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What's going on at Reed Smith?

Less than a week ago, they announced a roughly 20% cut in first-year associate salaries and hourly billing rates for the 50-odd lawyers joining the firm in January 2010. Here's what they had to say about it (emphasis supplied):

"In response to our clients' feedback and concerns about driving down the cost of legal services, we wanted to send a clear message that we are listening.  So, we have therefore reduced both the rates and the salaries of our incoming first year associates" said Gregory  B. Jordan, Reed Smith's Global Managing Partner.  "We have also launched a new competency based development program to better prepare our new lawyers to meet the needs of our clients."

Annual starting salaries for the new associates beginning in January 2010 will range from $130,000 in major markets such as New York City, Chicago, California, and Washington, D.C. (down from a high of $160,000 in 2008), to $110,000 in Pittsburgh, PA.  These actions solely involve the new associates entering the firm's U.S. offices.  Salary levels for 2010 newly qualifying lawyers in the firm's European, Middle Eastern and Asian offices will be determined in the normal course of business during 2010. 

"Our new U.S. starting salaries represent a reasonable and appropriate reset based on today's economic environment," said Eugene Tillman, the firm's Global Head of Legal Personnel. "We believe this will put Reed Smith in a stronger business position in a changing marketplace while still providing fair compensation to our new associates."

Billable hour expectations were also cut for 1st-years from 1,900 to 1,700/year (just over 10%), with the shaved time being devoted to training.

But the remarks I've highlighted go virtually all the way to explaining what's going on, I believe: The firm wants to try to get out in front of client expectations (and demands) for economies in legal expense, and they're targeting a hot button--the high salaries and low/nonexistent competency levels of junior associates. Will it work? Silly question: This is a buyer's market for junior associate talent the likes of which most of us still alive and breathing have never seen. Young associates have zero bargaining power (OK, Rhodes Scholars/Supreme Court clerks/NFL wide receivers excepted, as always).

Will it become universal? Don't hold your breath. As Jordan astutely notes elsewhere (at least I think it's astute since I happen to agree with him emphatically),

In the wake of the downturn, Jordan said law firms in general are making decisions independently and apart of industry trends.

"Law firms aren't copying each other," he said. "Everybody is trying to figure out how to run their business and how to get it as rightly-positioned as they can. We're seeing it every day. We're going to see sharper decision making by all the law firms, not mimicking each other on every little thing."

And now they have announced an even more radical move--well, at least one affecting about six times as many people, at a far more senior level--with the news that their 300 or so non-equity partners will be asked to contribute up to 15% of their compensation to the firm as capital. And if you would "prefer not to?" Then you can either forfeit your "partner" status, presumably achieving instant self-inflicted demotion to "associate," or leg into the contribution over a few years. What you cannot do is stay a non-equity partner and decline to make the contribution.

Whereas the first announcement was greeted, so far as I can discern, largely with silence if not a collective yawn, the latter has generated predictable second-guessing and skepticism about the firm's professed motives, most of it centered around what it does or does not imply about the firm's financial fortunes. Jordan (disclosure: I consider him a friend and one of the more innovative managing partners in the business) was at pains to head off this speculation:

Jordan stressed that the move is not simply meant to provide a quick-fix cash injection or as a way of culling the firm's non-equity partnership. "People could say, 'Oh, Reed Smith must need the money,' but the reality is we are having a very strong year," he says. "And if you wanted to just trim non-equity partners, there are much easier ways to do that."

Performing a very back of the envelope calculation, the move could bring Reed Smith $18-million or so (say somewhere between $15 and $20-million, to be safe), which is certainly a not-immaterial contribution to capital, and it's manifestly easier to raise it from your non-equity cohort than going back to the well with your equity partners or your even less forgiving bankers.

Alas, the coverage so far raises more questions than it answers:

• What type of animal exactly is the "contribution?"
  • A one-time payment, a sort of toll extracted for the privilege of continuing to carry the word "partner" on your business card?
  • An interest-free loan, repayable (presumably) upon your departure from the firm (and what if the departure is "for cause" as far as the firm is concerned?)
  • Is it secured or unsecured?
  • Oh, and again, does it earn interest?
  • Assuming it's not characterized as an equity investment--and both the language of the stories and the premise of "non-equity" partner strongly imply it's not--in what sense, then, are you a "partner?"
• The firm explains that part of the rationale is that some (but apparently not all) non-equity partners in European offices, primarily those in legacy merged offices, already have been required to contribute capital, so on that view it's only a way to level the famous playing field between the US and the rest of the world. (there are two ways to achieve that, of course, this being only one of them).
• How does the 15% number compare with the capital contributions expected/required of equity partners?
  • Are the other "terms" of the contribution identical or materially different?
  • When a non-equity's compensation goes up, or down, does their contribution rise or is a rebate expected?

One could go on, and I invite you to do so with your friends at home, but I have a larger issue to close with.

Assuming the Holy Grail of our world is the "one-firm firm," the institutionalized firm in which everyone, from Managing Partner to non-equity partner to paralegal to administrative assistant, feels invested, a firm with a vision they can buy into, what here is not to like?

This has to be what Jordan is driving at when he says "[Non-equity partners will] have a stake in the business and meaningful profit participation, not just carrying the title [of partner]. [and] "It's about not just saying you're a partner, but actually being one. It means something. It revolves around risk-sharing in the business."

We can take potshots from the sidelines to our heart's content (here's a sample), but who would seriously argue with the goals Jordan here articulates?

Or we may simply be overthinking this.

Econ101 teaches that if you want people to demand less of something, make it more expensive. Reed Smith has just made non-equity partner status more expensive.

Put that together with my belief that as an industry we let the entire non-equity tier grow out of control during the boom years, and you may be seeing the beginning of one approach to the problem. It's certainly easier than having all those awkward one-on-one conversations with underperformers.

Hogan & Hartson/Lovells?

As amply reported (Legal Week, The National Law Journal, The Lawyer), the firms are in merger talks and, since no one is remotely denying the reports, we can only assume it's all quite for real.

We'll get to what we think it means in a moment, but first, to the numbers:

	Hogan & Hartson	Lovells
Revenue*	US $922.5-million	US $984.5-million
% change Year over Year	+4.9%	+10.9%
PEP	$1,160,000	$932,000
% change Year over Year	-1.7%	-11.3%
Revenue per Lawyer	$835,000	$695,000
Number of partners	202 equity/494 total	370
Number of lawyers	1,111	1,421
Non-home country offices	14	27
Non-home country lawyers	23%	82%
5-year CAGR of Revenue per Lawyer	+5%	+5%
5-year CAGR of Profits per Partner	+9%	+8%

*All figures in US$, using a conversion ratio of 1.594 $/£.

In addition, cities where both firms have offices are:

• New York
• London
• Hong Kong
• Beijing
• Paris
• Tokyo
• Munich
• Moscow

On a pro forma basis, the combined firm--assuming a complete merger--would have these characteristics:

• Revenue: $1.9-billion
• Number of lawyers: >2,500
• Global rank: Neck and neck with Latham & Watkins and Allen & Overy, all in a horse race for Global Firm #7:
  • DLA Piper: $2.26-billion
  • Linklaters: $2.23-billion
  • Freshfields: $2.21-billion
  • Skadden: $2.20-billion
  • Baker & McKenzie: $2.19-billion
  • Clifford Chance: $2.16-billion
  • Latham & Watkins ($1.92-billion), Hogan/Lovells (roughly $1.9-billion), Allen & Overy ($1.88-billion)

Finally, the practice mix would seem at first glance to be highly complementary. Hogan is known especially for its regulatory/government law practices, antitrust, litigation, intellectual property, real estate, and a substantial level of corporate work. Lovells, somewhat unusual for a UK-based firm, also has a relatively robust litigation practice and is less deal-driven than (say) the Magic Circle, as well as having strong real estate, antitrust, and regulatory law capabilities.

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So: What does this really mean?

Already the naysayers, of course, are keening about the challenges and the obstacles.  To be fair, the commentary has not been uniformly negative, with (for example) Alex Novarese of Legal Week saying that "at first glance, there appears much to commend this union," but he is quite the exception.

A sampling:

• "Merger-averse Hogan" supposedly reversing field;
• "partner compensation is, of course, a tougher challenge;"
• "transatlantic deals are fiendishly difficult to pull off;" and "transcontinental mergers have a mixed [read: dubious] history;"
• "US/UK deals are notoriously difficult to secure given the challenge of marrying differing partner compensation and accounting models;"
• "it's not clear what a merger would do for the combined firms' profitability;" and, of course, the inevitable
• "there could also be conflict over whether control of the combined firm would reside in Washington or London."

I'm here to tell you that it's time for us all to just get over ourselves.

So far as I can tell (no insider knowledge here, folks, sorry to report), this deal makes superb sense.

For how many years/decades/centuries have major corporations been doing transatlantic business on a routine basis? And somehow they have been managing to smooth out the differences between the pound sterling and the dollar, the differences between compensation expectations in the US and the UK (not to mention New York and London specifically), the differences between driving on the right and on the left, and of course the grain of truth in the famous quip about being "divided by a common language."

As for the New York/London divide specifically, we are informed by a UK legal publication that the architects of this deal should be grateful Hogan doesn't have its roots here in the Empire State: "A conservatively-run practice like Hogan, with a centre of gravity outside the brittle egos of Manhattan, shouldn't be the hardest American firm to align with a UK practice." [Note to visitors to the home office of "Adam Smith, Esq.:" Please check your egos at the door; we do.]

Are there challenges? Of course; there are challenges to running each of the firms today, as they stand alone. Would the challenge of running the combination be twice as great? Perhaps, but I doubt it--at least it would decline over time, and in the meantime there would be double the resources to devote to the challenges. Combinations that have far more moving parts than this one (just to pick a current example, Kraft/Cadbury) are pulled off routinely in CorporateLand. Why do we presume market forces end where legal services begin?

More importantly, do you see what's going on here?

Each of the obligatory reservations stated to the deal--partner compensation, the putative transatlantic "challenge," whether Washington or London would "win"--is at bottom a rather shameless exercise in navel-gazing.

