“Change is the law of life. And those who look only to the past or present are certain to miss the future.” — John F. Kennedy
If you think the legal services industry has evolved radically in the past decade, get a grip. The next decade will be turbocharged with change. The law market is getting tighter, tougher and more fractured as competition in various forms continues to enter the field. For lawyers, times to come are apt to be turbulent, confusing and distressing. The key to survival: Be flexible.
While 2019 was a good financial year for many legal services providers — traditional law firms in particular — smart firms are embracing change, whether in their individual markets and practices or the economy as a whole. But, before change can be managed and accepted, you must reach consensus on where you are now. That’s the focus of Part 1 of this article.
Four “First Principles” of Law Market Change
In engineering parlance, change is based on “first principles.” For this discussion, I propose the following four:
- Clients Call the Shots
- More Major Leagues
- Structural Shifts
- Advancing Technology
Agreement on first principles allows you to move forward with the work of managing change, which we’ll cover in Part 2.
Principle 1: Clients Call the Shots
Regardless of how you as a lawyer function within your practice, your clients call the shots. This is a 180-degree turn from when clients who asked a “learned lawyer” for advice were provided with an overthought and sometimes overwrought response, usually conveyed in legalese with a convoluted invoice to match.
Today’s clients want clear answers and transparent invoices quickly. In B2B situations, in-house counsel must answer to and appease CEOs and CFOs who, by virtue of controlling the money, are apt to be decision-makers or influencers on who does their company’s legal work. Many in-house teams are bulking up and cutting back on their outside spend to control costs.
Clients, from individuals to the corporate crowd, now have the ability to spread around their work to a range of service providers. Those include professional services firms (the Big Four), traditional law firms of all sizes, law companies, legal tech enablers, and even online self-service providers and chatbots.
Typical clients are becoming younger. Decision-makers are in their mid-40s to mid-60s, operating in a 24-hour global economy backed by a flexible, diverse workforce. This results in clients and customers who want what they want, who they want, when they want, delivered as they want, and at a cost they want.
Principle 2: More Major Leagues
New players have come on the scene in the past 10 years and even more will flood the legal industry in the decade to come. In addition to new players, the leagues they play in have changed drastically and will continue to do so. Among the current configuration of major leagues are those that will continue to affect all others:
- The Big Four
- Global Law
- Big Law
- Law Companies
Big Four. If as a smaller firm you think the Big Four won’t affect you, think again. The Big Four have massive infrastructures, enormous war chests and humongous appetites. Expect them to take bites out of global law firms, which will take bites out of national law firms, which will take bites out of regional law firms and so on.
I witnessed this firsthand as marketing counsel to Donahue LLP, which operated from 1997 to 2003 within EY as Canada’s first and so far only Big Four multidisciplinary (MDP) business law firm. As a pioneer working within the MDP model, I can tell you that it works and clients love it. Twenty years ago, it was ahead of its time and a regulatory nightmare, but now Big Four MDPs are coming into their own in the global marketplace and will be voracious competitors throughout the next decade.
Each offers a range of professional services that can include finance, legal and consulting. This one-stop-shop platform makes working with them easy. They also usually have a relationship with a client company’s CFO and CEO, which means they have an advantage when decisions are made about hiring outside legal counsel.
And they’re bulking up. As of this year, Deloitte has 2,400 “legal people” located in more than 80 countries; KPMG has ambitions to have 3,000 lawyers working in its global legal services unit within the next few years; PwC’s lawyer headcount stands at over 3,500 working in 90 countries and providing immigration legal services in 116 countries; and, EY has 3,500 law professionals offering legal operations consulting, managed services, and technology in addition to legal advisory services where permitted within the 80-plus jurisdictions.
Chris Price, CEO of EY Riverview Law, said this year, “We’re spending $2 billion on client-based technology in the next 18 months. That’s kind of difficult to compete against.”
Global law. Some of the world’s international law firms are preparing for greater global competition by focusing on retaining top talent, creating stronger teams, investing in better tools and scaling up in size. One of these firms, Dentons, has been on a growth tear. According to Dentons’ thinking, “The U.S. is the largest legal market in the world, yet U.S. law firms are disproportionately small relative to the size of the market.”
