1. By “globalization” I’m really talking about the spread of multinational corporations. For example, the revenue GE derives from non-US operations crossed the 50% threshold a few years ago; it will never go back. For many industries, including some of the largest in the world, it would never cross anyone’s mind to imagine they’re not global by definition. Such as? How about oil and gas exploration, production, and refining; automobiles; aircraft and airlines; electronics; software; entertainment in all forms and media; sports; and the list goes on and on. It’s almost simpler to talk about industries that are constrained by laws of nature to remain local, which are increasingly limited to those where human beings have to interact in person to create and deliver the service: Restaurants, healthcare, residential construction, retailing.
The point is simply that the dynamics pushing whatever industries can go global to go global are unyielding, and there are no forces operating in the other direction.
2. By complexity I’m simply positing the commonplace observation that regulation, precedent, and financial tools are always being added to but never subtracted from. Dodd-Frank will never be repealed, nor will Sarbanes-Oxley before it, and if Glass Steagall was actually repealed it now stands a good chance of being replaced by the Volcker Rule, 1,000 pages and growing. The cumulative bulk of judicial decisions never shrinks, as more and more finely sliced distinctions can always be added (the US Supreme Court has discovered a difference under the Fourth Amendment’s prohibition on unreasonable searches and seizures between homes and cars), and as scenarios never remotely contemplated by the drafters of constitutions, statutes, and regulations become reality: Does automatically captured GPS tracking data from your smartphone raise issues of “privacy?”
Similarly, financial derivatives (say) will never be “un-invented.”
All of these complex systems exhibit ratchet-like behavior: Their interstices proliferate in only one direction, towards greater and greater complexity, since there are no intrinsically opposing forces, and there is no morbidity in their ranks.
3. Cross-border flows have never been at fuller tide, and speaking of tides the tide of history is running in favor of systematically eroding whatever legacy barriers (language, visa and immigration requirements) remain. Even China’s economic boom cannot stop its most skilled professionals from seeking greater freedom abroad.
Nor is it an accident that the one practice area showing evidence of an increased pulse is intellectual property. Ideas are increasingly important to differentiate and distinguish goods and services when all generic characteristics can be replicated almost anywhere.
Similarly with capital flows: Not only have First World economies become continuously more open, but new capital “trade routes” are opening up between countries and regions where before there were none: Consider the emergence of the Brazil/China/Australia/Africa triangle, for example.
Need I point out that all these trends should bode well for BigLaw? Every single one alone, and all in combination, should create work for us.
But do, or how do, we need to configure ourselves to respond?
Heretofore BigLaw has followed a remarkably homogeneous business model, with the result that even as knowledgeable and informed a follower of our industry as Aric Press has observed more than once that it’s almost impossible to tell the difference among (say) AmLaw 25—75 firms.
This, I predict, will end.
It will end because clients will demand it, and they will vote with their dollars.
As they become increasingly sophisticated and discerning in how they select and purchase legal services, and as the CFO and yes, the purchasing department, increasingly look over the General Counsel’s shoulder, I believe they will push our industry to evolve, at first barely perceptibly but in a rapidly accelerating fashion, towards a different fundamental composition, or ecosystem if you will.
These are species I predict will thrive, or falter, on this new landscape:
- The full-service, national or regional or super-regional, one-size-fits-all, not terribly specialized, generic law firm:
- Endangered and at risk of becoming marginalized.
- Truly global players spanning three or more continents—and as many as six—who deploy a vast, but truly unified, network across virtually all economically meaningful jurisdictions.
- Top of the food chain predators eliminating less fit competitors
- Boutiques exquisitely focused on doing one thing exceptionally well
- Survivors who know their niche in the ecosystem and stay close to it
- “Category killer” specialists who target one broadly needed but perhaps not intrinsically high-value practice area
- Hungry and effective acquirers who will absorb anything on their turf and improve it
Let’s take these in reverse order.
Category killers have vanquished competition in many industries, most famously retail, where firms like Barnes & Noble, Home Depot, Toys ‘R Us, Staples, and Best Buy have come to dominate their “categories.” In some cases there’s room for more than one firm per vertical niche (Home Depot has Lowe’s, and Staples has Office Depot, but Best Buy finished off Circuit City), but regardless of the microstructure of the industry, the point is that one or more firms decided to focus on supplying one highly specific type of good/service and learned how to do it extremely well.
They don’t do everything, but who cares? To the contrary, clients have exhibited a strong and lasting preference for firms that promise to do one thing very well and don’t pretend to do anything else. There’s a rationale behind their success:
- They don’t get distracted;
- They can develop extraordinarily deep expertise;
- Customers can rely on the best selection of “X” being available;
- They can invest in systems, people, and processes specifically tailored to their vertical niche;
- And perhaps most importantly, these firms have staked out an extremely clear identity, so the “brand promise” to their customers is universally understood and strongly articulated.
Now, in Law Land, I would argue that we’re beginning to see the emergence of some category killer firms as well: Think Jackson Lewis, Littler Mendelson, and Ogletree Deakins for employment, for example.
Also note: Once one or more firms begins to establish a powerful beachhead in category X, it becomes increasingly difficult, uneconomic, and unattractive, for other firms to offer X. They can’t do it with as much expertise, or with as broad geographic coverage, or for the price of the category dominant firms. Note the last point: This may be the “secret sauce” to their success. I couldn’t even hazard a guess how many times I’ve heard a law firm say, “we used to do employment law, but we just couldn’t continue to do it for the rates the market demands.”
Tough for other law firms, great for clients. QED.
One final parenthetical, just for thoroughness, before leaving this topic: There is, as yet, no equivalent in Law Land to the threat that online retailing poses to these brick and mortar firms. But all of them, Best Buy and Barnes & Noble perhaps most urgently, have to figure out a credible and durable response.