This fall we had the opportunity to spend a fair amount of time in the Pacific Northwest—multiple trips to Seattle and Portland—and became better acquainted with the dynamics of that particular local/regional legal market.

No mention of those two cities would be complete without citing their fascination with all things (a) artisanal; (b) coffee-related; and (c) preservationist, so we will consider our duties on that score discharged by confirming that, yes, it’s indeed all true. And on the understanding that they are two of our favorite US cities, it’s sadly apparent that our New York-based wardrobe falls dramatically short in the category of fleece.

Be that as it may, we wanted to share some of our observations about the region with a broader audience because we think they hold lessons of wide application.

The region has been discovered

No longer a somewhat insulated or remote market, the Pacific Northwest has been found out by firms with a national or larger footprint. They’re establishing or enlarging offices and to some extent, but not yet radically as we perceived it, upsetting an equilibrium in the local talent market.

Their impact on lateral mobility seems so far to be somewhat limited. We assume this is due to a combination of indigenous lawyers being perfectly happy (“thank you very much”) at their home firms, the intensely local flavor of much of the practice and all of the personal networks, and lawyers’ predictable skepticism about how newish ventures are ultimately going to turn out.

Note that all three of our suppositions behind the impact of outside firms being limited, however, are perishable assets, or self-eroding conditions. To wit, (a) the membrance between local and outside talent is highly porous and can be traversed almost at will; and (b) what’s new and unproven today will be part of the landscape and a solid member of the business community in shockingly short order.

If you’re thinking here that I begged the question and didn’t explain why the region has been discovered, I have a few words for you: Amazon, Microsoft, Nike, Starbucks, Canadian energy, and the Pacific Rim.

Does “regionality” matter?

In virtually every meeting we had, the topic arose in the form of a question, a declaration of belief, or simply musing, whether the notion of an identifiable, contiguous, somewhat self-contained, and describable “region” still mattered or would continue to matter.

On the one hand, one merely need acknowledge the profound phenomenon of globalization to hypothesize that regions will lose their meaning in the future. For that matter, the tale of the United States to date has been (among many other things) one of local differences being diluted away into invisibility. Concepts like “New England” or “the Deep South” are probably invoked today more in a tone of nostalgia than hard core reality. And if I understand the mentality of mass marketers correctly, the categories that seem to matter are less”Vermont Yankee” or “California dude” and more “soccer mom” or “urban homesteader.”

On the other hand.

Regional differences remain, and to some extent immigrants from outside learn (and if they’re gracious about it, prefer) to adapt to local customs. We were instructed more than once, in the most helpful and sympathetic of tones, that we should be attuned to the Pacific Northwest’s reluctance to disagree and understand that (in implicit contrast to the behavior expected of New Yorkers) people might not tell us exactly what they thought. Whether the reticence was viewed as polite and deferential or as passive/aggressive depended on who we were talking with.

Ultimately, I come down on the same side as #1, above: Differences remain, and are real, but the process of erosion has set in and they may not last forever.

Yes, but what about local rates vs. national rates?

Lots of conversation on this topic.

Individual partners at local firms might explain how a national firm’s higher billing rates “just wouldn’t work” in their practice area, how their local clients had become accustomed to somewhat kinder and gentler fees, and how the national firms were fighting an uphill (and to them hopefully doomed) battle.

Conversely, national firms maintained that the work they did locally was national-quality work deserving of national-level rates; it just happened to be in Portland or Seattle and not Chicago or Minneapolis. Clients were smart enough to understand that.

I actually take a different view entirely.

One can play the rate-card game with at least three sets of rules. The first set of rules is the simple labor-market arbitrage model, where, indeed, work that could be performed in Chicago or Minneapolis can also be done in Portland or Seattle by lawyers every iota as qualified, but with lower overhead costs and compensation expectations. Simple management hygiene demands you use the most efficient resource allocation model you have handy. So: Local rates for “national” work.