When I said it's time for us to "get over ourselves," this is precisely what I meant. So far, the tenor of discussion about this proposed merger has been--at least when it shifts from pure journalistic reporting to implied or overt opinion--about as sophisticated as sports bar debates. (I am compelled to note one outstanding exception, which I would like to believe serves to prove my rule, namely the thoughtful commentary by Aric Press, "What a Hogan/Lovells Merger Would Mean.")

This is potentially a transaction that will change a conspicuous portion of the BigLaw landscape globally. Prattle as we may about the "globalization" of the profession, the Global 100 law firms are still (for reasons that have understandable, if archaic, roots in history and regulation-by-jurisdiction) almost shockingly insular, domestically rooted institutions. Of those 100--pop quiz--how many have:

• Over 50% of their lawyers outside their home country? Only 10 (yes, including Lovells, and counting DLA worldwide and DLA international as one firm).
• And of those 10, how many are of US origin? Two, namely White & Case and Baker & McKenzie.
• Between 30 and 45% of their lawyers outside the home country? Again, only 10, with a somewhat more respectable 7 of US origin.
• And below the 30% bar, the pickings get slim indeed, including some heavyweight name brands with surprisingly low numbers. For example? I would argue that if at least 3 out of 4 of your lawyers are in your home country, you're not yet seriously international. Here are some candidates (not to single these out, just to make a point):
  • Sullivan & Cromwell: 22% of lawyers non-US based
  • Skadden: 16%
  • Sidley Austin: 16%
  • Davis Polk: 13%
  • Simpson Thacher: 11%
  • &c.

The point is simply this: As an industry, we are not nearly as "internationalized" as our clients, and certainly not remotely as global as the premier clients we all aspire to serve.

It sounds to me as though the leadership of Lovells and of Hogan & Hartson are focusing on genuine strategic objectives and not on "who's on first."

We all need to grow up, snap out of our self-referential and unappealingly self-regarding reveries, and seriously contemplate what this may portend. And from my perspective, it will all be good. Overdue, but good.

By now the news is well and long since out (WSJ Law Blog, AboveTheLaw) that Howrey has decided to fundamentally change the nature of the first and second year associate experience, by focusing on training and an apprenticenship model in exchange for a substantial cut in salary.  DLA Piper has also announced it will be reducing the size of its associate classes and discarding lockstep, while Orrick announced, effective July 1, that it would ditch class years in favor of three bands of talent:  associate, managing associate, and senior associate, with competency gates between the bands.

And just a day or two ago, across the pond, CMS Cameron McKenna, Eversheds, and Simmons & Simmons said they are all moving to merit-based pay: 

Nigel Moore, HR partner at Camerons, said: "Someone being assessed by how competent they are rather than on the basis of years on the clock strikes a chord with the kind of person who wants to work here. From the client's point of view it also ensures they get the best man or woman for the job."

Nearly a year ago, I wrote about the precursor to the Howrey effort, but I believe this is a signal development and therefore worth spending a bit of time exploring.

Welcome to the first shots being fired in what I predict will be the coming War of the Dueling Business Models.

Well, if we care to be a bit less melodramatic, the reality is that the venerable and century-old Cravath system, which we all followed for so long for an admixture of reasons surely including inertia, the hope that some of the prestige/mystique would rub off, and a systemic failure of imagination, may be reaching the end of its life cycle.  Now firms have to do things differently, which means being more focused on their core strengths, more attuned to their clients, and, yes, not necessarily doing what everyone else is doing.  This of course is the single most powerful reason for the durability of the Cravath system.

The standing joke is that when one presents a new idea to a businessperson, their first question is, "I hope no one else is doing this!", whereas when you present the same idea to a lawyer, the question is, "But who else is doing this?"  Or, as I heard it expressed slightly differently just this week--and trust me, you cannot make this stuff up--when a particular managing partner was criticized because his firm wasn't terribly innovative, he replied, "It would be useful to have guidance from other firms on their efforts at innovation."  (I promised you you can't make this up.)

But back to departures from the Cravath system.  Will we see much more of this?

As a recent Vice Presidential candidate surely would have put it, "You betcha!"

Why?

Because we have come to the end of the road for business as usual.

Every firm--not just Howrey, DLA, and Orrick--is experiencing a severe problem as the deferred starting dates of summer associates and first-years begin to collide with (what would be the normal) starting dates of subsequent classes.  While few firms have acknowledged this publicly, and fewer still have discussed how they'll deal with it, one almost inevitable consequence is that two or more classes will be in competition with each other for the slots of one class--and a "downsized" set of class slots at that.  What's the answer?

A simple, but accurate, way to think about summer associate programs is through the familiar analogy of the pig in the python:

• Virtually all firms have a surfeit of associates as it is, both because of reduced demand and the utter and complete disappearance of natural attrition (nobody but nobody is quitting voluntarily in this environment);
• Summer associate programs were put together before the meltdown and are, to put it diplomatically, not attuned to current reality;
• Every summer associate that could fog a mirror while keeping their clothes on used to get an offer; that cannot and will not be the reality going forward; and
• The common, understandable, and entirely rational spate of year-long deferrals is going to create a pileup a year from now.

In other words, if your firm has deferred the Class of 2009 from September 2009 to mid-2010, what are you going to do about the Class of 2010? Defer them to 2011? And the Class of 2011? As my high school physics teacher used to say in his inimitable New Jersey accent, "You can't play dat game fuh-evah."

One approach would be to tell two classes that they'll be competing for the (reduced) slots previously available to one class. This has a brute-force appeal, in that it solves the problem expediently and you have the pick of twice as many candidates for, say, half the slots. But it stinks of betrayal.

So firms that have announced deferrals are going to face, sooner rather than later, the two-years-on-one pileup: Not just one but two pigs in the python. There is no Platonically ideal solution to this arithmetic and calendar-driven problem. But I haven't thought of, or heard of, a better answer so far than that of simply taking a year off on-campus recruitment. 

The most forceful and cogent objection, and I readily agree it's got teeth, is that no firm can afford to forego one entire year of seeking out the best available talent coming out of the nation's law schools. If your firm so chooses to jam two years' worth of graduates into one year's worth of opportunities, so be it, and that's surely one rational response among others.  My only thought is that If someone does have their heart set on working for your firm, they'll still know where to find you, and last I noticed we had not outlawed the lateral marketplace.

Radical as it may sound, I think some firms will "take a year off."  Not just asking their incoming associates to defer for a year, but re-synching their recruiting to their demand by opting out of recruiting altogether for a year.  Really, how many alternatives are there?  You can renege on commitments already made to students who are, at least to some extent, known quantities in favor of unknown future quantities, or you can continue to appear for on -campus recruiting knowing in the back (or front) of your mind that you will be making few or no offers:  Both appear economically irrational and morally dubious to me. 

MIght it not be better to be open about The Pig and conform everyone's expectations to reality by announcing a one-year recruiting sabbatical? 

Indeed, Morgan Lewis has announced it's canceling its summer associate program for 2010:

In a letter to law school deans, Morgan Lewis' firmwide hiring partner Eric Kraeutler said the firm first wanted to fulfill present obligations.

"We continue to be committed to law school recruiting and entry-level hiring. However, our highest priority is to provide opportunities for our existing associates and 2009 summer associates," Kraeutler wrote.

You have promised (your word is your bond, isn't it?) slots to the current class, whereas you haven't promised, so far, anything to the succeeding class. This must be what Eric Kraeutler was thinking when he said they would put existing and 2009-promised associates ahead of future unknowns. (Disclosure: Eric and I were Princeton classmates, but I haven't spoken to him about this column, although I'll send him the link once it's published.)

From our flank now comes the salvo, Welcome to the Future:  Morgan Lewis Signals Armageddon, which opens with this and gets only more apocalyptic from there:

There's no way to overstate the importance of last week's announcement by Morgan, Lewis & Bockius that the firm was canceling its summer associate program and on-campus interviewing (OCI) for the summer of 2010. ... OCI is not just any activity for a big law firm. It is, in the language of modern business, the core process of a large law firm.   The whole value proposition of a large law firm is built around the syllogism: "We hire the smartest people from the best schools. They work the hardest and do the best work. And we charge the most money." 

In case you missed it, this would indeed be Armageddon.  If "the core process" is broken, then to be sure "the whole value proposition of a large law firm" is on its deathbed.

What, then, to do?   From the premise that we are experiencing apocalypse now, we learn "the urgent necessity to 'mark to market,' to correctly set prices based not on wishful thinking or yesterday's sense of entitlement but on reality."  The implications of this new-found operational discipline and rigor, which are then enumerated, include, among other things:

• Telling publishers and technology vendors there are too many of them and that there will only be one winner "and you have 15 minutes to decide if you want to be that guy."
• Beating up on landlords, including unilaterally halving rents per square foot and unilaterally abandoning space, all presumably achieved in a consequence-free zone.

Culminating in "If you didn't realize this before, Morgan Lewis just stamped it on your forehead."

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A bit of perspective, prithee? 

To begin with, we are not the newspaper industry, or even the investment banking industry:  We are not dealing with existential threats to our continued existence in a 21st Century global economy. 

Indeed, if you believe any of the following:

• Globalization is here to stay;
• Regulation is going to become more complex, not simpler;
• Cross-border transactions and cross-border mobility of people, ideas, and capital will accelerate;
• North America, South America, Europe, and Asia are each centers of financial and economic power in their own way;

then you have to believe the future for our industry has never been brighter.

Are our business models changing? 

I believe they are, and I also believe the risk of attempting to meet the changing client- and economically-driven zeitgeist of our industry through denial and passivity has never had a shorter half-life.  I'd actually give denial a half-life of two--five years.  (And to think that GM had 30!)

But our value proposition, apocalyptic commentators to the contrary, is in many ways more powerful than ever.  The smartest people from the best schools, working very hard and doing great work, are worth whatever the market will bear.  And so far as the eye can see, the market for that extremely limited supply of focused and applied expertise will bear a lot.

