It has been suggested that, by diluting core expertise, large US law firms will harm their own brands. Tom Carey looks at why offshore firms might need to think along similar lines
In emulation of their onshore cousins, the leading offshore firms have been expanding inter-nationally over the past 15 years. Onshore the credit crunch has put unprecedented stress on large law firms and as a result there have been dissolutions, capital calls on partners and widespread redundancies. In-house lawyers are under pressure to reduce the size of their teams, to spend less on external advice and to find ways of coping with more (and riskier) legal compliance work.
In a recent paper, ’The Death of Big Law’, Larry Ribstein, a law professor at the University of Illinois, argued that the business model of the large US law firm (ie increasing the leverage of offices and lawyers and the diversification of practice areas) is failing and needs fundamental restructuring. In his view the large law firm of the future will own a core of durable firm-specific property, will be able to secure non-lawyer financing and will have a legal structure suitable to its business model. For him the future may see the rise of firms that deliver a mix of legal and other services or “boutique” firms that focus on specific areas of practice. He would be in agreement with Richard Susskind, who in his book The End of Lawyers? predicts that those firms which are willing to embrace emerging technologies and novel ways of sourcing legal work will prosper.
The conundrum for Ribstein is that a firm’s efforts to capitalise on its reputation by growing and diversifying can sow the seeds of its demise. Firms are tempted to leverage their reputations across more lawyers, more offices and different types of practice.
However, as he points out, the more a firm leverages its reputation, the harder it is for the firm to undertake sufficient monitoring to maintain the value of that reputation.
Offshore firms by contrast are not generally looking to broaden the number of practice areas they can offer when expanding. Many, if not all, specialise in financial services and the reason for expansion is to extend their specialisation into competitor jurisdictions, where they can add value through their experience or to make themselves more accessible to the international financial centres they service.
The desire to expand the provision of specialist legal services often goes hand-in-hand with the needs of a firm’s administration business. The establishment of one will more often than not finance the other.
Packaging the product
Both Ribstein and Susskind see the future of law as the delivery of legal services through IT, and Ribstein goes as far as to suggest that legal products should be protected by IP law. For Susskind, legal services will evolve from bespoke services through the stages of standardisation, systematisation, packaging and commoditisation.
To a certain extent offshore firms have recognised the need to produce a packaged product. By way of example, it is a brave offshore funds lawyer who believes they still provide a wholly bespoke service for which they can charge a premium. Their clients and competitors will tell them otherwise. Much of the offshore legal product can be, and is, packaged. Even the fund formation process can be commoditised. I am told by my IT director that we have the technology.
Rules and regulations
The UK and Australia have liberalised the regulation of the owning and financing of law firms. Slater & Gordon proved that it was possible to make a successful public offering. This ability to raise outside finance, coupled with the possibility for multidisciplinary practices or non-lawyer managers, is one of the key structural changes that Ribstein sees as saving ‘Big Law’.
Currently the regulation in many offshore jurisdictions prevents firms from being owned and financed by non-lawyers. Certain offshore law firms are able to finance their operations through their administration businesses, and so presently there is no real call for a liberalisation of the rules.
However, we may see a change in view from those offshore firms that have divested themselves of their administration businesses.
In addition, firms have also been happy to put non-lawyers on management boards, although it is often difficult to persuade lawyers that they are capable of being managed by those with non-legal backgrounds.
Offshore firms are also different from ’Big Law’ in the reasons for their diversification. One might argue that an offering of legal and corporate services coupled with the specialisation in financial services meets the vision of the future law firm that Ribstein proposes.
However, offshore lawyers should not be complacent. New technologies should be embraced and alternative structures and methods of financing considered.
As to the future, it is with good reason that Maples and Calder opened in Ireland. But that is a subject for another article.
Tom Carey is an advocate at Carey Olsen