Business is Great for Big Law. Wait… (Perspective)

Editor’s Note: The author of this post chaired a major law firm for 15 years.

Life is good, apparently.

As written here July 7, Citi released its quarterly survey measuring law firm leaders’ confidence in the business of law. Leaders from over half of the AmLaw 200 responded with an unusually rosy outlook on business prospects. They expressed confidence that demand for legal services would increase, hiring would pick up and, most interestingly, pressure on pricing would abate. While hardly a return to pre-Great Recession optimism, it was the most optimistic outlook since 2007.

Happy days, right? Certainly, overall economic conditions for business — while quite unsettled — are hardly dire (particularly in the US). In addition, the industry has come off of a couple of solid— if unspectacular — years. Those factors, on their face, could well lead to a belief that in industry is in for another uptick.

Not so fast. A legion of surveys of in-house counsel tell a different tale than the Citi results. The most recent is Deloitte’s “Future Trends for Legal Services,” released in June. The report confirms at least one part of the Citi survey: demand is growing. (Or at least it is growing in regulatory compliance, M&A, and litigation.)

Yet those findings don’t necessarily foretell increased demand for Big Law services. The Deloitte survey also reports that corporate counsel are more consistently revisiting and changing their legal providers. Rather than defaulting to more traditional methods of counsel selection, general counsel are increasingly looking for combinations of technology, incumbent law firms and alternative service providers to add value and complement the in-house team. When asked, for example, whether they could imagine a future where they would be “happy” to buy legal services from a non-traditional law firm entity, more than half of GCs said yes. Only 24 percent said they would not consider such a choice.

If Deloitte — and other similar surveys — are to be believed, the notion that pressure on Big Law margins will dissipate is misplaced. Rather, firms must increase profitability by finding better ways to add value for clients. A default mindset to simply charge more for the same services is unacceptable.

Time to go outside the four walls of the firm

Examples of how firms are looking to beyond the default mindset to add value can be found in a couple of recent articles by Bloomberg’s Gabe Friedman. In those articles, Friedman reports on two combinations created in response to new regulations regarding over-the-counter derivatives: Axiom with Ashurst and Allen & Overy with Deloitte. In slightly different ways, both ventures attempt to meet the challenge reflected in the Deloitte survey by combining traditional firms, non-traditional service providers and technology.

The use of sophisticated technology in these instances stands out. In both cases, the parties claim to have developed software automation tools that increase the speed of processing and, presumably, reduces the number of humans necessary to handle the matters. So apparently robots are coming for jobs in the legal sector.

The impact of automation on the industry is likely to be dramatic over the coming years. At the moment, however, what is particularly interesting about these ventures is the apparent mindset of the entities involved. These UK firms demonstrate a willingness to explore non-traditional ways to add value to clients by going outside their four walls.

Openness to new ways of doing things — particularly if they involve so-called “non-lawyers”— is not a common trait in Big Law. For the alternative service providers, these collaborations reveal a recognition that traditional law firms can add value to client services. For all involved, they reflect a recognition of the role of technology in the delivery of legal services.

The new “new normal”

Whether or not these ventures produce the desired financial results remains to be seen. Nevertheless, this mindset is increasingly important for Big Law firms. If the Citi report reflects a “back to normal” mindset, then I believe a large percentage of those firms will be disappointed. There are a few elite law firms and elite practices that add unique value to clients and can rely on the traditional model (for a while). Kudos to them.

Most Big Law firms are not in the category, however. The Allen & Overy model is not for everyone, but the willingness to consider changing or evolving business models in order to adapt to changing buyer needs is a mindset most Big Law firms need to adopt. For an example of the possibilities, just look across the pond.

For more essays from Stephen Poor (@stephen_poor) and Seyfarth on change in the legal industry, visit Rethink the Practice.