Today we have an extremely unusual--for Adam Smith, Esq.--guest column.  Indeed, if memory serves, this is only the third column in the history of this site (5 years, nearly 1,000 columns) not written by me.  

Leigh Dance is today's author, and I will extend to her the courtesy every writer most devoutly wishes to receive from their editor and publisher, which is, without further ado, to get out of the way.

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From my patio in Rome's centro storico, I read Bruce MacEwen's excellent GM-RIP piece and reflected that Rome didn't fall in a day either.  A particular part of that post that resonated for me was Don Sull's comment that "Organisations often succumb to active inertia - they respond to disruptive changes in the environment by accelerating activities that worked in the past."

But the Rome analogy stopped there.  Instead I pictured scores of squirrels furiously grabbing all the walnuts they could find--gorging themselves and squirreling hundreds more away for the hard winter.  It's a vivid image, and immediately brings to mind the behavior of Big Law over the last six months. 

Active inertia abounds, with talk squarely focused on the navel:  projecting when deal flow may change, coping with fee income reductions and practice shifts, fewer associates, lower partner leverage, cutting travel and marketing costs, questioning international investments.  Even talk of alternative fees is focused inwards: how can we make it work within the firm's billing system? 

Forgive me for sounding harsh, but I have grown impatient with this ultra short-term thinking.  When I ask corporate clients if their lawyers are visiting them, the tales are more bitter than sweet.  A global General Counsel told me about a recent lunch with the lead partner of his biggest law firm provider.  No interest in what was going down at the company. "I think I'll be able to build my deal base back up, don't you think?" the partner asked his client, and went on to talk about his book of business.  The GC described the encounter, shaking his head.  "Hello?!?  Could he have asked me 1 question about what I'm dealing with in my shop?" I guess that partner just wanted more walnuts to squirrel away.  He didn't leave lunch with any, that's for sure.  Stories like this are far too common.

Deep Freeze in Big Law

Summer begins any day, yet fear and loathing still has Big Law in a deep freeze.  At GM it was a "cumulative and collective denial of reality" to change the organization and culture.  We know why lawyers today feel paralyzed: there's still lots of pressure to produce; lawyers are accustomed to success; they built solid practices around businesses expected to grow forever; they adopted expensive lifestyles requiring ever greater income; they've lost valued colleagues; they don't know what's coming next. 

Consultants make sweeping predictions that traditional law firm business models are dead.  Wall Street rainmakers and their spouses reconsider the St. Bart's vacation as their environment changes.  Revered investment banker and private equity friends are sliding down the food chain, and the New York/London social pecking order is in disarray.

At the coalface, private practice lawyers seem to be passing through a form of Elizabeth Kubler-Ross' stages of grief:  1) shock and denial, 2) anger and hostility, 3) bargaining and reorganizing, 4) depression, reflection and feelings of loneliness; and (we're not there yet) 5) acceptance. 

Lawyers' identities are wounded-- many have or will face the possibility of losing their jobs.  I'm no psychologist (as a law firm consultant it might be helpful), but I have surfed the web and learned that resentment and jealousy causes volatile and helpless feelings, plus serious distraction.  According to grief experts, one of the effects is like a stun gun-- the person withdraws, anesthetized. 

Sounds like Big Law to me.  Adam Smith, Esq. has been raising the challenges up to leadership.  I was happy to see Dan DiPietro, in his May American Lawyer article, voice frustration with lack of action among AmLaw 100 firms.  Minutes after a conversation I had in Toronto where the Deputy GC of Bank of Nova Scotia marvelled to the Citigroup Canada GC that his bank was now larger in market cap than Citigroup worldwide, I received an email from Altman Weil summarizing their latest survey of major law firms.  The big news: no news.  No dramatic changes. 

I'm impatient because the stagnancy among law firms is a whale of a lost opportunity.  The biggest danger is the amount of legal work that seems to be migrating away from law firms.  While it's happening, many talented law firm professionals are not responding, much less preparing for the future. 

In-house Counsel are Changing Like Gangbusters

While all is quiet on the law firm front, chief legal officers and their top teams within corporate law departments are changing like gangbusters.  It's the opposite of active inertia.  In-house counsel around the globe are fired up from long days working in crisis mode, big budget cuts and an impending avalanche of new regulation. 

Corporate legal budgets for internal and/or external spending have been cut from 15 to 40% on both sides of the Atlantic (slightly less in Asia).  Though many in-house functions have escaped staffing cuts, they must find cheaper ways to support their companies' global growth.  General Counsels recognize that the world is full of legal landmines.  They know they must increase productivity, reduce demand, and in every way possible lower the cost to buy and make legal services. 
In-house counsel matter: they are the providers of work to many law firms, now more than ever.  Rather than 'accelerate activities that worked in the past,' I believe they are in the process of changing the game. 

Buon giorno, this is your wake up call.

My discussions with dozens of senior international corporate counsel (US, Europe, Middle East and Asia) over the last six months reveal a remarkable, disturbing and nearly unanimous view:

• they don't think law firms really understand or 'feel their pain';
• they say that their outside lawyers are not taking action to help, or even discuss their situation;
• corporate counsel are addressing these challenges on their own, having decided that their provider firms generally can't help because lawyers are pressured by the firms' conflicting objectives;

In most cases they say they haven't even talked to their law firm providers about their specific budget cuts and constraints.

In-house counsel in the US, the UK and with global corporations everywhere aren't whining about fees anymore.  As I write, they are implementing various forms of outsourcing, shifting work to non-legal providers, automating certain functions.  In a business climate where much is beyond their control, they relish their options in a buyer's legal market.  The danger is that much of the work that is leaving big law firms may never come back.

Many have alternative fee arrangements and demand that law firms make costs more transparent and predictable.  Some in-house teams systematically scope projects and then set fixed fees or caps for various predictable stages (in the UK referred to as "slice and price"). 

Unfortunately, the tendency for most in-house lawyers who've been told to 'cut costs or be shown the door' is to seek alternatives to outsourcing.  When they need to go outside, they get competitive bids from known providers and take the biggest discount.    

Few in-house legal functions have the management expertise, technology or time to implement metrics and processes for a higher functioning, leaner corporate legal function to better serve their global operations (and precious few law firms are helping; a major lost opportunity).  So they opt for discounts, which scores quick points.  Once discounting starts, it's hard for your firm to propose smarter approaches.

A moment for the discounting topic, which merits attention.

Corporate counsel are amazed by the deep discounts they are getting on competitive bids.  It's now typical for European corporate counsel to bid out a transaction to a few global and domestic firms thought to have the requisite expertise.  Usually inside counsel will determine what the combined costs may be for the firm to make a small profit.  Proposals from many firms, including the Magic Circle, are coming in at discounts far greater than 50% of the cost of such transactions 18 months ago.  Often corporate counsel choose the firm they prefer on the condition it meets the lowest cost bid. 

Discounting is a short-term tactic.  In-house, it can't reduce a legal function's outside legal spend by more than 15 or 20% over time, and the inevitable reduction in quality and service creates new and potentially costly risks.   For law firms, much of the pricing resulting from pressure to discount is unsustainable. 

Law firms must change the client dialog from discounts to helping clients build a better legal function for today's corporate demands.  Partners should be trained and authorized to talk specifically about alternative staffing and fee approaches.  It's particularly complex for multi-jurisdiction work, and surprisingly few firms do it well. 

A relationship of trust with your client is among your greatest assets today.  In-house lawyers want a reason to be loyal.  They highly value expert advice and a trusted-advisor connection.  They regret the inevitable loss of loyalty caused by cost pressures. 

Lawyers must get out and reconnect with their clients, giving them big figurative bear hugs.  Don't stay away for fear clients will tell you they're cutting back, and don't just go out and ask for more business.  The only way you'll really reconnect is to dig in and understand their issues.  Then come back to them with viable approaches and structured options. 

Law firms generally know how to use information technology far better than corporate legal departments (among the exceptions, Cisco soars).  Take steps to share that expertise for the client's advantage.  In the last few years law firms have become highly skilled at cost control and (for their own benefit) resource management.  Your clients would really value having your firm's experience and skill to help improve the productivity and profitability of their in-house functions.  Figure out how to make it work.

Play the Global Card

Now, for the holy grail of opportunities today:  global reach.  From my vantage point, the biggest opportunity you have to out-compete other law firms is to deliver your clients a combination of your legal skill, your IT expertise, your cost control sophistication and your global reach.  Every day, I see global law firms miss a chance to win by playing the global card. 

Most corporate legal functions don't come close to matching the international breadth and depth of most global firms, yet their companies are truly global.  A year ago I was amazed to hear more than three quarters of a group of 100 large global in-house counsel say their corporate legal function is not sufficiently global.  Far from it, they say.  In-house lawyers are very nervous about meeting the demand.  Many don't have the coverage or the international skill, and sourcing the right expertise is difficult and time consuming, not to mention expensive.

Global law firms can help in concrete ways.  Connect the clients' situation from one jurisdiction to another and demonstrate your value by spotting key issues which help them avoid costly, distracting problems.  Unfortunately, most global firms are not in the equation because they haven't connected their offering effectively to the client's global needs.  When global law departments look for international legal services coverage, they seems to have a fundamental lack of confidence in the law firm's ability to help them build a better, more efficient global legal mousetrap.

Internationally-positioned law firms will come out far ahead if they can manage to effectively offer clear and compelling global legal service.  They will win by showing clients what they can do that matters to the client in the short- and mid-term.    

The environment has changed and the heat is on.  No time for inertia.  It's time to get out there. If you have it, play the global card. 

Buon giorno, this is your wake up call.   Would you like another call in ten minutes?

---

I am compelled to add that Leigh is the editor of the very recently released book Bright Ideas:  Insights from Legal Luminaries Worldwide, which Ralph Baxter describes as follows:

"This collection of 26 impressive essays, skillfully edited by Leigh Dance, creates a superb textbook for leaders as they consider current and future strategies, whether as global law firms or corporate law departments. A unique compendium of global perspectives and ideas, it makes very useful reading for all who are working to chart a course in these unprecedented times."

