Tomorrow’s law firm: It’s deja-vu all over again

In response to Bruce MacEwen’s article on future law firms, Overture’s strategy director Mark Brandon argues that a corporate structure is not the way to go.

Bruce MacEwen’s stimulating article in The Lawyer about how you’d build a [big] law firm from the ground-up takes another asymmetric swipe at that annoyingly perennial kudzu – law firm partnership – ahead of The Lawyer’s Business Leadership Summit in London on September 22-23.

It’s a provocative “what if?”, selecting as its “killer point” a zinger, from Janet Stanton, which postulates – as if to answer the underlying question – how many big corporations would choose to convert to the partnership form and model, the answer to which, of course, is none. Therefore corporate must be the best model.

As a device for discussing law firm structural models, the analysis leaves out a few zingers, I think. Let’s examine the device itself to start, before we get to the meat of the argument.

For a kick-off, many founders and CEOs of huge corporates are billionaires, and the chief executives of most large companies, and a handful of their senior officers, are millionaires, all beholden to shareholders. Why on earth would they want to spread the wealth to more officers of the company and give themselves a massive management headache when that wealth, and the power it represents, is already so favourably-concentrated?

Meanwhile, all of the magic circle firms and large US firms (AKA BigLaw) have hundreds and hundreds of partners apiece (with ‘real’ power or not) who are all millionaires. Why on earth would they want to concentrate still more wealth in the hands of a few individuals, including inexpert external shareholders?

Bruce’s point about ownership being a “misleading and mischief-making fiction” is itself misleading and mischief-making. Yes, it’s a headache for managing partners having to navigate what Laura Empson calls the challenge of “ambiguous authority”, but the tenure of partners in top law firms would seem to me to be much longer than senior officers in corporates. Ownership, real or not, gives at least some security of tenure, and when law firms merge, they don’t tend to purge all the partners at the junior party, as routinely happens in corporate mergers.

The point about partners subverting business services professionals will ring true for many a marketing director, but many corporates have gone out of business because of the capricious and wilful desires of a chief exec, or from the wrong-headed analysis of a marketing director, so that doesn’t fly with me either. Business, in control of most of the media, has a great knack of pretending that a lot of what it does and how it organises itself isn’t, in fact, rubbish. How else can you make losses that would sink a small country and routinely haemorrhage and hire staff with all the consistency and predictability of irritable bowel syndrome?

There is an adage, often used in respect of law firm partnership, that turkeys won’t vote for Christmas, but the reason turkeys won’t vote for Christmas is that the arrival of Christmas heralds their doom. If you’re doomed either way, you may as well go down fighting.

But the adage contains one massive assumption: Christmas is coming, like it or not.

For me, it’s an assumption too far for this analysis. I would rather like to ask the question: “Ending partnership, who would this benefit, exactly?”

Obvious answer is “the client”, but really? Why would clients be better off if law firms acted like corporates? Would the client get better service, lower cost, better product?

If you’ve ever bought energy, telecoms or cable TV you’ll know that being a corporate doesn’t guarantee good customer service, while the clients of investment banks or the Big Four are certainly not paying less than they did before those two abandoned traditional partnerships.  Meanwhile there isn’t a shred of evidence nor any reason to think that law firms would deliver better service or products if they were constituted as corporates instead of partnerships.

Everyone talks about “more for less” as if this is somehow a thing – our Chancellor is especially fond of it – but I agree with Paul Gilbert of LBC Wise Counsel, who I think nails this one perfectly. Why on earth should anyone expect more for less? Why should I give you it?

I haven’t noticed every corporate on earth doing it. Rather, I have noticed every corporate on earth charging you as much as they can possibly get away with for everything they do. I think it’s called capitalism?

The idea that outside ownership automatically confers virtue, or makes companies better and more efficient is laughable. You only have to consider that around 75 per cent of M&A fails to deliver shareholder value, or live with the mess of the privatised UK rail network, or the US telecoms industry, to realise that the involvement of private capital is no guarantee of the success of either individual companies or entire industries. Most businesses in any sector fail, 80 per cent in the first five years of their existence if one piece of research is to be believed. Law seems to be doing pretty well.

Would becoming corporates benefit lawyers? Hardly. Corporates are great for your pocket if you’re the chief exec or on the board, but mostly not great for everyone else. Yes, a partner at a Magic Circle firm may earn 20 times what a newly-qualified solicitor earns, but US chief execs in 2012 earned 272 times what an average employee did. Law firms begin to look almost socialist by that measure. I, for one, rather like that.

Meanwhile, external threats to law firm partnership are largely mirages. Accountancy – a worldwide industry smaller than the legal industry and thoroughly dominated by four big players – generates lower average partner profits than law and faces all the same structural headaches multiplied by a factor of about ten.

The other great ‘disruptor’- private equity – would be a tough taskmaster for a cadre of individuals who have difficulty being controlled by their peers, never mind a bunch of profit-obsessed short-term thinkers (oh, wait, hold on a second…). The advent of external equity investment into the legal market works perfectly well for consumer-facing firms, which don’t tend to sell on the expertise of particular individuals, but is a disaster for BigLaw.

If I am a truly brilliant lawyer, capable of earning millions on my own, what otherworldly force is going to persuade me to work for a bunch of private equity oiks or one of the Big Four, in order to earn the same or less and be told what to do by people who aren’t lawyers?

That only leaves us with disintegration of the model, which seems to be the only way to break the strangulation-hold of BigLaw, which I think is the real driver of Bruce’s article.

Disintegration is flattening the flabby middle of the profession, but we’re a long way off being able to process-ise all the difficult bits, even if we ever can. The word I invite you to Google (other search engines are available) is “heuristic”. My dog has better heuristic capability than most so-called heuristic AI at the moment, and he spends a lot of time convinced that his own tail is not part of him.

Partnership may be a painful management model – Bruce MacEwen imagines it as a virus, which “runs amok” in firms – but that somehow intimates that corporates don’t have their own backstabbing snakes or endless layers of troublesome politics. I’ve worked in them all my life, and beg to differ.

One could argue that the mechanism of partnership – flat hierarchy, ambiguous authority, constellations of power (per the Empson analysis) – is uniquely well-suited to an industry which is mostly about slowing things down and progress by the inch rather than Great Leaps Forward.

Bruce’s final point is that hoary chestnut which bedevils marketers: do clients choose the lawyer or the firm. It’s true, just because the top engineer moves from BMW to Audi you’re not going to switch brands (though you may do eventually, if that gives Audi enough of an advantage…) but I think that’s the wrong lense. If my favourite Formula One racing driver moves from Red Bull to Ferrari, my loyalty’s going to follow him. I don’t care about which team it is because they’re essentially driving what appears to be the same car, underneath the advertising slogans.

In law firms, the ‘team’ is, simply, the vehicle for intellectual talent. As a client, my money moves where the brains are. Always has, always will. In BigLaw, excellence will always trump “process”, because process only gets you so far. As with Formula One, even if you have the best driver, you still need the great engineering beneath.

I’ve always found that success itself is rather a good guide to, er, success.

Pulling a dusty directory from my shelf, dated 1990, I can scan through the top law firms in the UK, 25 years ago. Clifford Chance. Linklaters. Freshfields. Allen & Overy. Slaughter and May.

If Amazon, Apple, Facebook, Google and Tesla are all still around in 25 years, I’ll eat the tablet you’re reading this on. Freshfields, it is worth remembering, is older than the United States of America.

The turkeys, it seems, are very much alive, kicking, and whatever they’re rolling in, it ain’t cranberry sauce.

Mark Brandon, strategy director, Overture

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