By J. Stephen Poor, Chair Emeritus, Seyfarth Shaw LLP
This year’s AmLaw 100 results have been published and the story told is much the same as in the past few years. Overall, the industry continues to grow — albeit at a slower pace. As in prior years, growth is not uniform. Rather, the results are decidedly mixed for firms within the survey. In short, volatility continues to increase in a traditionally non-volatile industry.
None of this is particularly surprising. Over the past few decades, Big Law has become an industry. Perhaps an industry that clings to a guild-like veneer, but an industry nonetheless. As such, it has become increasingly susceptible to traditional market forces. These forces have been the subject of numerous commentaries: the shift in demand, the impact of technology, the rise of alternative service providers, industry consolidation and on and on. The legal industry may be more resistant to these forces than other industries but it is not impervious to them. Thus, we slowly see the inevitable results.
One of the striking things about the report is the continued trend toward stratification in the industry. Specifically, this year’s report shows the continued acceleration of the gap between the so-called “Super Rich” firms and the rest of the AmLaw 100. AmLaw puts 24 firms in the “Super Rich” category. While I might argue that the group is actually smaller, nevertheless, it is clear that there is a handful of firms that are less susceptible to the gravitational pull generated by market forces.
Success and the ‘Artisan Lawyer’
While not completely immune from the market forces, this handful of firms continues to pull away from the rest of the industry methodically year after year. Size is not the determining variable. There are certainly very large firms in this group — yet there are the same size or larger firms in the lagging industry. None are the result of large mergers. Some have material international presences and some do not. What is consistent is the fact that this group of firms — through history, reputation, skill, strategy, and other factors — has managed to maintain the role of artisan lawyers. They reflect what is left of the guild-like characteristics that used to cover most of the AmLaw 100. Their financial results reflect the value the market places on this service.
Given this stratification, AmLaw asks the question: “Can firms in the Am Law 51-100 keep from falling further behind?” The answer to this question seems pretty simple to me: absolutely not.
In fact, the answer seems so obvious that I would argue that it is not even the right question. This break from the pack has been obvious for years. The gap is not the result of marketing or image. It is a result of earned market positioning over years in an industry where the amount of true artisan work continues to narrow. Every firm wants to believe that they can be a member of this guild. They cannot. Chasing that ephemeral goal will only cause misguided business decisions. Market forces may, over time, cause some of the leading firms to fall back to the pack. The pack, however, is not going to catch up. Indeed, it is more likely that the industry will continue to stratify into smaller groups of firms — a set of smaller bubbles, if you will, rather than one large pack.
Instead, the question for the firms in the 30-100 range is not how to catch the leaders but is how to survive and continue to grow in a challenging business environment. How does one break into the next, albeit financially lagging, group behind the guild? (Remember, there remain tremendous financial rewards even for firms that lag behind the “Super Rich.”)
A Different Strategy
Some observe that differentiation is the answer. Indeed, the failure to differentiate one’s firm from others will, in the long term, cause significant business challenges. The ability to answer the question as to why a buyer should use your services is certainly a key need.
Of course, convincing the market that you are different will certainly help in the short run. Buyers of services are susceptible to marketing like any other industry. In the long run, however, it is what the consumer of services experiences that determines whether they continue to use a firm’s services. If the experience does not add value, then it becomes a decision based solely on cost. Increasingly, buyers of legal services are looking for a different experience.
Actually being different, therefore, is what is needed to survive in the long run. Technology innovation, demographic changes in the workforce, and the shift in demand are among the forces that should drive firms to ask more fundamental questions about their business model. While challenges, they also present opportunities for firms bold enough to grab them. The ability to use these forces to rethink and redesign service delivery mechanisms to add value to buyers will be the marker that, over time, will distinguish the next group of firms that break from the pack.
For more essays from Stephen Poor (@stephen_poor) and Seyfarth on change in the legal industry, visit Rethink the Practice.