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Trending for Law Firms in 2012: What to Expect This Year


Trending for Law Firms in 2012: What to Expect This Year.

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Trending for Law Firms in 2012: What to Expect This Year


United (States) Parcel Service.

Image by matt.hintsa via Flickr

                                                                                      Jerome Kowalski

                                                                                      Kowalski & Associates

                                                                                      January, 2012

 

Thirty items affecting the legal profession that are guaranteed to dominate the headlines in 2012

It is that time of year when you are entitled to know what to expect for this new year.  Accordingly, here is what the hot trends for 2012 will be:

  •  Continuing decline in legal spend on outside counsel.
  • As law firms continue to more efficiently and timely bill for matters and, the trend of law firms whittling away at their inventories (WIP), while not being able to replace that inventory because of the lethal combination of  reduced headcounts and  reduction in the legal spend, lenders to law firms will require more stringent reporting and will in some instances, reduce available credit lines.
  • Deleveraging of work with partners and other senior lawyers billing increased hours and the trend towards the inverted pyramid model continuing.
  • Law firms establishing subsidiaries to engage in services complementary to their services, including e-discovery, document review, legal staffing services, investment advisory services for high net worth clients and the like.
  • Congress, the courts and the judicial conference will make serious progress about modifying e-discovery rules, bringing down their current gravity defying costs as well as dampening down the torrent of spoliation claims and the attendant Herculean tasks companies need to take to avoid these claims.
  • Given weakening retail sales and decreased demand for most commercial real estate, buyers will emerge to take advantage of attractive pricing on some properties, perceiving real value opportunities.  Private equity funds will move in to this arena in a big way.
  • Increased  focus on collaboration, within the law firm, vertically with clients and horizontally with vendors of support services and co-counsel. Extranets will be enhanced and new technologies will emerge to provide greater transparency and real time feedback and collaboration.
  • More paperless offices.  With the bulk of communications now being electronic and the expected decline in timely services from the United States Postal Service likely to increase the trend of communicating electronically, law firms will be incentivized to go completely paperless. Incoming snail mail will be scanned and digitized. The huge cost of storing paper documents will evaporate.
  • Increased use of outside facilities management companies for mail, fax, reproduction, IT, bookkeeping and legal records departments.
  • Law firms will make more investments in technology than in people. The IT hotspots are knowledge management, software to farm information for the purpose of responding to RFP’s, making an AFA proposal, based on prior similar work handled by the firm and for project management purposes.
  • Every lawyer will tuck an IPad under his or her arm and no lawyer will attend a meeting without opening one. Continued development of apps for lawyers will simply make this tool not only essential, but a lawyer not having an IPad at the ready, risks a serious loss of credibility.
  • Tough times often brings out the worst in some folks.  Last year’s small spike in BigLaw partners and even other law firm personnel who engaged in defalcations of client funds will sadly probably continue.  Look for more headlines of such tales.  Law firms will be well served to now tighten controls and checks and balances regarding client finds.
  • There will be periodic announcements by a partner at a BigLaw firm stating “after 25 rewarding and wonderful years with my former firm, I have decided to open a solo practice so that I can work more closely with my clients.”  Sometimes these announcements will be sincere and genuine.  Sometimes these announcements really mean “I’ve been on the job market for almost a year since I was asked to leave my former firm.  I haven’t been able to find a new slot and my firm wants me out right now, so I may as well give this a try.”
  • Virtual law firms, such as Clearspire and Rimon will continue to grow and gain real traction and increased market credibility.

I am quite sure that we have been fairly thorough and inclusive. If you think we left anything off the list, please let us know by commenting below. Similarly, if you think we are wrong about any of the above, post a comment.

It’s going to be a challenging year.  Please fasten your seatbelts, hold on to the handrail and make sure that your arms and legs do not extend outside your car. We are in for an interesting year.

© Jerome Kowalski, January, 2012.  All Rights Reserved.

 Jerry Kowalski, who provides consulting services to law firms, is also a dynamic (and often humorous) speaker on topics of interest to the profession and can be reached at jkowalski@kowalskiassociates.com .

The Coming Invasion of the Body Snatchers: Are Offshore Law Firms Going to Invade the United States?


The Coming Invasion of the Body Snatchers: Are Offshore Law Firms Going to Invade the United States?.

The Coming Invasion of the Body Snatchers: Are Offshore Law Firms Going to Invade the United States?


English: The United States Esperanto: Loko de ...