Some of the 26 authors, drawn from law firms, major inhouse departments, and the consulting world, are:

• Peter Beshar, EVP & GC, Marsh & McLennan
• Jeffrey Carr, GC, FMC Technologies
• Bruno Cova, Paul Hastings (Milan)
• Fadi Hammadeh, GC, Dubai Properties Group
• Alan Jenkins, Chairman, Eversheds
• Pete Kalis, Chairman and Global Managing Partner, K&L/Gates
• Despina Kartson, CMO, Latham
• [yours truly]
• Jolene Overbeck, CMO, DLA
• Thomas Sabatino, EVP & GC, Schering-Plough

Profits from sales of the book will be donated to Advocates for International Development.

I recommend you take a look.

Twenty-six years ago Tom Peters and Robert Waterman published In Search of Excellence, and to some extent the genre of writing for business managers hasn't been the same since.  If for no other reason, it's worth taking a moment to revisit Peters' thoughts on the current state of the art of management, as the FT recently did in its weekly "Lunch with the FT" feature. 

But first, if you haven't read "Search," you might yet give it thought:

"When people think about the great management blockbusters, this is the text they have in mind. Search made the business book news. It has sold more than 10m copies and is still the model to which many business authors – whether they realise it or not – aspire. It also launched Peters on the path to global, jet-setting guru-dom."

Peters himself, however, will have none of his elevation to "guru:"

Few, however, have criticised what he does for a living as ferociously as Peters himself. “I say to people, ‘You got a bad deal, paying money to see me,’” he tells me. “I have utterly nothing new to say. I am simply going to remind you of what you’ve known since the age of 22 and in the heat of battle you forgot. You’d have to be one of those television preachers to believe that you’re going to work with a group of 500 people and change their lives. First of all, most of them agree with you. You’re not going to pay £1,000 [a head] to go and see someone if you think the guy’s a jerk."

Self-effacing as he may be, Peters has some deeply contrarian opinions.  For starters, don't kid yourself that you have it harder than your predecessors or that 21st-Century life is markedly more complex than things were in the past:

Is management getting harder? “No,” he replies firmly – and in defiance of the conventional wisdom. But what about all that new technology, the end of deference, the increased pace of life, and the heightened expectations of employees? Doesn’t that all make management harder?

On the whole, Peters thinks not. We exaggerate the extent of change, he feels. It is the arrogance of modernity to believe that we face unique and unprecedented challenges.   [Putting it in perspective,] my mom died two years ago a month short of her 96th birthday, which means that she lived through the arrival of long-distance telephones, automobiles, airplanes, jet airplanes, a man on the Moon, the great Depression, world war one, world war two, the cold war, Vietnam, Iraq one, Iraq two, [so don't kid yourself].

I beg to differ.  I believe the complexities of the challenges facing law firms today actually are unprecedented.  Here's a very short bill of particulars:

• No longer are all your partners within one timezone, let alone one zipcode. 
• Clients are more sophisticated (read: more demanding). 
• The war for talent, both raw recruits and laterals, has never been more intense. 
• Technology, a major blessing but with a correlative curse, has pushed "work/life balance" to the breaking point for many individuals.
• Transparency of financial performance, and pressure for ever-escalating numbers, seems to reach new annual highs.
• And perhaps putting a nice exclamation point on our landscape, Gary Hamel, merely "the world's most influential business thinker" according to The Wall Street Journal, has pithily described the world today as "less benign" than ever.

But speaking of war, which we were a moment ago, Peters served two tours of duty in Vietnam as a combat engineer building bridges for the Marines, and in a revealing passage, he says that much of what he learned about management came from the diametrically opposed styles of his two commanding officers.

I’m not exaggerating but I really spent the next 40 years of my life writing about Dick Anderson. He was a guy who believed that young men aged 23 needed a chance to express themselves. He believed that [writing] reports was incidental but that building stuff for your customers, typically the Marine Corps, was what you were there for.

“On tour two I had a naval academy graduate who would rather have produced an excellent report about things we hadn’t built than a lousy report about things we had. One guy wanted you to do something, the other guy wanted you to write reports. It was the best management training that one could possibly have had. Do what Dick did and avoid what Dan did – there’s the book ... it’s a very short book!”

What strikes me as most revealing about this remark is that it has nothing to do with strategy, it has entirely to do with execution.  And this from a pair of McKinsey consultants (Waterman, his co-author, being the other).

Peters confirms which side of the strategy/execution chalkline  he's on:

[T]he book did not have an easy birth. Its breezy tone did not play well with earnest colleagues at The Firm, as its authors were to find out. “There’s no way to describe the viciousness with which Bob and I were attacked within McKinsey,” Peters says. “This was not the Holy Writ. It was the intellectual challenge to what McKinsey stood for at the time.

“To some extent what Waterman and I were looking at was the business of ‘execution’, and execution is fundamentally a management thing. We were saying, ‘If you can execute well, it doesn’t matter what the hell the strategy is. The doing is what counts.’ But this was when ‘strategy’ was at its apex. We were pushing back."

Peters subscribes with a vengeance to school of relentless execution, and also to the not-inconsequential  role of luck.  He ironically describes his own good fortune:  “I was born in 1942, in the US. I was protestant. I had relatively intelligent parents and I was white – that’s the first 99.9 per cent of it. Hard work may have done the rest."  And "Search" itself?  "A decent book with perfect timing."

In other words, try hard and then try some more.  Many many things may not be within your control—today seemingly more than ever, Peters' protestations to the contrary notwithstanding—but one thing is within your control:  How hard you work and how much you  get done. 

Having the energy, the imagination, and the sheer intellect to tackle today's escalating challenges—with, I should mention, impeccable integrity—is perhaps the single greatest thing we have to be thankful for today.

Time to take stock.  This dratted credit crunch has now celebrated, if that's the word, its first birthday, and there is no clarity about when it may end.  What's a law firm to do?

If you believe McKinsey, and if you believe that where investment bankers go, law firms will follow, the answer is:   Look to the emerging markets.

Relying on the results of the McKinsey "Global Capital Markets Survey," which purports to forecast estimates of investment banking revenue for the years 2007 to 2010, the message is that:

• Emerging Asia,
• Emerging Europe,
• The Middle East, and
• Latin America

will probably show absolute revenue growth over the next three years and under what they call "all likely outcomes," emerging markets' share of global revenues will "jump sharply."  Here's the soundbite:

Collectively, indeed, revenues from investment-banking and capital market activities in these regions are projected to match those in North America by 2010; in 2006, before the credit crunch, they amounted to less than half. A case, perhaps, for referring to “emerged” rather than emerging markets in the future?

Uncertainties, to be sure, abound.  Primary factors determining when the credit crunch may ease include the overall macroeconomic prospects for growth in the US and developed economies; investors' behavior--simply put, when and to what extent confidence comes back; regulators' behavior (do they over-react and clamp down in market-suppressing ways); and of course the grand-daddy unknowable of them all, namely when the credit and liquidity lockup will start melting as the lending institutions in the economy begin to see clarity about the future and are able to restore their balance sheets to health.

But back to the emerging markets.

Why are they so attractive at this juncture in the economic cycle? For one thing, as McKinsey alluded to above ("emerged" vs. "emerging"), they're already getting sophisticated (emphasis supplied):

First, their macroeconomic environment remains comparatively benign, even if talk of a complete “decoupling” of their economies from those of the United States and Western Europe was premature. Although, if trade flows with the West do suffer, regional demand for oil and commodities, growing intra- and interregional trade flows (especially within Asia and between it and the Middle East), and huge infrastructure-investment programs will continue to underpin growth.

Second, a new breed of global corporate players, notably in countries such as China, India, and the United Arab Emirates (UAE), now demands the sort of sophisticated investment-banking services [and concomitant legal services] previously reserved for large Western multinationals. This new group thus represents an increasingly attractive fee pool.

Add to that that they're less exposed to the infamous credit crunch. For example, if writedowns is your blunt-instrument measure of exposure, investment banks have written down only about 7% of their revenues from emerging markets as opposed to three times that--21%--on a global basis.

Two other reinforcing trends are in play. First, certainly in Asia, economies are growing, pure and simple, on their own. That just increases the stock of financial instruments and their tradability. But second, as Asia becomes increasingly integrated with the global economy, inbound and outbound investment will increase, and it will take increasingly sophisticated forms. For "sophistication," substitute "lawyer-heavy," and you have a reason to take this region more seriously.

Do you have to be there?

I believe you do. But let McKinsey speak to this:

Asian markets are fast becoming as demanding and sophisticated as markets in Europe and the United States. Clients have developed a taste for complex financial products and demand good local service; domestic competitors are ramping up their skills and opening their checkbooks to attract international talent.

An onshore presence in emerging Asian markets, meanwhile, is becoming critical. The old model of the suitcase banker operating from hubs such as Singapore and Hong Kong will fail to satisfy clients and regulators seeking a true commitment to the local market.

I've observed before that in America the first "real" question people ask a new acquaintance is, "What do you do?" In the UK it's "Where did you go to school?" And in China it's "Where are you from?"

Not to be cute, but if this is remotely correct (and I've reality-tested it with numerous people in all three areas), you really need to be on the ground in Asia to manage inbound or outbound investments more than you need to be on the ground in (say) Silicon Valley to manage a high-tech IPO or Brussels to handle an EU regulatory matter.

So much for Asia. What about Eastern Europe?

In a nutshell, McKinsey sees overall annual GDP growth from 7% (in their "darker" scenario) to an astonishing 19% in their "more benign" scenario. I'll take some of that, thank you very much.

The only trouble with this area, for law firm land (as opposed to investment banking land), is that the primary source of increased fee revenue McKinsey foresees has almost all to do with sales and trading: "In the future, we believe, growth will probably shift from foreign exchange to interest- and equity-based derivatives, among other products."

And the Mideast?

No surprises here: Investment banks are redeploying more and more professionals from New York and London to the region:

The oil-rich states of the Gulf Cooperation Council (GCC)—Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE—are generating wealth at levels not seen since the 1980s. High oil prices have triggered an unprecedented wave of investment, including a huge pipeline of industrial and large-scale infrastructure projects, such as Saudi Arabia’s new “economic cities.” By some accounts, the GCC will have invested around $3 trillion in the region by 2020.