The second set of rules starts from the assumption that Client X’s problem (a merger, say, or a class-action defense), although it happens to arise in the Pacific Northwest, is a sophisticated problem deserving the same impeccable caliber of service that same client would expect in New York or Washington.

So this is a land of “practice caliber drives rates, not geography.” I agree that certain practices—white collar executive defense, for example—really do demand top-drawer practitioners and timezones matter not. But I also suspect there are fewer of these practice areas, and fewer matters of moment arising within them, than national firms would like you to believe.

Finally, the third set of rules might be called the “import-export” market rules. Increasingly, client issues are not city, state, or region-centric: They’re driven by business dynamics and not the happenstance of where HQ is. We know several firms, and more may be on the way, whose network footprint of offices is driven by the perceived need of clients to have matters handled in many different places at once more or less simultaneously.

This it seems to me calls for intra-firm collaboration of the highest order, where (say on a complicated supply chain issue) the local specialist in land use in Seattle can interact with the offshore production experts in Hong Kong who can interact with the FCPA gurus in Washington who can interact with the labor union law experts in Chicago who can… This argues for an entire matrix of local rates—but now what’s “local” means Seattle, Washington, Hong Kong, Chicago, etc.

The existential question

Bringing us to what you may have all been waiting for wondering about.

Can, and should, historically local firms compete with the new arrivals (and how) or should they just assume the jig is up and prepare themselves to combine or be acquired?

Plan B is, in terms of execution, trivial to accomplish (for the local firm) and an almost universally available option and will remain so for awhile—but not indefinitely. The easiest way for a firm to enter new territory is to take over an existing, up-and-running, operation. It’s true in manufacturing and it’s true in Law Land.

The acquirer knows to an almost irrebuttable level of confidence that the lawyers and groups acquired have a solid track record of being able to work together, that virtually all their clients will migrate with them, and that transaction costs, while still material, will be strikingly lower on a “per lawyer” basis than achieving the same growth by ones and twos and threes.

Yet we all know the pride independent firms take in their very independence. Occasionally it’s even warranted.

Plan A is hard.

Maintaining your independence not only requires being resolute in the face of what is guaranteed to be a long parade of blandishments from outside, but (and here’s the hard part) it actually requires you to articulate in a succinct, persuasive, and durable way why your firm will be better off independent than with a far wider footprint. And make sure the reasons underlying that belief remain true. Here, playing the kinder and gentler local rate card game is not, I suspect, an enduring strategy—at least not all by itself. Lower rates of course bring consequences of their own, which generally involve topics that your partners, focused on clients’ being amenable to their nice economical pricing, prefer not to think about.

Like lower compensation, less ammunition in the war for lateral talent, flight risk of existing talent, and clients’ viewing your firm as delivering quality commensurate with price—that is to say, below average on both scores.

Pursuing Plan A means preparing for a long war. Here’s what to look for:

  • It will be, as they say, a ground game. You’ll need to really and truly maximize your investment in your local networks. Love every single client as an individual.
  • Double down on getting that special intrinsically local knowledge for which there is no substitute and to which there is no shortcut: not just the judges, but the county, city, and state officials—and their staff members and their staff members’ assistants.
  • Be savvy about recruiting, not just in terms of where you fish but in terms of what you can offer. Hint: It won’t be every last dollar, so it better be something else compelling. Figure it out.
  • Finally, take small comfort in the statistic that 98+% of lateral partner moves are within one city or at most one metropolitan area. This won’t be the Huns coming in multitudes. What you have to fear, however, is not the first wave. It’s that porous membrane. Who’s “local” and who’s “not” will be a concept drained of meaning.

As at the outset, the Pacific Northwest is fascinating, changing before our very eyes, and understandably a magnet for all kinds of talent: From lawyers to software engineers to baristas. Yet it’s also a case study of what’s happening in every region of the US.

If you haven’t been, I highly recommend a visit. You might learn something.

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