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                                                                             Jerome Kowalski

                                                                             Kowalski & Associates

                                                                             December, 2011

 

They’re coming.

The coming months and the coming years will mark an increased invasion of foreign based law firms and other providers of legal services into the United States.  They will likely be coming from all corners of the world. And, they will be looking to snatch your business.

First, we have the acknowledged intention of UK based behemoth Herbert Smith (1,500 or so lawyers) to re-open a United States office, after an absence of two decades. The new office, expected to open within the year will be populated by both United States and foreign qualified lawyers. Jonathan Scott, a senior Herbert Smith lawyer announced that the new New York City office focused on dispute resolution, including international arbitration and investigations.  Following the Watergate era admonition to “follow the money,”   the premium fee yielding dispute resolution and internal investigation practices seem extremely likely areas for firms like Herbert Smith (and AmLaw 100 firms) to continue to exploit.  The issue, of course, is that as the supply of high end law firms having the capacity to deliver quality dispute resolution work and internal investigations on a global scale and the competition for this work  continues to grow, price competition will ineluctably come in to play.

The British invasion is not new, nor will it end soon. British Magic Circle firms have invaded and have taken an increasingly dominant role in the US market for almost two decades.  London, which seems hell bent on being the Imperial home for the lawyers to the world, has already sent formidable firms here, including Clifford Chance, Linklaters, Allen & Overy, Freshfield, and Lovell Hogan. The last British invasion on these shores began with the Beatles in 1963 and last I heard, Mick Jagger and Paul McCartney are still playing to sell out audiences. The point is that, based on my count, fewer than 20 of the UK’s 100 largest law firms have taken to the US stage at this writing.

As the market in the Euro Zone continues to stagnate, law firms in that market will likely look to the American market as new sources for revenue. One recent example is Ireland’s A&L Goodbody, which long had a single lawyer outpost in New York, announced just yesterday ambitious plans to open a Silicon valley branch and reinvigorate its New York operations.   The Germans may not be far behind.

From the other side of the globe, the real game changer may well be the announced merger of   China’s King & Wood and Australia’s Mallesons Stephen Jaques. As announced in The Asian Lawyer , “[t]he combined firm will number some 1,800 lawyers, and is positioning itself clearly as an alternative in the region to the large U.S. and U.K. firms that have traditionally dominated major cross-border deals.”  It matters little if the combined entity will soon open a US office (although my raw guess is that they eventually will), the combined firm will be competing directly with both AmLaw 100 and Golden Circle firms for core cross border work.

As I previously observed,  “the profession must be mindful of the Chinese business model, which seems to be the Chinese asking foreigners to come to China and perform a service or build a product, followed by the Chinese saying “let me see how you do that.” That in turn is followed by “teach us how to do that,” and ultimately “okay, we now know how to do that on our own, so you can leave and we will do so on our own.’”

The West has not only taught Chinese law firms how to practice law in the Western style, but, the West has also taught the Chinese to operate globally and on the global expanse. Indeed, the two largest law firms in China, Dacheng and Yingke, are preparing to open bases in London. The United States will not be far behind.   Broad & Bright, one of China’s leading law firms with 60 lawyers,  is set on moving to the West.  It is now in merger talks with 2,900 lawyer Clifford Chance.    Since you have by now read the Broad & Bright web site through the link above, you know that Broad & Bright has acted as counsel in China for some of the world’s largest corporations and on its surface, does not need Clifford Chance to funnel more work to its offices. Broad & Bright is one of those rare firms that can easily be a net exporter of legal services. Thus, should the Clifford Chance talks fail, it would not come as much of a surprise that Broad & Bright (or a similar sized and placed Chinese law firm will simply say “okay, we now know how to do this on our own and we don’t need a Western law firm to open our own international law firm.”

LPO’s, sometimes called “non-traditional law firms”  have watched their gross revenues increase almost ten-fold over the last five years, to an estimated $2,500,000,000 in 2012 with some estimating a doubling of that number by 2015.  As I have said in the past, it is a major mistake to simply think of LPO’s as limited resource providers of ancillary services to law firms and corporate legal departments. Rather, they are alternate providers of legal services, which can provide a full range of legal services to United States consumers of legal services at an enormous price advantage. The only areas in which these entities are precluded from competing directly with United States law firms are appearing in judicial proceedings, signing legal opinion letters or otherwise directly providing advice to a corporation on American law.  A number of LPO’s, particularly on the Indian sub-continent, have affiliations of one form or another with Indian law firms.

