“Unsustainable Trends Tend to Come to an End”

The American Lawyer is out with its annual survey of
AmLaw 200 leaders and they are, as Aric Press succinctly puts it, "a
confident bunch."  And why shouldn’t they be?  The heck
with 9/11 and the heck with the 2000 bubble melt-down:  88% are
optimistic about next year.  Revenues are up more than 6% for
the fourth year in a row—and
since fully 89% of firms plan to raise rates again next year (the median
hike being about 5%), and 73% foresee profits per partner rising more
than 5%, what’s not to like?

But dig, or read, a bit deeper and I see a protracted collision with
reality in the offing.  Consider:

• 52% of these senior leaders report meeting with five or fewer of
  their firm’s top 20 clients to discuss performance, and a truly shocking
  6% report meeting with none.  In other words,
  these firms are collaborative and collegial in name only, with zealous
  turf guardians still de facto in charge.
• For help on management issues, firm leaders turn almost exclusively
  to "C"-level professional staff rather than their partners—91%
  of firms report five or fewer lawyers spend more than half their
  time on management.  (Stated differently, only a handfull of
  lawyers are seriously engaged in firm management.)
• But for all their reliance on COO’s, CFO’s, etc., those professionals
  are second among equals.

*"None" serve on the executive committee at 46% of firms. 

So
what we have resembles the Cold War era Soviet Politburo, where an
elite class with a somewhat arcane selection process are the titular
rulers, but where the actual factories and trains are run by a subservient
group of professional managers.  Am I being too harsh?  Consider
that to crack the AmLaw 100 requires revenue north of $180-million/year.
  That’s a sizable enterprise by any measure.  How long will
the increasingly indispensable C-level class stay down?

To be sure, there
are some signs of ferment in this model:  While
nine out of ten firms, as noted, plan to raise rates, two-thirds also
report clients complaining about fees and demanding discounts.  And
an astonishing 26% of firms report they’re on the prowl for a merger
partner.  Both of these results portend deeper changes ahead.

My read?  First of all, that there are in the economic sense
no "substitutes" for the counsel of an AmLaw 200 firm; this is the
primary explanation for the relative price-inelasticity of demand (despite
the bitching).  Second, the AmLaw 100 have more pricing power
than the AmLaw 101–200; but/and at this point in the profession’s
evolution the barriers to entry into the AmLaw 100 are steep and daunting.  So
mergers are a logical response to the desire for ever-greater pricing
power.

Do we live in fascinating times, or what?