query how many corporate lawyers in these large firms would advise their clients to adopt a partnership structure “but just run it like a corporation, because it’s the same”? I have commented before that the Achilles Heel of large Canadian law firms is multi-pronged: lack of strategy, lack of retained earnings, and poor governance, among others, all of which stem from using an ownership structure that has out-lived its usefulness.
What will Jeff Bezos do now that he has spent all his coffee money on The Washington Post?
His letter to his new employees gives a hint:
There is no map, and charting a path ahead will not be easy. We will need to invent, which means we will need to experiment. Our touchstone will be readers, understanding what they care about … and working backwards from there. I’m excited and optimistic about the opportunity for invention.
Imagine a law firm where the managing partner said that?
Stay tuned as the new Washington Post may provide some interesting lessons for law firms.