The thin barrier preventing LPO’s from grabbing even more slices of the legal spend pie will easily evaporate.   There are a variety of different means for those affiliates to establish or acquire a United States law firm.  Thus, an LPO could easily establish a very real law firm branch office in the United States, populated by US duly qualified lawyers which in term could make eviscerate the thin boundary which would give these offshore entities the ability to offer the full array of legal services – including appearing in judicial proceedings,  signing legal opinions and direct counseling,

LPO’s, owned by offshore entities and owned by either US investors or by US law firms are sprouting United States branch offices like weeds. Those US branch offices already have the infrastructure in place to function as full service law firms, often with technology already in place that is complete state of the art. And there are many a small or medium sized law firm that would presumably welcome the capital and assured revenue stream from a successful well capitalized offshore LPO to buttress its own sagging fortunes.

In 2011, United States law firms met the challenges of reduced legal spends and new competition through reducing headcounts,  merging to create more critical mass and consolidating back office and support funtions, or by shutting their doors. Professor Steve Harper avers that in 2011 there were a total of 43 law firm mergers. Those shutting their doors, often with disastrous consequence to the firm’s individual partners, include the splashy Howrey implosion, Florida based Yoss, LLP as well as Ruden McCloskey (which didn’t quite go down without a fight) , New York’s Snow Becker and Krause, Atlanta based Shapiro Fussell Wedge & Martin, Los Angeles based Silver & Freedman, Denver based Isaacson Rosenbaum,  foreclosure mills Steven Baum and David Stern and150 lawyer Austin based Clark Thomas & Winters.  And there are more than a few commentators who suggest that  Arnold & Porter’s acquisition of the remnants of Los Angeles based Howard Rice and Bryan Cave’s acquisition of Denver based rapidly shrinking Robert Holme & Owen largely staved off the closures of the acquired firms.  A similar suggestion arguably applies to McKenna long’s “acquisition” of Luce Forward, with the former plainly planning on doing a material house cleaning of the latter.

Well then, Ollie, that’s a fine mess we’re in.

Despite admonitions concerning the imprudence of predicting the future by such luminaries as John Kenneth Gailbraith (“the only purpose served in making predictions about the future is to lend credibility to astrology”) and Yogi Berra (“the future is hard to predict because it hasn’t happened yet”), I tremulously suggest that we are certainly likely to see the following over the coming months:

  • Continued merging of middle market law firms to create larger regional or super regional law firms.
  • Further reducing headcount and support staff.
  • Acquisitions by foreign law firms or alternative providers of domestic US based law firms.
  • Some US law firms meeting the invasion of foreign law firms and alternative legal service providers by counter-attacks, landing branches on foreign shores, despite the known risks attendant to that approach.
  • Enhanced collaboration, both vertically between the law firm and its important institutional clients, as well as horizontally with alternative providers of legal services as well as with law firms to which the client may have downsourced work to.
  • Increased price competition for premium work as well as increased commoditization of other lines of work.

We are in for some challenging times.  Most well managed law firms will continue to survive and thrive. Some law firms will inevitably appear on lists published next December of law firms that sadly didn’t make it.

© Jerome Kowalski, December, 2011.  All Rights Reserved.

 Jerry Kowalski, who provides consulting services to law firms, is also a dynamic (and often humorous) speaker on topics of interest to the profession and can be reached at jkowalski@kowalskiassociates.com .

Much Ado About Nothing: The ABA’s Ideas About Admitting Nonlawyers to Law Firm Partnerships; “Alternative Law Practice Structures”


Much Ado About Nothing: The ABA’s Ideas About Admitting Nonlawyers to Law Firm Partnerships; “Alternative Law Practice Structures”.

Much Ado About Nothing: The ABA’s Ideas About Admitting Nonlawyers to Law Firm Partnerships; “Alternative Law Practice Structures”


The Washington D.C. office of the American Bar...

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                                                                             Jerome Kowalski

                                                                             Kowalski & Associates

                                                                             December, 2011

The American Bar Association’s Commission on Ethics 20/20 just released its long awaited “Discussion Paper on Alternative Law Practice Structures.”  The report immediately brought to mind  Judge Posner’s recent decision in which he bench slapped a lawyer in a written and illustrated opinion by comparing him to an ostrich for ignoring an obvious case which the court felt controlled in the matter sub judice. My take is that the Commission simply ignored facts already on the ground and, more significantly, completely sidestepped the more urgent question, namely whether the United States would follow the lead of the United Kingdom and permit non lawyer ownership and equity investments in law firms. Our cousins across the pond call this model “Alternative Business Structures” or sometimes the “Tesco” model (the latter based on the ubiquitous retailer of that name).

