I’m coming to the conclusion that BigLaw is not one business, but two different businesses. Some firms (a minority) are in one business, but most firms are in another business entirely.
Note what I am not saying: I’m not saying some firms have one business model and some another. I’m saying something stronger, that a subset of BigLaw firms are in an entirely different business than the rest.
What’s the difference between different models and different businesses? For me, economics says the difference is whether the product/service delivered by Shirts Firms and by Skins Firms are plausible substitutes for one another.
The defining characteristic of two products or services being widely recognized substitutes for one another is not whether you are indifferent between them or whether you view them as alternatives on a single spectrum of possibilities; that’s a matter of personal taste. Rather, the test is posed to the market overall: The test is whether some meaningful cohort of the buyers of that product/service will switch from one to the other in response to price and quality changes and will be, all in all, equally satisfied with either one “depending.”
If you think outside Law Land to commonplace and familiar substitutes in the economy at large, here are some nominees that I hope will illustrate these points:
- Oil vs. gas heat.
- Uber or Lyft vs. a yellow cab
- Trade paperback vs. e-book.
- Bagels vs. English muffins.
- Milk for your coffee/tea vs. cream.
- Merino wool vs. cashmere.
- Red vs. white wine.
- And of course, a nearly endless litany of brand tradeoffs, at least if one can stipulate no fan-boy loyalty to a particular manufacturer:
- Nike vs. Reebok
- Honda vs. Toyota
- H&M vs. Zara
- Pottery Barn vs. Crate & Barrel
- Crew vs. Lands End
You get the point, which is, again, not that you are indifferent between all these alternatives (I confess I’m still partial to books printed on paper, bound between covers), but that a material cohort of the market is, and will respond to what are perceived as meaningful disparities in price, availability, selection, etc., by switching from one to the other.
So my hypothesis about BigLaw is that we can categorize most firms quite definitively as Shirts Firms or Skins Firms and clients do not view them as tenable substitutes for one another.
Shall I be specific?
Consider the market for clients selecting a firm to represent them in a major M&A or private equity transaction, or a high-profile corporate or securities investigation. The consideration set of law firms (“Shirts Firms”) for such engagements is limited and is anything but coterminous with the consideration set of firms for, say, cost-of-doing business litigation, ordinary-course asset acquisitions and divestitures, roadmaps for complying with new corporate housekeeping regulations, and so forth (“Skins Firms”).
I always hesitate to name names—and I anticipate plenty of “Hey, what about us?” emails—but a suggestive and non-exhaustive list of Shirts firms almost surely includes London’s Magic Circle, the New York white shoe elite, focused powerhouses such as Latham, Gibson Dunn, and Kirkland, and some first or second-generation litigation super boutiques.
Pretty much everyone else? Skins Firms.
So what? Aren’t I saying what we pretty much all knew, even if it makes me nervous to compile lists by name?
Actually, I think in our “Growth Is Dead,” thoroughly post-financial-crisis world it does matter, in the sense that it has implications for leadership and management of firms, and the “Shirts” playbook is going to be unrecognizably different than the “Skins” book—that, among other things, is what it means to be in a different business.
Shirts firms should: Recruit high-profile (and big-ticket) laterals very selectively and strategically for their own purposes, don’t need to worry much if at all about rate pressures and sticker shock, and can continue about the massively wasteful but oh-so-comfortable recruiting of the “best and the brightest” from the Usual Law School Tier 1 Suspects.
Now, this doesn’t mean Shirts firms can ignore project management, pricing discipline, rational labor market arbitrage, distributing work to the most economically sensible source of supply, etc.; it just means that for them ticking all those proper organizational and management boxes shouldn’t be viewed as their primary existential challenge. Recruiting and retaining the best talent to attract the highest profile client matters, to recruit more talent for the challenging work, to serve more high-end client needs with price-inelastic demand; and to pay for it all with an ever-upward trajectory of PPP, arms for the arms’ race they’re in: That’s their existential challenge.
The Skins Firms face a different world and are serving different client needs. As Prof. David Wilkins of Harvard memorably put it, some firms want the bet-the-company work, but others want the run-the-company work. Skins firms are in the business of helping their clients run their companies—an admirable and praiseworthy pursuit if ever there were one.
Not to press an analogy beyond what it will bear, but Shirts firms are trying to write the Great American Novel or compete for a prestigious literary prize; Skins firms are getting the newspapers, magazines, and online publications out with engaging, creative, and truly useful articles every single day. We all understand the romance of aiming high; but what the world spends a lot more time doing, and fundamentally needs in a way it does not need Nobel Prizes, is to stay informed and participate in the dialogue of the commons. Skins firms own the commons.
Skins firms have their own set of business challenges. They need to optimize, streamline, drive costs down and out, continuously improve, make sure highly experienced and commensurately compensated business professionals are running the firm as a business, and prepare to compete Big Time with New Law and, some day on US soil, the Big Four.
These challenges are relentless; think of the global automakers’ long march toward safety. First it was driver and passenger-side airbags and three-point seatbelts, then antilock brakes, then 12 or 16 front/rear/side airbags, lane change alerts, autonomous emergency braking, electronic stability control, backup cameras, collision warnings, crumple zones, black boxes, drowsiness alerts, heads-up displays,…. It will never end, nor should it.
Financial pressures? If the Shirts firms are slaves to the PPP Olympics, the Skins firms have to continuously optimize their processes, drive towards Six Sigma consistency and quality, and do so with severely constrained capital-raising resources, appallingly short-term partner time horizons, and (for now) an inability to offer business professionals equity compensation.
Shirts firms face a small number of critical, but let’s face it, fundamentally familiar, pressures to sustain their businesses. Skins firms face a myriad of unknown, unfamiliar, and unforgiving pressures to achieve baseline survival, much less grow and take market share.
Which then is the worthier pursuit? If your Universal Solvent for any and all challenges is “stand back and let me lawyer this,” you best hope you don’t find yourself in an Skins firm. But, I submit, the story of the Skins Firms will be by far the larger drama of the next five to ten years.
And did I mention it helps to start by knowing which business you’re really in? Hard look, folks.