Help for Law Firms Abounds in the Blogosphere
Large law firms are facing one of their worst crises ever. As 2008 draws to a close, layoffs are at an all time high (roughly 1,760 so far) and several prominent law firms, most recently Thacher Profitt & Wood, have met their demise. Fortunately, there's an abundance of advice in the blogosphere on what firms need to do to get back on track. Here's a sampling:
Don't follow in the auto industry's footsteps: A post on The Am Law Daily includes a summary of the Leading Legal Innovation conference organized by the Southern California Innovation Project at the University of Southern California's Gould School of Law, which asked whether law firms, by failing to innovate, might be headed down the same path as the Big 3 automakers. Though many doubted that large institutions like law firms are capable of change, one participant, Professor John Coates (formerly of Wachtell, which he left because he felt that the firm's structure and clients stymied true innovation) offered the idea that law firms might follow the example of big pharmaceutical companies that have created innovative research subsidiaries, often teaming with startup companies.
Don't stick your head in the sand or follow the crowd like the Madoff investors did: Bruce MacEwen at Adam Smith, Esq. implores firms to stop following what others are doing because it's "socially comfortable" and to prevent single dominant practice groups from driving firm strategy, because those practice groups won't be profitable forever. MacEwen draws an analogy with the Madoff situation: Those investors who failed to perform their due diligence on Madoff's investments now find themselves in a deep hole. Likewise, law firms that don't ask hard questions and think critically about their futures may find themselves similarly situated.
Get rid of the Ponzi business model: Securities lawyer Mark Astarita says that BigLaw's Ponzi-like business model of borrowing money to pay bloated associate salaries and partner draws instead of covering these costs through revenue can't work in this recessionary climate. His advice: Get rid of the Ponzi business model and focus on efficiency instead of billing hours.
Time for a new paradigm: Finally, Toby Brown of Three Geeks and a Law Blog (don't let the name turn you away -- this blog has great analysis) says it is time for a new paradigm. But the new model needs to come from firms, not from clients who "are not in a position to dictate law firms' business models." Ultimately, Salazar anticipates that firms will (and must) shift their focus from leverage to profitability which "will shine a bright light on the limitations of the billable hour."
Posted by Carolyn Elefant on December 30, 2008 at 03:10 PM | Permalink
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