In response, Dentons has created a plan for the U.S. market called “Golden Spike,” in honor of a railroad spike that completed the first transcontinental railroad 150 years ago. The first step in the plan, a merger with Bingham Greenebaum and Cohen & Grigsby, was announced last October. When complete in 2020, the combination will add 33 U.S. offices with coverage in nine of the 10 largest markets and 14 of the top 20. Dentons is projected to swell to more than 10,000 lawyers in 181 locations and 73 countries.
Big Law. Appetites of firms like Dentons are spurring mergers among firms that have a national presence but not necessarily a global footprint. This is happening now in the U.S. Among the most recent firms to announce their merger are Atlanta-based Troutman Sanders and Pepper Hamilton, headquartered in Philadelphia. When the merger is completed in April, Troutman Pepper will have 1,100 attorneys in 23 offices. Plans are also in the works to combine Faegre Baker Daniels, based in Minneapolis, and Philadelphia-based Drinker Biddle & Reath. When this merger is final in February, Faegre Drinker will have more than 1,300 attorneys and consultants in 22 offices across the U.S. and in China and the U.K. If both mergers are successful, there will be two new entrants to American Lawyer’s list of 50 top law firms. Observers expect these mergers to continue.
Law companies. In the next decade, law companies, widely referred to as alternative legal services providers (ALSPs), such as Axiom and UnitedLex, will be relieved of that also-ran moniker. The law company market is evolving with such speed that clients consider all forms of legal services providers, from traditional to new, as easy alternatives to each other. Clients who have tended to hire traditional law firms are using law companies more than ever and are projected to continue doing so.
A recent study, “Alternative Legal Brand Index and Market Trends 2019,” conducted by the University of Oxford, Georgetown Law School, Acritas and the SAID Business School, found that:
- 55% more businesses are using ALSPs than in 2014.
- Average spending with ALSPs has risen by 10% over the last five years.
- ALSPs capture more market share — their share of legal spend jumps by 80%.
- About 52% of corporate Canada either already uses alternative providers for litigation support or will do so within the next five years.
The findings, based on surveys of U.S., Canadian and U.K. corporations, found that revenue for ALSPs is growing rapidly and their use in litigation support, research, e-discovery and document review has already surpassed projections for 2021.
Principle 3: Structural Shifts
Structural shifting is a factor that, along with law firm mergers and failures, is changing the complexion of the legal marketplace and enabling clients to have more choice in who does their work and how it gets done.
- In the next decade, expect that more law firms in North America will be both owned and run by people who are not lawyers, including those where the CEO is a business-driven, people-responsive leader, but not a lawyer. Regulators in Australia and the U.K. have begun to relax restrictions on who can deliver legal services, while a few states in the U.S. and jurisdictions in Canada have been pushing for regulatory change.
- The pyramid structure of traditional law firms will continue to erode. Lawyers who previously may have waited for an invitation to join the partnership ranks are leaving to pursue careers that may or may not involve the practice of law. Some are deploying their legal knowledge and experience to forge new legal services delivery systems and products.
- Clients are more self-serving than ever. As a result, many legal services are starting to be productized and will be more commoditized — for example, obtaining and reviewing nondisclosure agreements. Specialists will still be needed for the truly complex, bet-the-farm undertakings. But their services and delivery methods will be entirely customized and very expensive.
Principle 4: Advancing Technology
Technology is providing new, better, faster tools that help legal services get to market with more reliability, consistency and greater speed. Advancements in technology can be expected to create stresses and job losses, but will also enable new opportunities. Mostly, tech and its tools will be a client expectation.
In the end, it all boils down to change management strategies with supporting tactics that enable growth.
Read Part 2, where we’ll look at change management strategies that work well for today’s law firms and law companies, regardless of operational structure.
“The Next Decade of Legal Services, Pt. 2: Managing Law Market Change” by Heather Suttie
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