Earlier, I wrote about the 12th annual "Law Firm Leaders Forum" held in San Francisco last week, which I was able to attend as a guest of Orrick, Herrington & Sutcliffe, whose Chairman & CEO, Ralph Baxter, has been a sponsor of the event from the beginning. (Thanks to all the folks at Orrick who made my attendance possible; you know who you are.)
Now I’d like to offer a brief recap of some of the highlights of the event: You can find the agenda in my earlier piece.
On the first panel, looking at our industry five years hence, Brad Hildebrandt opined that while the world was enjoying a growing middle class, less poverty, more demand for goods and services—all of which drive demand for legal services—the industry is due for a "correction" and a slowdown in the growth in PPP we’ve been seeing lately.
Dan DiPietro of Citigroup’s Private Bank described himself as "an optimist who worries a lot" and proceeded to declare that "firms’ business model is tired, old, and not working for a lot of firms." Why? Clients have more clout than ever; mobility is at unprecedented levels; and the half-life of high-value work is decreasing. Internally, we have four generations of lawyers in our firms, who don’t see eye to eye on many significant issues. Finally, there are increasing "corporatization" pressures, and this is a challenge which "no one has figured out."
Aric Press noted that, as the Baby Boom generation starts exiting into retirement, fewer and fewer people are willing to work 2,600 hours per year. He also observed that changes in rankings among law firms take place very very slowly: "There is nothing harder to do than for a firm to change its relative status."
Ralph Baxter thought that segmentation is the key to understanding our industry today, but strongly averred that if your firm is not doing the highest value work, "you are not failing." The moral as Ralph sees it that you must choose high-value or mid-market, which bring with them radically different economic models, but both are viable. Just make sure you pick one or the other; no firm can succeed at doing both.
Other observations from this panel and others follow.
For a number of reasons, I choose to decline to divulge the identities of who advocated which view. (And no, you won’t be able to find out by emailing me, either, so don’t even try.)
A primary reason is that the participants have not authorized me to do so. A secondary reason is that this is intended as a wide-open, "think out loud," debate-provoking piece and I don’t want to issue the slightest invitation to dismiss or discount or, conversely, to support or lend credibility to, any of the following thoughts based on what you think you might know about their proponent. Third, I hope to prevent reprisals. (Just kidding!)
So forthwith, some of the more noteworthy assertions
- It’s hard to be a national firm without some global capability.
- UK firms are a real competitive threat.
- "CEO" as a title is inherently problematic.
- De-equitisation of partners is one of the most caustic steps a firm can take; we will see a blow-up of an entire firm resulting from this.
- In 10 years but probably not 5, we will see a managing partner who is a non-lawyer.
- More and more firms will engage the likes of McKinsey to do soup-to-nuts strategic reviews.
- The billable hour is not dead.
- The billable hour is dead: Knowledge management will wipe it out, as corporate clients increasingly demand that their key firms expose their internal KM systems to the client.
- In less than 5 years, a name-brand UK firm will go public through an IPO.
- In less than 5 years, New York first-year associates will be at $250,000
- In retrospect, we will view the period immediately past as a high-water mark in mergers among law firms.
- There will be many more law firm failures.
- There will be some law firm mergers at the high end of the market between two strong firms neither of whom needs to merge.
- The key to the future is how much growth there will be in China: "No one knows."
- "This panel on the future is incredibly pessimistic."
- "This panel on the future should see things growing to the sky; the demand for legal services far exceeds the supply."
- Our basic business model has been broken for years: Top partners are underpaid and young associates are overpaid–but we can’t seem to disaggregate them.
- The key to increased profitability will be the ability to cut costs but not cut hourly rates.
- You cannot apply what you thought you knew about running an old sty le law firm to a global $1-billion+ business.
- We never advertise, we never recruit, we never go on-campus; everyone who comes to us comes by word of mouth.
- We have 45 partners in a 60-lawyer firm; my ideal firm would be 50 partners and 0 associates.
- The leverage model is utterly inconsistent with quality.
- [Also banging on the leverage model:] With lots of leverage, there’s absolutely no incentive to mentor associates, which means that the people doing the work are unqualified.
- No billable hours, ever: Not just in not charging clients by the hour, but people inside the firm don’t even know what their hours are.
- Zero origination credits; every client is a client of the firm.
- We use technology to give lawyers their lives back; it’s all about what work you do. We put zero value on face time, zero.
- No meetings in our firm: Ever.
- Law school is deplorably unhelpful in developing team skills.
- The defining characteristics of leadership are:
- Ambition
- Vision
- Character (those being non-negotiable), and optionally
- Adaptability
- 50% of the characteristics of great leaders are universal; 40% are industry-specific; 10% are firm-specific.
- The new generation of lawyers (Millenials, a/k/a Gen Y) are all about "work/life balance," or trying to have it all.
- Millenials want constant feedback, a highly structured environment (not "sink or swim") and are intolerant of drudgery
- They have far less focus on a long-term career commitment to the firm
- But are at least as smart, and far more worldly (study abroad, living abroad, etc.) than previous generations.
- One technique for dealing with this is simply to wait until 4th or 5th year and then among the survivors begin to instill a sense of learned professionalism, your obligation to colleagues, and your role in and commitment to the firm.
- "Strategy" means being the very best at what you do and not trying to do anything else
- Among other things, this means that if there is no one suitable for partner in any given year, no one will be made partner
- We see absolutely no need for an office outside [our home financial capital]; you can buy an awful lot of air tickets for the price of an office.
- Asia is staggeringly important, but China and India are two very different stories
- In 1987 there were no private practice lawyers in China; now there are 100,000
- The only area in our firm which has absolutely zero budgetary constraints is recruiting
- Our "Chief Talent Officer" is the second most highly-paid non-lawyer in our firm (after the COO/Executive Director) and the third most highly-paid reports to the CTO
- There will be a ground-breaking US/UK merger in the next 5 years; it’s surprising there has not been one already
- Re outsourcing: Why hasn’t there been more of it, is the interesting question, not whether firms will come around at all.
- Corporations, investment banks, ad agencies, etc., are all heavily committed to outsourcing, with no noticeable compromise in quality or responsiveness
- If you want to practice at the very high end of the profession, you must:
- hire absolutely the best
- train and mentor
- be as cost-effective as possible, a nd
- out-source everything that absolutely positively does not have to be done face-to-face with a lawyer in Class A+ downtown real estate
There you have it.
As always, I welcome your thoughts, feedback, enlightened commentary, and slings and arrows. But for once, I’m only the messenger.
