Corporate-Centric Firms

Tuesday, June 4, 2013

Our third installment in the “Law Firm Taxonomy” series addresses corporate-centric firms. With malice towards none and candor towards all, I must confess that I find this species the most problematic of all seven in our taxonomy. I’ll explain why in a moment, but first let me, following Linneaus, simply describe these firms. By and large they:

  • are headquartered in non-global cities
  • cater to desirable upper/middle market clients, mostly non-financial corporations and very high net-worth individuals (the 1%)
  • and are solidly embedded in their local markets

There are a host of such firms, and some of them are quite large indeed, ranking comfortably within the AmLaw 50, but in an odd way they are a residual category consisting of firms that don’t fit crediblly or plausibly anywhere else.

Where did these firms come from and where are they going?

First, where they came from is the easy question: As any thoughtful reader well knows, BigLaw had a golden age from ca. ~1980 until September 2008. That economic environment, sui generis in our lifetimes (and absorbing the entire career of some fortunate souls), will never return. In those palmy times, it’s no surprise that some favored firms found themselves rooted in fertile ground and grew accordingly. It came with the territory.

Understand what I’m not saying: I’m not saying firms couldn’t exploit their blessed circumstances more or less effectively, and I’m not saying that individuals don’t matter. Individual leaders matter, and the only reason we don’t think of firms that failed to take advantage of the incoming tide is because, well, they didn’t. So they’ve been passed by and dropped off the radar. Call it survivorship bias, call it tautological, or merely call it res ipsa loquitur, but firms that lagged in the tailwind-fueled race aren’t big players today.

Now, where are they going?

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  1. George, 2 years ago Reply

    Well put Bruce.

    This group of firms is found in all major jurisdictions. Our analysis parallels yours–they are typical of Michael Porter’s ‘stuck-in-the-middle’ enterprises.

    In Australia most are still using mixed business models: high end advisory alongside volume, what David Maister famously called ‘brain surgeons’ and ‘factories’, respectively.

    It’s a tough spot to be in. Most we know are choosing to keep their heads in the sand and hope the storm will pass.

  2. John Grimley, 2 years ago Reply

    I believe this group is self-selecting – without perhaps knowing they’re self selecting – to a long period of decline. During that period – they’re best lawyers will leave or retire. I believe we’ll see that talent either go into regional offices of AmLaw 200 firms – or end up in firms the likes of which we haven’t seen yet in America (a Riverview model, for example). It’s important to note here, however – that it’s not too late for these firms. The upper middle market is full of C-suites under-served by sophisticated professional services providers. They’re a market that can be tapped to re-energize these firms. But sadly for them – they see a dwindling pie and are fighting over the scraps – and see the means by which to compete for new business – a threat – instead of a friend. Hence, senior partners are holding out to retirement – junior partners disgruntled and looking for options which for them are dwindling. Younger lawyers will be actively looking for better managed firms with a more promising future. The future isn’t bright for these firms – but they’ve chosen their future. They failed to adapt to changes accelerated in 2008.

    • Bruce, 2 years ago Reply

      Astute observations; thanks.

      I’d like to underscore two points:

      1. First, these firms are perhaps more powerfully affected by all that happened (well, accelerated) starting in 2008 than any other category I’ve discussed.
      2. Second, the brewing divergence of interests between senior and junior partners is an especially salient point, and one few people are willing to talk about it (assuming they recognize it to begin with). Because the seniors, by and large, hold the reins of power, and because the roof won’t fall in before they’re out the door for good, this may prove a more serious impediment to meaningful reformation and reconfiguration of these firms than any studied or purposeful decision-making

      Thanks again.

  3. Bruce, 2 years ago Reply

    A loyal reader who wishes to remain un-named writes as follows — Bruce.

    Very much enjoying the taxonomy of law firms series. As young partner practicing in one of the smaller of these firms, this installment hits close to home. I could spend hours dissecting what you wrote, but I’ll keep it simple and try to answer the two questions you posed at the end of the article:

    I see a couple of viable strategies on the strategic front that translate into value for the client base you outlined:

    1. One, stand out in one or two practice areas that have firmly and irrevocably moved downstream in the rate structure from the global players (i.e. they are never getting that work back and they don’t really care to). This type of practice area, if spun off into its own firm, would be a category killer or close to it from day one. Groups like that produce a lot of overflow work for the less prominent practice areas in the firm. And over time a lot of natural synergies will develop that can legitimately be leveraged in marketing.

    Where it seems to work the best is focused areas like health care, real estate, public finance, energy and maybe securities. Areas that require solid litigation, regulatory and transactional support across the spectrum. I know this basically sounds like competing on price, and maybe it is to some extent. But you could also argue that the quality of service exceeds what they would get at the global firms in some areas because the collection of talent (most of it culled from global firms) is so deep, and it extends into the support practice areas as well.

    2. Two, be a true local resource to your clients in every jurisdiction you operate. Federal regulatory work gets the glory, and large public companies will always get sitdowns with government. But much of the middle market needs access to high-level state and local officials to run and expand their businesses and deal with lower level regulators successfully. This type of resource is tougher for clients to find than you might think, and takes considerable effort for a firm to build it. The firm really does have to be a member of the community at all levels.

    And the firm leadership has to support that philosophy from the top down, not just lip service at partners’ meetings and in associate training seminars. Very few global firms are going to devote that kind of time and effort to being this type of resource when they aspire to have global clients who need global capabilities. I don’t think capital markets centric firms want this type of work either.

    I know the type of firm I just described probably tends toward a boutique model. And left on its own, the firm would probably evolve as such (so maybe that is where we are going?). And I realize that a firm really striking that balance would necessarily be smaller than most of the firms in this category.

    Yes, some tough choices up and down the ranks. Whole practice groups will probably have to go, or be restructured in such way that they bear no resemblance to their former self. No one wants to hear that, much less act on it. But, in essence, isn’t this what the capital market-centric firms have already done? They have a few standout practice areas, and deeply developed “localized” expertise and networks. The corporate-centric firms that streamline in a similar way won’t be that lucrative for obvious reasons. But I think they can establish a credible market position in this fashion.

    These thoughts strike me as coming from someone quite attuned to the market and not afraid to face reality as it is. As Churchill said, “Facts beat dreams.” — Bruce

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