Having discussed the Citi/Hildebrandt annual client advisory, we now turn to the Thomson-Reuters/Georgetown Report on the State of the Legal Market for 2018.
If Citi’s editorial tone tends to be rather celebratory of good news, Thomson-Reuters’ tends in the opposite direction and highlights blind spots or questionable assumptions in the received industry wisdom. Together, I suppose you could say they achieve a realistic mean, but because by nature I view one of the signal cardinal sins in business as that of complacency and (likewise) because I find myself always asking, “What are we missing here?,” this report is much more to my taste.
Certainly, on this approach, its opening does not disappoint.
When faced with mounting evidence that our traditional way of looking at a problem is no longer satisfactory, most people would agree – at least in the abstract – that it makes sense to examine our underlying assumptions with a view toward possibly changing the model we use to think about the issue. Unfortunately, such openness to change frequently runs counter to our natural instincts. As psychologists have now amply demonstrated, we humans have a tendency to search for, interpret, favor, and recall information in a way that confirms our preexisting beliefs or hypotheses – a cognitive tendency that is referred to as confirmation bias. And there is some evidence that this cognitive bias can be especially strong among professionals who have been trained to accept a particular point of view and who have a fear of being regarded as illegitimate by their peers for questioning long-established principles.
They then recount the priceless history of modern medicine’s stalwart refusal to abandon its belief that ulcers were caused by stress and diet and best treated with rest, antacids, and bland food. As we now all know (I think!), in 1982 a pair of Australian physicians, Robin Warren and Barry Marshall, demonstrated the cause was instead a bacterium, H. pylori–a discovery for which they won the Nobel Prize in 2005. Yet many practitioners never wholeheartedly adopted the new reality. (Indeed, Dr. Marshall, in what can only be described as “heroic science,” ultimately drank a beaker laced with H. pylori, developed an ulcer, and self-medicated, effectively, with antibiotics. Skeptics remained.)
This of course recalls Max Planck (1858-1947, and 1918 Nobel physics prize winner for quantum theory), who gave us the timeless observation that “A new scientific truth does not triumph by convincing its opponents and making them see the light, but rather because its opponents eventually die, and a new generation grows up that is familiar with it,” which has been conveniently shortened to “Science advances one funeral at a time.”
Back to the Thomson-Reuters report.
They diagnose the 2018 figures as “somewhat mixed,” with the upside being a modest increase in demand and growth in worked rates (“worked” rates in their parlance are agreed-to rates after application of any upfront discounts), plus a small uptick in productivity, yielding overall average revenue growth of +5.5%. The downside is our by-now-familiar nemesis and companion, dispersion of results among firms: Performance by firms in the AmLaw Second 100 and some others “were well below the market averages, [which] raises the interesting question of why different parts of the market are performing in strikingly different ways.”
Indeed. And after rehearsing their statistical findings, the remainder of the report is devoted to just that topic.
They essay three primary reasons why the traditional and very durable mental construct many of us have of a rising tide lifting all firms is now obsolete:
- The market is more transparent than it ever was, thanks to dramatic growth in trade publication coverage of Law Land, social media, and other sources of analysis.
- Technology; a compulsory entry on this list.
- And the Great Meltdown’s after-effects, including the oft-remarked but no less real for that shift from a seller’s to a buyer’s market. In particular, what clients mean when they say they expect “value” from their law firms has changed. It is no longer (merely) superb legal advice, it’s “higher levels of predictability, efficiency, and cost-effective [delivery,] quality being assumed.”
Finally, clients are taking a more transactional (they don’t use the word “expedient” but next year they might) approach to outside counsel relations in general, including being far more willing to unbundle their work, or disaggregate suppliers (certainly for larger matters) and to move away from their traditional base of outside firms to smaller firms and/or New Law. All this has intensified competition among law firms and has made it clear, lest you had any doubt, that the only way for your firm to grow revenue is to take it away from another firm. While the vast majority of the economy by far is in sectors that long ago became mature enough to evolve into battles for market share, this is a new and potentially mystifying experience for Law Land.
Did we mention that New Law has arrived?