Bruce MacEwen extends the discussion about the inherent problems in the BigLaw business model (and helpfully quotes from an earlier work by George Beaton). Mr. MacEwen trenchantly summarizes why all is not well for these incumbents, and notes the trend is not promising.
I didn’t see Bruce’s post when he published it on Monday (I noted it today courtesy of Jordan Furlong). What I did read that day was a column in the New York Times by David Carr about the state of the newspaper industry. Mr. Carr started his column like this:
While the rest of us were burning hot dogs on the grill last week, the newspaper industry seemed to be lighting itself on fire.
Like newspapers, law firms sell content of a sort. Also like newspapers, law firm customers can buy that content cheaper from new market entrants. They can also get some of it for free. I used to deliver the Detroit Free Press every morning by 6 am. I was the last link in the chain, delivering aggregated and curated content. I even put each paper inside the storm door (I called that value-add.)
But Mr. Carr notes that the decline of newspapers just seems to accelerate, no matter what the smartest minds do:
Some of the bigger cracks can’t be papered over by financial engineering. Hedge funds, which thought they had bought in at the bottom, are scrambling for exits that don’t exist. Many newspaper companies are hugely overburdened with debt from ill-timed purchases. And though it is far less discussed, newspapers are being clobbered by paltry returns on underfunded pension plans.
To decode this, think “AFAs” instead of “financial engineering;” insert “ABS investors” for “hedge funds;” for “overburdened with debt” think “Dewey;” and for “underfunded pension plans,” well that will probably do just fine.
Now the better law firms were always more profitable than the best newspapers. But there may be only a handful of profitable major newspapers on a stand-alone basis. (Heck the Concord Law School I wrote about on Monday is operated by Kaplan, which has been largely propping up the Washington Post for some time.)
These subsidies are happening at many large law firms, where wildly profitable practices support lethargic legacy work that suffers lowering margins due to re-sourcing, out-sourcing or maybe even crowd-sourcing.
So when you look at BigLaw from the standpoint of what they sell, where there’s smoke, there might be something else going on.
To push this incendiary metaphor a bit further, I am reminded of when Nokia hired Stephen Elop away from Microsoft over a year ago. He tried to bring a sense of urgency to the troops, and did it through what has been called the “Burning Platform” memo. Here is one excerpt:
“We poured gasoline on our own burning platform. I believe we have lacked accountability and leadership to align and direct the company through these disruptive times. We had a series of misses. We haven’t been delivering innovation fast enough. We’re not collaborating internally. Nokia, our platform is burning.”
Now you could change a few words and this would make perfect sense if it came from a new managing partner at a major law firm.
The good news is that BigLaw isn’t a monolith, it’s more of a business model. It’s changing and will change more in the next few years. There are real bright spots in the AmLaw 200; you just have to look closely.
On Friday, how this relates to a recent survey about the level of adoption of alternative fees. It’s not surprising that real-world usage is lagging.