Can you afford to miss this?

That is for your firm to call, including your partners' appetite for risk and their willingness to endure a period of potentially protracted investment, but the historic shift of momentum seems clear:

Emerging markets now have a rare window of opportunity to catch up with the rest of the world, not least because they don’t have to mitigate the mess created by current market dislocation in the West.

Here we have, in other words, the flip-side of the credit market and liquidity freeze.

Stung (perhaps severely?) by that meltdown? Here (the good news) is an enormous, far more durable, opportunity. But (the bad news) if you are still bleeding from overexposure to the frozen credit markets, you may not be in a position to make the requisite investments half a world away.

Don't ever again think that managing a law firm is an exercise in quarter to quarter or year to year performance.

The transition from "emerging" to "emerged" will take a few decades. You need to have the same time horizon.

---

Update:  Mon 1 Sept.

The September issue of The American Lawyer (published online today) has a lead story, "No More Pure Plays," attempting to apply lessons learned by law firms sideswiped (or worse:  see Brobeck) by the dot-com meltdown in 2000—2001 to today's market where securitization and structured finance have experienced a similar sickening sensation of the trap door opening beneath them.

The first thing to be said about these types of market tops is simply this:  "In hindsight, the folly of it all seems obvious. But here we are again."

And, as Stephen Neal, managing partner of Cooley Godward Kronish from early 2001 through today puts it with commendable clarity:  "In retrospect you might say [the growth] was a mistake, but we didn't know at the time how long this market would last. At the time it was almost irresistible."

The "almost irresistible" comment brings to mind the business classic, The Innovator's Dilemma, where Prof. Clayton Christensen of Harvard Business School set out a coherent, compelling, and historically astute view of just how the most powerful incumbents in any given industry are precisely the firms most vulnerable to maverick upstarts with what appear at first glance to be second- or third-tier offerings of no conceivable utility to the incumbents' core customers.  While it might seem intuitive that the most knowledgeable, most strongly capitalized, most sophisticated firms in an industry would be theones most capable of exploiting innovations "in their own backyard," as it were, Christensen demonstrates precisely the opposite is more common.  Incumbents suffer from:

• Being excessively loyal to their core, established clients (yes, even client loyalty can be pushed too far, when it becomes a limitation rather than a strength);
• Focusing on continuous incremental improvements to their existing product or service offerings, while being blind to "disruptive" innovations; and finally and most tellingly of all
• Being unable to abandon extremely profitable existing lines of business to take a chance on an unproven innovation whose value will only be known in some indeterminate future time.

It's the final point that Mr. Neal is echoing, and it's the seductive power of any boom:  When the getting is good, the getting is very good indeed.  (Or, as The Onion recently facetiously headlined, "Americans Reeling from Housing Meltdown Seek Next Bubble to Invest In.")  Some of the key Silicon Valley firms grew as follows—and this doesn't include all the firms from elsewhere in the country that starting piling willy-nilly into Northern California just as the window was about to slam shut on their fingers:

• Cooley added 300 lawyers in a 12 to 18 month period;
• Wilson Sonsini went from 550 to 812; and
• Brobeck from 540 to 724.

Even at that torrid pace (let's not even think about quality control, shall we not?), "'We turned away nine out of ten pieces of business--maybe more,' said Mark Tanoury, who then headed Cooley's business group, in 2000."

Still, the article finds reason for optimism this time around, at least as compared to the carnage at the start of this decade.  Why?  Primarily because the NY-centric firms that doubled down on securitization have been far quicker to wield the "scythe" with associates.  To this day, Wilson Sonsini has never publicly admitted that it laid off associates, although, mirabile dictu, its headcount shrank from 812 in 2000 to 540 in 2004, and the beginning of the end of Brobeck, at least as the received wisdom has it, came when Tower Snow refused to lay off associates. 

The article gives, indeed, the last word to Mr. Snow:  "History shows that those who are overconfident or arrogant tend not to do well when the environment changes." Ironic, and prescient, words indeed.

But I choose to give the last word to Chris White, chairman of Cadwalader, who told The Wall Street Journal last month: 

"There was a bubble, we rode that bubble, it contracted, and we adjusted. Even knowing what I know now, I wouldn't have changed a thing,"

The cynics in the audience may judge that chutzpah of the highest order.  But I for one see it differently, and give Mr. White great credit for a shockingly salubrious spasm of candor. 

Now the only question will be whether their "adjustments" have been rapid and strong enough. 

I recently had the chance to sit down with Jay Zimmerman, Chairman of Bingham, to discuss the changes he's seen over his career, and to talk about the future of the legal industry and Bingham. Herewith a synopsis.

Jay (Harvard, Harvard Law) started his career in New York at Debevoise, but within a couple of years moved to Boston and joined what was then Bingham, Dana, and Gould. Making partner in 1986, he relocated with his family the following year to London to manage what was just about then the tiniest office imaginable for Bingham--one partner and one associate--and ended up staying seven years. (Since Jay's transatlantic stint, the London office has grown to 45 lawyers, focused on financial restructuring and financial regulatory practices.) Enjoying the quintessential ex-pat experience, Jay got to the point where he never expected to return. But of course he did, to lasting effect.

"Are you sorry in any way that you left London? Obviously there's a school of thought that London has or will overtake New York as a financial capital."

"Well, I wouldn't write New York's obituary quite yet!" Nor, he volunteers, would he worry about the "New York elite" firms who haven't yet invaded London to a material degree. They have the resources and the will to do so when they see fit, he opines. "It's a problem lots of firms would like to have."

The firm he returned to relied on Bank of Boston (founded in 1784) for fully one-third of its business, and the comfortable relationship engendered complacency (my reading, although Jay would probably be more politic). Sure enough, in the recession of the early 1990's the Bank was challenged: Its share price hit a low of $3. In 1996 (we now know) it was to merge with BayBanks, then to be acquired in short order by Fleet (1999) and finally by Bank of America (2005).

Although Jay and his partners had no inkling of that subsequent history, it was clear that with such extraordinary over-reliance on one key client, and with essentially all of its 200 lawyers based in Boston, Bingham had what was not exactly a business model for durability in a world of change.

In 1994, Jay was elected Chairman and embarked on nothing less than a concerted transformation of Bingham, with no fewer than nine mergers since 1997, and the following results:

Increasing the number of offices from one with three small satellites to 13, across the globe;

• Quadrupling its size and then some to nearly 1,000 lawyers;
• Growing revenue eight-fold; and
• Increasing revenue per lawyer from about a third of a million dollars per year to nearly $1-million.

Last year was Bingham's best on the financial front. As for 2008, Jay reports that the firm is experiencing an even stronger first half compared to last.

How did Jay do this? As he observed drily, "fear is a great motivator."

Other firms have tried to move from a metropolitan or regional base to a national and even international platform, with varying degrees of success. How has Bingham done it?

"Well, for starters, Boston was, second to New York, perhaps the most sophisticated and highest-rate legal market in the domestic US. If you want to try to build a global firm, it helps to begin in what's a relatively high-end home market.

"LA has produced some absolutely terrific firms, Latham, Gibson Dunn, etc., but when you think about it the LA market itself is an uncommon place for very high-end law firms to come from: It's not a powerful financial capital, it doesn't have a lot of Fortune 500 headquarters, and its industries are widely dispersed. But then again, when you look at where other nationally prominent firms have come from (the Midwest, for example, and I say that as a St. Louis native), Boston wasn't the worst place to start."

It's clear to me, I observe, that Jay personally has been a large part of the driving force behind Bingham's decade of expansion. "How do you deal with the challenge of leading notoriously autonomous and independent-minded lawyers? Obviously this is a challenge for any managing partner or Chairman, but when you embark on a course of, essentially, transformation of the firm--not a 'steady as she goes' strategy--you've really upped the ante."

"It's probably a cliché, but it's communicate, communicate, communicate. I'm constantly traveling--in fact I just got back from London and Tokyo--and I meet and talk with as many partners, associates, and staff as I possibly can. I do videotapes. [There's a nice sampling on the firm's website--Bruce] In fact I just did a videotape for the summer associates, who are just starting. But there's no question it's a challenge. You need to be out in front of your partners, but not too far out in front."

And the message is?

"The message is two-fold:

"Number one, this firm is ambitious, and our lawyers need to be ambitious. They need to understand that. When I talk to people we're thinking of recruiting, I try to get a sense of their level of ambition. People want to fit in, and we as a firm want them to fit in. So ambition is part of what we're all about.

"Number two, we love change. You don't hear that often from a law firm, but the fact is that the status quo is good for incumbents, and we're not an incumbent. In change we have opportunity; in stasis we don't. So people here need to be prepared to embrace change."

I observe that law firms can be fragile institutions. Is that something he worries about?

"Of course. We're all here voluntarily. And when you're in the business of assembling a bunch of highly talented people, one of the consequences is that those people have options. The only reason they come back up in the elevator in the morning is because you've presented them with, and continue to present them with, an attractive career proposition. But yes, I pay a huge amount of attention to that. It goes back to communication, and to having people here who fit in and want to fit in."

Is "work-life balance" part of that equation? Part of the task of retaining talent? And how different is "Gen Y?"

"Well, they're really hugely different. The original IBM PC was introduced in 1981 and our new associates were born after that. They've grown up digital; it's not news. But I don't think the term 'work-life balance' is helpful, descriptive, or informative. If you're going to make it here, you need to be committed. What has changed is that commitment takes a different form. When I started at Debevoise, it was all about 'face time.' You needed to be seen in your office at 7 or 8 or 10 pm, and the same on Saturday mornings. But today of course you can work from pretty much anywhere--so long as you do the work.

"But again, the commitment hasn't changed. Look at young investment bankers starting out. They get told, 'Look, you're going to make a lot of money, but you need to be on call 24/7. We're not going to need you 24/7, but you need to be on call.' For our associates, what I tell them is that it's all about realism. If they're realistic about the commitment this profession demands--as well as the rewards, intellectual, professional, and otherwise, that it can provide--then they'll be fine. If they're not realistic, they're in for a rude awakening."

