Peter Rouse, chief executive of 7 Bedford Row Chambers and myself have written an opinion piece on the business model for law firms for the April 27 issue of The Lawyer. We reproduce it here:
(Structures #13 2005 by Lisa Call)
(Structures #13 2005 by Lisa Call)The recession is forcing many participants in the commercial legal market to question the law firm business model. A number of recent attempts to tackle it, including partner and associate layoffs, de-equitizations and four-day weeks, have only tinkered with the edges. More significant change will be forced by the growing number of corporate clients that have simply not been offered a better alternative. The present economic situation is merely fast-forwarding the inevitable.
There is no reason why the current business model could not be redrawn into one which would be more competitive and offer better value and service without dramatically reducing profitability.
Law firms have always pursued simple full employment. The general idea is to hire associates, open foreign offices and convert as much recorded billable time as possible into fees collected. The approach can be summed up in one word: leverage. It is the basis of partners’ profits. But the acquisition, retention and disposal of recruits is an expensive business. Maybe the full employment model has run its natural course. If so, what is the alternative?
Although legal work has become more commoditised and an increasing proportion of it shipped offshore, it is perhaps lawyers themselves, both associates and partners, who are the commodities, traded and marketed by recruiters and head-hunters. New service models such as Axiom Legal, Rimon Law and Lawyers Direct are flourishing. One recruiter is now even advertising ‘pay as you go lawyers’. At the same time, the equity partnership prize is becoming ever harder to win, and even less sought after by today’s younger lawyers who are more mobile and happier than ever to migrate to newer opportunities.
Since a sufficiently large pool of high-quality and experienced lawyers is emerging from the crisis, why not rent lawyers for a specific period or task and then let them go again? The advantage of temporary resources is that they can be deployed as and when needed and released when not.
In the US, the concept of the contract attorney is well established. In England and Wales, solicitors have been renting barristers for advocacy for centuries from the bar, a resource which now features 13,400 barristers and QCs. Other bodies such as government and corporate legal departments take barristers on secondments. However, present restrictive bar regulations (self-employed barristers are not allowed to conduct litigation or manage client affairs) mean barristers have limited value to firms or clients for day-to-day work.
Yet if these regulations were relaxed then self-employed barristers could represent a huge and powerful resource for firms willing to abandon a full employment model and work with a hybrid. They have the great potential advantage of offering significantly lower costs than employed solicitors.
This new model would be flexible and could be configured to expand and contract with the ebb and flow of client work. A smaller, tighter front-line team would oversee client relationships, supervise the work and manage the firm. Rather than constantly seeking merger partners, law firms could structure their growth in a more organic fashion which would build collegiality as well as returns.
There is no reason why the current business model could not be redrawn into one which would be more competitive and offer better value and service without dramatically reducing profitability.
Law firms have always pursued simple full employment. The general idea is to hire associates, open foreign offices and convert as much recorded billable time as possible into fees collected. The approach can be summed up in one word: leverage. It is the basis of partners’ profits. But the acquisition, retention and disposal of recruits is an expensive business. Maybe the full employment model has run its natural course. If so, what is the alternative?
Although legal work has become more commoditised and an increasing proportion of it shipped offshore, it is perhaps lawyers themselves, both associates and partners, who are the commodities, traded and marketed by recruiters and head-hunters. New service models such as Axiom Legal, Rimon Law and Lawyers Direct are flourishing. One recruiter is now even advertising ‘pay as you go lawyers’. At the same time, the equity partnership prize is becoming ever harder to win, and even less sought after by today’s younger lawyers who are more mobile and happier than ever to migrate to newer opportunities.
Since a sufficiently large pool of high-quality and experienced lawyers is emerging from the crisis, why not rent lawyers for a specific period or task and then let them go again? The advantage of temporary resources is that they can be deployed as and when needed and released when not.
In the US, the concept of the contract attorney is well established. In England and Wales, solicitors have been renting barristers for advocacy for centuries from the bar, a resource which now features 13,400 barristers and QCs. Other bodies such as government and corporate legal departments take barristers on secondments. However, present restrictive bar regulations (self-employed barristers are not allowed to conduct litigation or manage client affairs) mean barristers have limited value to firms or clients for day-to-day work.
Yet if these regulations were relaxed then self-employed barristers could represent a huge and powerful resource for firms willing to abandon a full employment model and work with a hybrid. They have the great potential advantage of offering significantly lower costs than employed solicitors.
This new model would be flexible and could be configured to expand and contract with the ebb and flow of client work. A smaller, tighter front-line team would oversee client relationships, supervise the work and manage the firm. Rather than constantly seeking merger partners, law firms could structure their growth in a more organic fashion which would build collegiality as well as returns.
Recruitment costs would be reduced allowing firms to become more competitive on price without compromising on service. They would be more transparent both to their clients and to their employees. More opportunities could flow to the many junior and would-be lawyers who find themselves without work or scratching at the doors of the professions that they are so keen to join. It also opens up many possible innovations for those firms and chambers that are looking hard and seriously at the potential of alternative business structures in the Legal Services Act.
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