I have just finished an essay, a book chapter, really, for a new book compiled, edited and published by E. Leigh Dance to celebrate the 15th year of her consultancy, ELD International. Leigh is a great friend and industry colleague–she leads the field in designing and executing strategies for growth in international markets for law firms.
I will excerpt my chapter for this blog, as my essay is titled: “Law Firm 4.0 — Considerations for the Global Law Firm in 2020.” Here is the introduction:
We’re at a unique time in history. Global financial analysts are calling what happened in the equity markets in 2008 “unprecedented.” The “2009 Outlook Ahead—U.S. Sector Strategy” by Merrill Lynch (the financial services giant acquired by Bank of America in September 2008) is guarded, but overall, the view is optimistic.
Merrill Lynch identified “three primary investment themes for U.S. equities for 2009:
1. Slowing global growth, and the resulting impact of a stronger U.S. dollar
2. Balance sheet strength of Corporate America–especially in terms of high cash levels, steady cash flow and decreased leverage
3. Increased conservatism — moderation of corporate and consumer spending.
These three themes set the stage for this discussion of “Law Firm 4.0.” They will affect clients of law firms for years to come, and will therefore affect regional, national and global law firm choices.
Rethink and Reimagine the Law Firm Business Model
If you were starting your law firm today, what would you do differently? Most of today’s law firm leaders inherited clients, infrastructure, locations, practices, policies and governance structure, and more from the firm’s previous generations of lawyer leaders. Culture and inertia are powerful forces in law firms, and even de minimis change is resisted by firm stalwarts, from secretaries to partners. So, the most forward-thinking, concerned law firm leaders run into obstacles that make sweeping, top-to-bottom change almost impossible.
Already in this new century, we’ve seen an industry boom quickly dissolve to bust, Wall Street investment banks, Fortune 500 companies and their law firms report record profits, and in 2008, we saw the best brand names in home-building and construction experience revenue decline by 80% or more, the U.S. automotive industry essentially fail and financial services and the storied Wall Street firms go bankrupt or end up in a fire sale. We’ve also witnessed prestigious, old law firms who were so closely tied to these industries fail or struggle to survive with double-digit percentage decreases in lawyers and staff, and much lower revenue and profit.
There is an opportunity for today’s leaders who have the right attributes – vision, courage, accountability, blocking and tackling skills – to rethink the business model for tomorrow’s law firm. There will be another boom and most assuredly, another bust. The lawyers who understand the lessons in today’s turbulence and don’t repeat the folly and sins of the past have the best chance to shape the future that they want.
The December 2008 issue of Harvard Business Review features an article called, “Reinventing your Business Model” by Mark W. Johnson, Clayton M. Christensen and Henning Kagermann. Two statements struck me: “One secret to maintaining a thriving business is recognizing when it needs a fundamental change,” and “Business model innovations have reshaped entire industries and redistributed billions of dollars of value.”
The authors state that, while everyone’s talking about business model innovation, there have been “precious few” innovations in global companies over the last decade that were business model related. They note that a 2008 IBM survey of corporate CEOs reported the need to adapt their business models, and more than two-thirds said “extensive changes are required.” Many are looking at business model innovation “to address permanent shifts in their market landscapes.” So, if our clients are doing it both to survive and thrive, law firms should be doing it, too.
The 2009 Hildebrandt/Citi Private Bank Annual Report Annual Report to the Legal Profession was just released. On page 11 of the Report, the authors say:
The current economic crisis has, of course, put all of this in a very different perspective. Entering an extended period of reduced demand for legal services and with clients more focused than ever on the need to control the overall cost of outside counsel more effectively, law firms face a fundamental challenge to their basic economic model. A recent survey of 2,000 lawyers in the UK found that 69 percent of managing partners and senior partners – and 60 percent of rank-and-file partners – believe that the current economic turmoil will force law firms to make radical changes to their business models.
So, will this economic crunch, falling profits, reducing head count, cutting cost, will it all finally lead to rethinking law firm business models? Or, will law firms continue to hunker down and try to do more with less?
Time will tell. But there is an opportunity for the visionary leader to see a new horizon.