I ask if he's familiar with the industry structure I call the "hollow middle," where consumers gravitate toward either the high-end, high-quality providers, or the mass market, value providers, but not in meaningful numbers to any middle-market providers. This industry structure is remarkably common and seems to be stable--an "equilibrium," as economists would put it. For example (think about whether these don't represent your own buying patterns):

• Apparel (you want Armani or Gap)
• Cars (BMW, Lexus, Mercedes, or Toyota and Honda)
• Alcoholic beverages: Beer, wine, and liquor (fill in the blank)
• Groceries (Roquefort or a dozen eggs)
• Financial services (free checking for life or Bessemer Trust)
• Etc.

Jay thinks it may hold lessons for the legal industry. And we know where he wants Bingham to be.

I realize that I don't have a firm grasp on Bingham's international strategy, so I pose the question bluntly: "Tell me what it is."

Jay says he likes to use the phrase "global relevance." By that he means Bingham attempts to offer a practice focused on one of their core strengths, which is global restructuring and financial regulatory work. They strive to offer this in London, in Tokyo, and increasingly in Hong Kong. "There are a lot of opportunities out there which are very real--they're just not opportunities for us." In other words, Bingham doesn't need to have a dozen offices across the EU, or any offices in mainland China until the financial systems there mature a bit more.

"What makes this strategy work for you?"

"Well, first of all, there are spinoff benefits to other practice areas, including litigation, corporate, and finance work itself. But secondly, we're benefitting--as we have in other areas--from changes and even relative turmoil in the markets. I'll give you an example. Ten years ago in London everything having to do with restructuring distressed companies or distressed assets primarily involved banks: They had extended the credit, their covenants that were being violated, and they were in the driver's seat. Since we didn't have old-line relationships with those banks, we didn't have the connections necessary to attract that kind of work.
"But today lenders are all over the lot: They're hedge funds, maybe private equity, other sources of capital, and bondholders are no longer passive--they're aggressive. This gives us many points of entry, and they're not all the traditional institutional players. As I've said before, it's a different world, and that creates opportunity for us."

And what of the future?

"We believe that as globalization accelerates and the world becomes a more complex place, there will be increasing demand--both in absolute terms and across geographical regions--for sophisticated restructuring capabilities, again, with all the financial regulatory authority interfacing that goes with it. We don't think this practice focus is at any risk of obsolescence."

Regular readers will know that one of the "evergreen" topics here at "Adam Smith, Esq." is what can possibly explain the fact that for the past 30 years essentially 50% of law school graduates have been women and for almost the same period of time only about 15% of BigLaw partners have been women. Neither number is budging. Why, I ask Jay, is this?

"As a father of two grown daughters, I think about this often, so I'd like to take some time to share my thoughts on this. The unfortunate reality of today is that you can't defy gravity, but I am optimistic things will change.   By 'you can't defy gravity' I mean that graduates of our elite law schools, for the most part, marry people with equally promising career prospects. So you have all these couples composed of a pair of high-achieving people starting off.

"When it comes time to have a family, it often makes economic sense--putting aside any emotional issues--for one spouse -- and it is usually the woman -- to focus on raising the kids. If you assume that many of these couples are in a position to live on one income, it's probably not so surprising what we see happening in the workplace.

"This scenario is not unique to law firms. We need to do a better job as a society to ensure that there are equal opportunities for women to pursue their career ambitions -- and not be automatically placed in a position of choosing between starting a family or building a successful career. Ultimately what we can do, and I do believe that we do this at Bingham, is to provide the opportunity for all our lawyers -- men and women -- to succeed.

"For women, we encourage flex- and part-time schedules. It is not uncommon for us to elect women partners who are or have been part-time. We provide an environment where women are encouraged and are given every opportunity to succeed. Our efforts have not gone unnoticed internally as well as externally. We're consistently noted for our positive and supportive work environment by FORTUNE in its '100 Best Places to Work For' issue (for five straight years), and by Working Mother and several regional publications where we have offices."

As we're preparing to adjourn, Jay recommends to me a Harvard Business Review article that has been influential in his thinking, "Strategy as Active Waiting" [only available for a fee, but I've bought it and look for a column about it here soon]. The concept is essentially:

• Keep your priorities clear, but your roadmap fuzzy;
• Test the future; examine your assumptions; keep an eye on the horizon;
• While you're watching, keep the pressure on your day to day competitiveness; don't let up; and
• When you see an opportunity opening up, focus on it with urgency.

As I'm about to get up, Jay asks abruptly if I think leaders can be made.

"No, I don't," I say. "You can 'make' managers, and you can expose people with leadership potential to career-broadening environments (say, sending them to Hong Kong for 3 years), but no, I don't believe you can 'make' a leader out of whole cloth."
"I agree; nope, you can't." (I'm relieved to have provided the right answer.)

There's little doubt Jay has managed Bingham with urgency and focus. The challenge--scarcely unique to Bingham--is now maintaining their strategic focus as they expand internationally. And besting the hollow middle.

This is a column about wringing our hands.

Our first text, from the Old Testament conventional debate, stems from today's WSJ story on "Axiom Legal," headlined Newcomer Law Firms Are Creating Niches with Blue-Chip Clients, discussing the business model of Axiom and other firms, which is to provide highly credentialed attorneys to corporate law departments on a contract or project basis, typically at savings of 25-50% vs. what an AmLaw 100 firm would charge.   Other components of the model are:

• The lawyers are recruited very very selectively—about 1 in 100 applicants to Axiom gets hired, according to its founder;
• Their pedigrees need to be gilt-edged, with backgrounds from places such as Cravath, Simpson Thacher, and Davis Polk;
• Work is typically performed directly at the client's, or the lawyer's home office, drastically cutting real estate overhead; and
• Axiom lawyers are provided benefits whether or not they're working on a particular engagement, but obviously only get paid for work performed.

Firms such as American Express, Cisco, Deutsche Bank, GE, Goldman Sachs, Morgan Stanley, Sun Microsystems, UBS, and others, have signed up and Axiom's revenue was $39-million 2007 and is "on pace" to be about $66-million this year.  So, yes, it's a real business, even if it will never be an existential threat to BigLaw in the complex deals or litigation.  Stuart Popham of Clifford Chance puts it nicely:  "Clifford Chance has always been at the forefront of developments in the legal world and welcomes innovation, but does not see it as a threat, nor as a challenge."

So what's the problem?  What's the conventional wisdom about this?

For that, we go to the source for the voices of the anonymously-empowered cranky observers who comment over at the WSJ Law Blog.  Herewith a sampling from the piece covering the Axiom story:

• For all the prancing and hot air, they’re still just another temp agency peddling flesh that didn’t cut it on the most grueling track. An unfortunate and painful fact of life is that excellence in the performance of legal services can’t be delivered by dilettantes. People with “other interests” — whether it’s playing with their kids or writing an opera — may very well be healthier and more interesting people than those who wed their souls to the inhuman demands of private law practice. But they are not going to be as good lawyers. There is always a market somewhere for less-than-excellence at a discount price. Temp firms like this one serve it. But please, enough about the “special” quality of their inventory.
  
  
• It is fascinating that, yet again, the perception is voiced that unless one is willing to work ridiculously long hours and bill exorbitant rates, (not to mention in expensive suits and behind mahogany desks) that the resulting work product is not good. Says who?
  
  
• This [article] highlights a mindset in the legal market which consistently causes larger corporations to pay exorbitant premiums for legal services of questionable quality. However, it ignores that “pedigree” and large firm experience are not reliable indicia of quality touches on a demonstrable fact that is largely ignored by the legal market…

  That salient fact being that at most large law firms, in the first several years of practice, the only experience that associates receive is doing work that could be handled by a competent paralegal or secretary. Moreover, in large firms, the billable hour and marketing requirements generally mean that the amount of quality mentorship conducted between senior attorneys and those highly compensated young lawyers who are mostly engaged in doing the work of a clerk typist is minimal.

  By contrast, in a small firm environment, the working relationship between partners and associates tends to be very close, with ample opportunity for supervision and mentoring. Further, opportunities for all manner of legal tasks come to associates much more quickly. The natural consequence is that after six years of practice, an attorney whose lack of pedigree limited her options to small firms is likely to be a much more polished professional with significant amounts of meaningful experience in the actual practice of law. By comparison, after six years in a megafirm, the associate is likely to be paranoid, jittery and harried from the toxic work environment, while having very little meaningful experience in the actual practice of law.

• There certainly are “bet the ranch” matters out there that warrant elite law firms. But 99.99% of what big law firms deliver is overpriced. These guys have identified a nitch [sic: niche] that is waiting to be filled.
  
  
• Axiom’s model works if you assume all Axiom projects will have plenty of lead time for staffing, have discrete start up and wind down dates, will keep the lawyer fully utilized during the project term, won’t morph into additional projects, won’t have intermediate deadlines that require late nights or weekends and won’t require supervision or input from other practice areas. If this was realistic, no one would ever leave big law. It’s the lack of control that causes stress, and once you have all of these variables in play, it’s going to be the same no matter what sign is on the door.

What exactly is problem these commenters—and the existence of Axiom to begin with—are highlighting?

I submit it's an inability, or at least a failure, of clients to measure quality of legal services.  With no real handle on what's extraordinary work, what's acceptable work, and what's unacceptable work, clients buy the "proxy" of prestige firm, law school pedigree, and, yes, high hourly billing rate. 

Axiom is attempting to perform arbitrage on that market by promising the gilt-edged pedigree (erego the 1 in 100 hiring number, which sounds impressive regardless of its statistical integrity), without the prestige firm name and without the eye-opening hourly rates.  As an admirer on general principles of firms that try to find localized market failures and capitalize upon them, I am glad to see Axiom evidently successful and growing. 

On the other hand, it strikes me they have not addressed the core market information failure, which is clients' consistent and nearly universal inability to assay quality of their lawyers.

