If you believe Legal
Week, the waters are already choppy and will become
downright stormy for tech-centric California-based
firms, particularly the two remaining powerhouses of Silicon
Valley, Wilson-Sonsini and Cooley-Godward.
to other late, great tech-centric firms, Venture Law
Group was obviously absorbed into Heller-Ehrman as VLG’s "you
can pay us with equity" model hit a brick wall, and Gray-Cary joined
up with Piper-Rudnick, while Testa-Hurwitz dissolved for essentially sui
generis reasons having to do with a failure of succession
planning, and the biggest of them all, Brobeck, got its capital
structure famously and wildly over-leveraged. Of these
four high-profile endings, only Gray-Cary’s, I would argue,
is an example of a firm deciding it needs to be bigger and
more diversified per se.]
Essentially, the article posits what is almost becoming received
wisdom, namely that:
- Global firms, or at least seriously-national firms, will emerge
at the top of the competitive food chain; - A California firm without a serious New York City presence
is compromised when it comes to the most sophisticated work (as
is a New York firm with no meaningful California footprint);
and that - Unlike with Wall Street valuations, where a focused company
commands a premium and conglomerates are so very yesterday, law
firms need a diversified mix of practices to "motor through"
the economic cycle.
Mark Levie, transactions group managing director for Orrick, puts
it bluntly:
"Firms
need a diverse mix of practices and operations in the financial
centres in order to have stronger profits year-on-year. Marquee
deals are fantastic but firms need a steady flow of work.”
But wait? Why can’t one have both a "steady flow of work"
and "marquee deals?"
The reason appears to be self-reinforcing, if not tautological: Focused,
medium-sized firms are in a disequilibrium position simply
because "The
momentum is clearly going in the direction of the nationals." In
other words, the market dynamics have changed because everyone agrees
the market dynamics have changed.
(And did you say "medium-sized" firms were threatened?! According
to the most recent AmLaw 100, Wilson-Sonsini was #46.)
To be sure, there’s probably more to it than that: F1000
clients are by and large pruning the length of their favored "panel-member"
firms, the legal profession’s geographic footprint should approximately
follow that of its core clientele (and we know what that means
given increasing globalization of you-name-it), and to the extent
that savvy firms are beginning to truly adopt techniques such as
knowledge management and customer relationship management, they
may actually be bonding more tightly to their clients.
On
the other hand, markets are far from immune to the pack mentality. As
no less than John Maynard Keynes, himself a crack investor who
died quite wealthy, once observed about the stock market: "Unlike
a beauty contest, the investor’s objective is not to pick the prettiest
girl; it’s to pick the girl that most of the other judges will
pick."
I remain convinced that, as evolution has taught us, there are
many roads to success as a species. Just because Cisco is
down 75% from its all-time high five years ago this very day (and,
at that moment, the single most valuable company in the U.S.
in terms of market cap) does not mean the Internet is over. In
fact, by comparison, Wilson-Sonsini and Cooley have scarcely skipped
a beat; there could be life in the know-your-niche model yet.