The essence of the Commission’s report, predicated on the notion that lawyers in the United States some current ethical strictures relaxed so that they can effectively compete on the global stage, mandate the following changes which would permit nonlawyers to hold equity in a law firm, subject to the following strictures:

 such law firms would be restricted to providing legal services;

 nonlawyer owners would have to be active in the firm, providing services that support the delivery of legal services by the lawyers (i.e., the firm cannot be a multidisciplinary practice);

 nonlawyer ownership and voting interests would be restricted by a percentage cap sufficient to ensure that lawyers retain control of the firm;

 nonlawyer owners would be required to agree in writing to conduct themselves in a manner consistent with the Rules of Professional Conduct for lawyers; and

 lawyer owners would be responsible for both ensuring that the nonlawyer owners in their firm were of good character and supervising the nonlawyers in regard to compliance with the Rules of Professional Conduct.

These recommendations are, frankly, superfluous and add nothing to the current marketplace. . More significantly, market forces and realities have already pushed the envelope way beyond the Commission’s shortsighted vision.

For example, the Commission noted that many proponents argued that in order to attract the highest quality management and support staff that today’s legal market demands, law firms should have the opportunity to provide these personnel with an equity kicker. But, the fact is that the market long successfully dealt with this issue by simply paying top quality nonlawyer support personnel partner level compensation and bonuses. Famed comedian Jackie Mason does a great riff on how some people just want to be called partners for bragging rights, but the fact is that as Jerry McGuire said, “just show me the money.” And as we well know, law firm partners are nothing more or less than employees at will.

Second, the purported extant strictures limiting the services a law firm can offer to the delivery of legal services have long been ignored and circumvented through the creation of law firm subsidiaries that offer a plethora of services, some not even law related.

Moreover, substantial nonlawyer control currently exists in that many law firms are rather tightly controlled by their lenders.  It is often said that Citibank owns more law firms in the world than anybody. And banks can exercise the ultimate control:  they can force a law firm to shut its doors.

The final piece of what is to me plain silliness are the peculiar requirements that nonlawyer partners need to be vetted to be assured that they have the character and fitness required for bar admission and their conduct must be monitored by lawyer partners to assure that they are in full compliance with the Rules of Professional Responsibility.  Who is going to do this vetting?  And should a nonlawyer partner violate one of the Rules, who is going to be subject to discipline?  As I said before, top notch professionals just want to be “shown the money” and treated with professionalism and respect.  Having a business card that contains the word “partner” is no assurance of financial reward, job security or being treated with respect or dignity.

The tonier topic, is of course private equity investment in law firms.  As for that issue, the Commission blithely said

The Commission has ruled out certain forms of nonlawyer ownership that currently exist in other countries. In particular, the Commission rejected: (a) publicly traded law firms, (b) passive, outside nonlawyer investment or ownership in law firms, and (c) multidisciplinary practices (i.e., law firms that offer both legal and non-legal services separately in a single entity).

But whether you are a believer or a doubter concerning the Alternative Business Structures, it is a topic that demands immediate attention and public debate.  But as with so much else that Commissions do, it simply kicked the can down the road and agreed to continue to study the issue.

As that can goes rolling down the road beyond any visible horizon, the United Kingdom, hell  bent  on being the home base to the world’s great law firms, will take robust advantage of its substantial head start, legal services will be increasingly be provided by nonlawyer owned and unregulated Internet providers of legal services and  offshore LPO’s will continue to take larger market share, again in an environment where they are not owned by lawyers, not regulated and often under insured.

My expectation is that the next step in the evolution of  law firms will largely continue to evolve and form significant joint ventures with non-traditional providers of legal services.

In one of the next belated iterations of the Commission’s discussion papers, the Commission and the bar will arise from its long slumber and look around at a brand new world and perhaps even wonder “how did all of this happen; who was asleep at the switch?”

© Jerome Kowalski, December, 2011.  All Rights Reserved.

 

Jerry Kowalski, who provides consulting services to law firms, is also a dynamic (and often humorous) speaker on topics of interest to the profession and can be reached at jkowalski@kowalskiassociates.com


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