Back in February, Steven Pearlstein wrote a column called Failure in Need of a Theory in The Washington Post (online version now only available for $$), positing the following:

"I'm wondering if we need a new theory of relativity for economics, where the standard models are unable to explain a growing number of situations where highly competitive markets are delivering less-than-optimal results.
The recent credit bubble is one example of a very big market failure for which we all will pay a serious price. But other, smaller failures also come to mind.
Think of skyrocketing tuitions among elite colleges and universities that spend lavishly on winning sports teams, rock-climbing walls and scholarships for those who don't even need them, all to attract top students.
Or the runaway compensation for chief executives who would be willing to take the job for half of what they are being paid.
Or the ridiculous prices paid for "it" handbags, fancy watches or houses in the Hamptons.
How do we explain why cities are still tripping over themselves to offer subsidies for baseball stadiums and convention centers in the face of overwhelming evidence that these diminish economic efficiency and welfare rather than enhance them?
And how is it rational that first-year associates at top law firms are paid more than federal judges? ...  And how many law firms have sacrificed the quality of their work and the collegiality of their culture to improve their profit-per-partner, the all-important metric in the annual American Lawyer rankings?" [Emphasis supplied]

Mr. Pearlstein fingers the culprit as "relative competition:"

"One thread that runs through all these "market failures" is that they involve a kind of competition in which "winning" is more a relative concept than an absolute one -- that the goal is not so much to maximize profits, income or welfare, as economic models assume, but to beat the competitors. In the process, perfectly rational investors, businesses or consumers wind up doing things that are irrational, leaving them no better off than before.  ...  The desire for ever-bigger homes, ever-fancier gas grilles, ever-more powerful SUVs is based not on some absolute notion of what is good or sufficient, but rather on the relative basis of what everyone else has.  ...  [As] Chuck Prince, the former Citigroup chairman, who famously gave this explanation last July for why Citi was continuing to lend aggressively into what everyone could see was a credit bubble: "As long as the music is playing, you've got to get up and dance.""

Now we're getting somewhere.

AmLaw firms seeking to confirm their prestigious status (or aspiring thereto) cannot compromise on matching the "going rate" for associates, or on the pedigree of law schools they draw their partners and associates from, nor (once the overhead expenses associated with those decisions have been assumed) on their hourly rates.  They can't compromise not because it's purely rational homo economicus behavior:  No, the reason they can't compromise is because none of their peers is compromising.

But we still haven't broken the "quality" code.

Our second text, from The New Testament a Fortune 500 law department, tries to do just that.  In an email I received earlier this week from Jeff Carr, GC of FMC Technologies (granting me permission to share it, by the way), he writes:

"Bruce – interesting exchange on egos’s, capitalism and win ratios as opposed to P3 (profits per partner) data.  Here at FMC Technologies we maintain that the best and most effective way to approach this issue and to align divergent interests with performance and value is to use a performance based pay system.  Nearly 100% of our engagements are on one of two models.  The most simple, and the one that would in our view address your points as well as those of your interlocutor, is the “report card system.”  We directly tie compensation to evaluations – firms receive between 80% and 120% of the amount billed based on how they do on 6 criteria.  Our evaluation form and fee calculator is attached. 

We have over 1000 attorney evaluations in our own database and we are very disciplined in performing the evaluations and delivering the results to the firm – indeed we stack rank our firms with the other firms.  If you want to increase performance and customer satisfaction, all one needs to do is to unleash the competitive instinct of a bunch of smart, overachievers, tell them that they aren’t at the top of the heap compared to our other legal service providers!  Our experience with this system yields demonstrated results – firms are making more than 100% of their invoice (on average) and our total legal costs are static absolutely and down as a percentage of revenue.

If we in-house folks started to aggregate customer focused evaluation data, we would create a very powerful and very real assessment of attorney and firm capability, effectiveness and value."

Here's a screenshot of the evaluation form:

On a 1 to 5 score, from unacceptable through mediocre, good, and very good to excellent, the criteria are:

• Understood client's goals
• Expertise
• Efficiency
• Responsiveness
• Predictive accuracy (about budget and results); and
• Effectiveness.

Then there is the uber-question:  "Would you recommend that we use this attorney/firm for similar work in the future?"

But wait, there's more. 

In its one-page, plain English "Covenant with Counsel," FMC specifies additional conditions and expectations.  Among the more fascinating, FMC will:

• Organize and participate in “after-action” reviews at the conclusion of each matter to help us continuously improve performance
• Be flexible, accommodating and creative in dealing with potential conflict of interest issues that may arise
• Provide training opportunities for your associates through short term secondments or other creative arrangements
• Understand that this relationship is built on mutual trust and that by eschewing a “no stones unturned” approach, we accept some risk.

And the Firm will:

• Bill you fairly and understand that you seek neither education, elegance, new law, nor perfection unless these provide value consistent with your company’s objectives.
• We will always seek simple, effective solutions
• Seek to reduce our costs creatively and constantly and share those savings with  you while also increasing our profitability
• Not ask for blanket conflict waivers and be responsible to bring actual or potential direct, client or issue conflicts to your attention
• Exploit technology to our mutual benefit.

In other words, FMC establishes specific performance criteria for its outside firms, evaluates their adherence to those standards discipline, and rewards firms that excel (and punishes those that fall short) by specifying up front that the final fee may be from 80% to 120% of the estimate.  As Jeff summarizes (my emphasis):

"It's not rocket science, it just takes discipline.  If you pay for hours, you tend to buy hours regardless of quality and effectiveness.  If you reward performance, then your firms will perform."

Start thinking creatively (BigLaw and F500 firms, I'm talking to all of you) about what "quality" in legal services really means.

Enough with the hand-wringing already.

Last week I had the opportunity to sit down with Allen Fagin, Chairman of Proskauer Rose. Allen is Columbia BA summa cum laude, and Harvard Law JD cum laude at the same time he earned an MPP from Harvard's JFK School of Government. He's worked at Proskauer for his entire career, and comes from the Labor and Employment Law Department where he was co-Chair.

With Allen, I wanted to hear about the state of Proskauer, his views on the recent past and potential near-term future of the industry, and to explore what he thinks are important changes in our industry.

I started by noting that both he and his immediate predecessor as Chairman, Alan Jaffe, came from the employment department and that to many people Proskauer has a reputation first and foremost as an outstanding labor law firm.

"Our labor and employment practice is extraordinary," he responded, "with a truly world-class brand.  But that practice accounts for less than 20% of our lawyers and revenues.  What the market is now recognizing is all the other things we do equally well."

Allen made clear that a strategic priority for the firm is the growth of its corporate practice, which has seen its revenues increase by $100-million over the past three years. He also reminded me that only three firms in the recently released AmLaw 100 increased their Revenue per Lawyer (a favorite statistic of Allen's, as it is of mine) by more than 15%: Wachtell, Debevoise, and Proskauer (+16%). That increase was almost entirely accounted for by the corporate practice.

Allen said it point-blank: "The whole thrust of our growth has been to build out the corporate practice."

Does that explain your recent opening of a London office?

Yes, that was "following our clients." It's following the practice areas we have in some measure of strength here in New York that can be bolstered by a presence in London:

• private equity, hedge funds, and alternative investments in general;
• finance; and
• mid-market M&A.

What, I asked, was "mid-market" M&A? He replied with bemused candor that it's whatever people say it is, but roughly from deals valued at $100-million to $1-billion or more. Very much in the eye of the beholder.

Is M&A being driven more "strategically," by corporations interested in acquiring capability and integrating, today, as opposed to six months to a year ago when it was more about financial engineering? "Absolutely; and those who can pay cash are the ones where you know the deals will happen."

Proskauer recently opened an office in Sao Paolo, Brazil, I observe; what's that about?

"It's about our Latin America corporate practice; it's almost exclusively outbound work. We don't practice Brazilian law. At the moment it's a small office, and it will remain small, but we find it valuable to have boots on the ground down there." So there's money in Latin America? "Absolutely."

Switching gears a bit, I ask Allen to describe in his own words the "State of the Firm."

"It's healthy, strong, and growing. But don't take my word for it: We just reported our 16th year in a row of higher PPP, and last year [2007] our year-over-year increase in total revenue was +22% and our increase in PPP was +18%: RPL was +16%" [as noted].

Without prompting, Allen continued: "The real question is the same question that any firm that intends to stay in the serious group of 20 to 40 firms (maybe 40 is too high) that will be left standing when the dust settles: How do we ensure we're one of that group?"

And here's where Allen really began to warm to the topic of our conversation.

"There's a critical tension between balancing growth and development, on the one hand, as against stability and the maintenance of values, on the other. That might be my single biggest challenge as Chairman."

What are you proudest of, then, in your tenure as Chairman to date?

"I'm most proud of being able to see the firm grow without sacrificing our values." How do you do that? "It's a constant effort to communicate, of course, talking to everyone in the firm about what we're trying to accomplish in terms of marrying the past and the future."

"You know, you can read any number of articles in the legal press about law firms adopting a more corporate business model. But I'm old-fashioned. I believe law firms need to be partnerships. We need to be partnerships, but we need to do so without sacrificing efficiency, nimbleness, competitiveness, and a sense of collective destiny. This is part of the challenge."

I ask about a topic on which an enormous amount of ink has been spilled: The intertwined issues of associate attrition, the "war for talent," and the much bruited new expectations of Gen Y. "Is this really different," I ask, "than when you were an associate?"

"Yes, it's different; Gen Y is different. It's real." Allen observes that the number of law school graduates have increased perhaps 8% over the past decade, and that the number of top students from the top schools who want to go to the top firms has decreased. This double whammy explains, to him, in Econ 101 supply and demand terms, why associate salaries are as high as they are. [Editor's note: I thoroughly concur.]

Compounding this problem is that the cost of attrition--whatever it actually is, he says, implying healthy skepticism about the often quoted and glib numbers of two years worth of salary, $500,000, etc.--has most assuredly gone up. The only way to deal with it, he said, is through scrupulous attention: "It's a much more difficult retention problem, the issues are more nuanced, and it has made us all think more critically about this."

