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Recession May Be Kryptonite for BigLaw
Today's prediction of the end of BigLaw (and in the past few months there have been many) comes from Douglas McCollam in the op-ed pages of The Wall Street Journal. McCollam summarizes the evidence of demise -- declining profits for partners and the massive layoffs -- and notes that in contrast to days of yore when lawyers found a way to make money in boom times or bust, the prolonged recession combined with the unsustainable growth of law firms has forced them up against a wall:
When times were good, lawyers earned enormous fees engineering mergers
and takeovers. When things were bad, they earned enormous fees fending
off angry shareholders and breaking up the conglomerates that they had
helped put together. When things turned really ugly, they made a
fortune carving up the bankrupt carcasses of their former clients and
toiling to keep top management out of federal prison. And when
questioned whether they bore some measure of responsibility for the
malfeasance that felled their erstwhile patrons, lawyers typically
answered with a “hey, we just work here” shrug.
It seems plain that a great many members of the American bar fell prey
to the same strain of hubris that infected their clients. They embarked
on empire building -- opening offices from Beijing to Bucharest -- and
snapping up smaller rivals, confident that the future belonged not so
much to the best and the brightest as to the biggest. The movement
toward gigantism was virtually uniform across the legal industry.
McCollam writes that in the past, the large-firm, highly leveraged business model survived despite pervasive criticism. But it seems that the economy just may be the Kryptonite that fells the super-firm:
Numerous studies have documented the deleterious impact this model has
had upon the legal profession and clients. To date, nothing has been
able to kill it. It would be ironic indeed if the economic downturn
that has cost lawyers so much ended up being the very thing that saved
the legal profession from its own excess.
At Ideoblog, Professor Larry Ribstein agrees with McCollam, but adds that large firms suffer from other problems beyond leverage. He asks:
Where is the glue that is supposed to hold large firms together? Turns out maybe it was simply faith that the money would keep pouring in in large enough quantities to support the current business plan. Sounds a bit like a Ponzi scheme. The real problem is that large firms don’t really own anything but faith, which is fine for religion, but not much of a glue for a business.
Ribstein writes that he'll be coming out with an article describing how to fix the large firm model. Do you have any suggestions?
Posted by Carolyn Elefant on July 30, 2009 at 03:20 PM | Permalink
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