I ask if he thinks the classic recruiting model of hiring the top X% of students from the top Y law schools still makes sense, and he proceeds to outline Proskauer's and his own vision of what I have called "Associate Moneyball," wherein firms would attempt to determine what characteristics of law students, aside from class rank and name-brand of school, actually correlate with successful and enduring careers. He related the experiment of attempting to always hire the student who was first in the graduating class at Brooklyn Law School's night program: "Now that person, I have to believe, has fire in the belly. And after all, it's all to do with:

• intensity of effort;
• dedication to the quality of the work product;
• and caring for the client."

I cannot disagree.

Proskauer, I note, has a long history of contributing leaders to New York bar associations, and of pro bono work. Where, I ask, did that come from? (Here, Allen became especially animated and fervent.)

"History; it's imbued in our culture." The firm has a long tradition of public service, and it tends in a way to feed on itself. Someone who's chairman of a committee will recommend a colleague to be a member, and soon that colleague will become a more senior member, and so on and so on. But in terms of our pro bono program, we've really tried to formalize and institutionalize it in important ways:

• We have more meaningful partnerships with designated organizations in the community that we therefore get to know better.
• We've coordinated our firm-wide charitable giving program with the pro bono commitments we've made and with the targeted organizations; and
• We've expanded beyond the traditional bastion of pro bono work--litigation--to more transactional and corporate type work including, specifically, counseling on corporate governance.

What all this adds up to is that we get more associates involved, and involved at a higher level of intensity. We can, as it were, "adopt" community organizations and this gives lawyers across all our practice groups the opportunity to serve.

Finally, at an organizational/executional level, we have converted "pro bono" into a practice group in its own right, just like any other, which means that it comes with all the operational and institutional procedures of any other practice group--things like the assignments system, looking to fill holes in experience, and so forth.

As I said, Allen is fervent on this topic.

Also noteworthy is that prominently displayed on their reception area coffee tables are copies of their report on pro bono work, "Break/Through: 2007 Pro Bono Review," a handsome and high-quality brochure with a foreword by Allen that opens with the words, "For many people who face complex legal challenges, it's difficult even to get a break..." Interestingly, the typical self-congratulatory firm annual reports were nowhere to be seen.

Have you policed your reception area lately?

But I digress.

What would your advice be to new associates, I asked.

"It's too late!" (laughing out loud).

Well, then, to college grads contemplating law school?

"Obviously, friends ask me to talk to their kids all the time, and what I say is to talk to as many young associates as you can, so that you really, deeply, understand what you're getting into."

My final question has to do with the unexpected.

What, looking back over the past 10 or 15 years, has been the biggest surprise to you?

Allen thinks, visibly, and there is a long silence. Finally he says:

"The resilience of the billable hour. Ten years ago I would have told you it would be dead, today I will tell you it should be dead, and ten years from now I imagine I'll be telling you it should be dead. It's inexplicable."

"But second [and this is entirely unprompted], equating the compensation of attorneys with their year of graduation from law school." Do you mean '"associate lockstep?" Hasn't Howrey experimented with changing that? "Yes, I do mean 'associate lockstep,' but it's so hard to get away from it." He elaborates that it makes no sense to clients, it doesn't resemble what's done in any other remotely modern industry, and it's intrinsically at odds with the meritocracy that elite law firms hold themselves out to be.

And with that we adjourned.

---

Broadly speaking (gross generalization coming up), managing partners are selected for the force of their personality or the force of their intellect. True, there are the extraordinarily gifted few who combine both, but they're as rare as Lincolns among American Presidents.

Allen is understated, low-key, speaks very softly, and is one of the most truly thoughtful people I've recently met. Lawyers, we of all people, should appreciate the supreme value of analytic rigor and acuity. In fact, the intensity of his thoughtfulness borders on the shocking. We long ago got used to not expecting thoughtfulness in public discourse, and that expectation may, alas, be infiltrating our expectations in private discourse. A few minutes with Allen would disabuse you of your cynicism.

I was invited to attend a presentation on "Innovation in Legal Service Delivery" last Wednesday at Allen & Overy's New York offices, where the conversation was kicked off by four speakers:

• Ward Bower of Altman-Weil discussing their Legal Transformation Study;
• Rosemary Martin, newly minted General Counsel of the Practical Law Company and as of two weeks ago General Counsel of Reuters;
• Paul Lippe, CEO of Legal OnRamp; and
• Michael Will, partner, Derivative Services LLP.

Unfortunately, the only public coverage the event has gotten to date focused on the common wisdom that law firms are allergic to innovation ("Innovate or Die Still the Message to Law Firms" is the headline of the piece), that they're "conservative to a fault," and "slow to embrace change."

What's wrong with that?  Simply that it misconstrued not only the creative and diverse approaches of the four panelists on the program, but most importantly did not comment upon or reveal the tonality and purpose of the event, which were exploratory, open-minded, inquiring, and refreshingly prepared to admit the speakers (and the questioners) didn't have all the answers.

Where to start? 

I suppose as good a place as any is to go right back to the mainstream media, where, it bears reminding, Allen & Overy won the Financial Times annual award last year as "The law's best and boldest innovator."  (I understand this FT competition will be broadening its reach to include a separate US category this year; that should be interesting....)

Another starting place might be to reflect on the conversation about the billable hour, regular scourge of those evangelizing for innovation.  What struck me about this part of the conversation was that the law firms seemed weirdly less wed to it than the clients.  After all, how is a GC necessarily to defend a bill to the CFO for $850,000 "for services rendered."  One imagines the conversation if it went well:  "Why not $750,000?!"  And if it went badly:  "You were trying to save money?!  This was a million-dollar-plus case!"  But on the billable hour model, with activities itemized down to the 1/10th of an hour for the paralegals at the document warehouse, the GC is bulletproof.  "Well, yes, you see, but the work was actually done, to the tune of $902,347.25"

Yet another might be to look at the actual framework of the Altman-Weil sponsored Legal Transformation Study, which looks out to the year 2020 and projects four potential scenarios, based on your view of whether legal service delivery will become more aggregated or more disaggregated, and on whether regulation will become heavier and more intense or looser and more laissez-faire.  This produces the following 2 x 2 matrix:

The dimensions are "aggregated/disaggregated" across the horizontal axis from left to right, and "highly regulated/laissez faire" down the vertical axis from top to bottom. 

None of these four scenarios is meant to represent an exclusive view of the truth, as combinations and permutations may be (according to your view) the most realistic.  Similarly, none is meant as a "prediction."  Rather, scenarios are tools for critical thinking about how your firm (your practice group, your office, your own book of business) may fare in the future depending on what you think is plausible as the industry evolves.  Here are the four quadrants in summary form:

• Mega Mania
  • Consolidation
  • A conflicts-prone world
  • A traditional model dominated by giants
  • Client loyalty is low, frustration high
• Expertopia
  • Rise in litigation
  • Expertise at a premium
  • Numerous niche players driven by regulatory breakup of large providers
• E-Marketplace
  • Major economic downturn leads to deregulation and harmonization to spur growth
  • Flurry of new providers
  • Commoditzation
• Techno-Law
  • Peaceful world dominated by desire to enhance trade relations
  • Harmonious regulatory systems offering "lawyers in a box"
  • Clients demanding interoperable technology to pare costs
  • Global sourcing

Again, none of these, nor all of them together, is meant to be a blueprint for the future; they are meant to spur reflection, analysis, and strategic agility and nimbleness.  Take issue with them as you will, but do not take issue with the reality that the status quo is not an option.

Meanwhile, Rosemary of the Practical Law Company talked about her background of a dozen years at Rowe & Mawe followed by nearly a dozen more at Reuters, and her conviction that outfits such as the Practical Law Company are preparing the way for how law will be practiced in the 21st Century.  Hers was not a message of "innovate or die," it was more a message of, "look around and see how the other departments of corporations have been transformed.  And dare to think you might take a page from their books."

Rarely recently have I sat in a room with as many senior, high-caliber inhouse and law firm practitioners discussing openly their thoughts, their suggestions, their speculations, their doubts, their hopes and their fears for how our industry may evolve.  That leads me to my own devout hope, which is how to continue to advance this conversation.

One of more insightful remarks came from Paul Lippe of Legal OnRamp, who said that he believed there were "immensely strong pockets of innovation" in law firms, driven by individuals with vision and a commitment to their idea of a different future, but that "law firms have no way of institutionalizing those visions," and thus they tend to wither away after the spearheading individual departs.  Corporate America, you may have observed—at least the best of it, places like Google and Intel and the new HP—have ways of nurturing and spreading these individual pockets of innovative excellence.  But I fear our colleague's remark was true, that we have no such practices.

About this time you may be saying to yourself, "Sure, and I've heard all this innovation stuff discussed for the last 10 and 20 years and I'll hear it for the next 10 or 20."  That, permit me to suggest, is the problem.  That's the problem our faithful American Lawyer reporter succumbed to in trying to cover the event, and I admit it can be all too appealing to fall prey to a type of intellectual exhaustion, a feeling that all the energy has been drained out of the issue of "innovation" in legal services.

But I have news for you:  No one in this room on this evening believed that.  To those of us there, innovation is a vital, demanding, pressing challenge.  On the demand side, clients are increasingly seeking alternatives to the billable hour and annual 6—8% increases in fees, while on the supply side, associates are increasingly unwilling to stomach annual increases in billable hour expectations for episodic starting salary bumps. 

Actually, I believe the attitude of "I've heard this already" is just fine.  For 90% of firms. 

But 10% will change, and that 10% will explore alternatives, some successful and some failures.  The failures we can chalk up to Darwinism (and failures need not be fatal), and the successes we can chalk up to Darwinism.   If there are tremendous successes, however, the logic of the competitive marketplace tells us something else: Best be a fast follower.

So I ask you, dear reader:  How shall we continue these discussions? Are they best conducted in law firm-sponsored colloquies such as this?   Under the auspices of a legal publication such as The American Lawyer?  At dispassionate fora and conferences put together by and hosted at a law school?  What are your thoughts?  Let me know.

Or else, adopt the tone of the press coverage and decide it's ten years on and "still the [same old same old] message."