More than ever before, BigLaw partners are jumping ship, leaving their massive firms to spin off boutique practices, according to a recent report in The Recorder. And as the defectors from BigLaw firms increase, they’re demonstrating how innovation, technology, and flexibility are allowing entrepreneurial attorneys to take advantage of opportunities their competitors aren’t, in an industry that’s facing mounting pressure to evolve.
As The Recorder’s Xiumel Dong writes:
Partners have long left large law firms to branch out on their own.
But in a legal market increasingly under pressure from a variety of sources, including higher associate salaries, it seems that more and more California-based partners have recently left behind their practices at Am Law 200 firms to start their own shops.
Dong points to Michael Hassen, a defector from Jeffer Mangels Butler & Mitchell, John Cermak Jr. and Sonja Inglin, both recently departing from Baker & Hostetler, and Armen Zenjiryan, formerly of Jackson Lewis, as prime examples of this trend.
Many of the partners featured cited client cost concerns as a motivator for their transition to smaller practices. Cermak, for example, explained that his clients “realized that they can get great quality lawyers at smaller firms, there is a lot of rate pressure for in-house counsels.”
The BigLaw model these lawyers are leaving behind is under threat after more than a decade of stagnation. As Georgetown Law’s Center for the Study of the Legal Profession reported in January, these law firms are facing challenges on almost every front. According to the Center’s 2018 Report on the State of the Legal Market, firms are plagued by flat growth, limited demand, and declining productivity. Over the past ten years, for example, demand for legal services hasn't grown an inch, while lawyer productivity has dropped significantly. As a result, the typical lawyer bills $74,100 less a year than they did in 2007. Hourly rates have risen to fill the gap, but realization rates have fallen apace, leaving more and more firms simply treading water.
What’s at stake for firms who refuse to offer the flexibility and efficiency the market demands?
This shift isn’t just about winning the next client. It’s about the future viability of one’s practice. As the State of the Legal Market Report explains, inability to adopt to changing conditions could be setting firms up for disaster:
The problem is that, when the next economic downturn occurs, the levers that law firms used to mitigate the impact of the last recession are not likely to be as effective. This is in large part because firms would be starting from a significantly lower base than they enjoyed in 2007 – e.g., revenue per lawyer is lower than at the start of the last downturn, the ranks of equity partners can’t easily be trimmed much more than they already have been, and there is every indication that client resistance to ongoing rate increases is stiffening and not weakening. All of which suggests that the negative impact of the next downturn could be fairly severe.
Departing partners are finding greater flexibility to be a selling point of small and mid-sized practices. George Borkowski, who recently left the Recording Industry Association of America to join a mid-sized firm in San Francisco, said that smaller firms are “perfectly situated” for the market.
[I]t can be very flexible, it doesn’t have too much bureaucracy, it doesn’t charge ridiculously high hourly rates,” Borkowski said. “You get a lot more bang for your buck..."
Today, legal technology allows law firms of all sizes to offer top-shelf services that were once only the purview of white shoe firms. Whether it’s innovations in legal research or advances in eDiscovery software, forward-thinking attorneys can now easily handle tasks it would have taken small armies of associates and tens of thousands of dollars to accomplish in the past.
Of course, not all BigLaw firms are stuck in inefficient practices. Some have made very public investments in modernizing their practices. They, too, can benefit from the advantages other practitioners are embracing.
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Indeed, for practices of all sizes, technology isn’t just leveling the playing field. It’s offering a distinct advantage. Many law firms, particularly the largest, have over-invested in processes that are neither nimble nor scalable. Costly, on-premise technology implemented years ago requires significant investment to maintain and often remains in use years after it's aged from “cutting edge” to “legacy." Costly, resource-intensive workflows are applied to all matters, using the same billion-dollar-case approach on every task. Costly vendor relationships and long-term contracts lock firms into processes that are increasingly slow, expensive, and frustrating.
Lawyers who take a more innovative approach to their practice can cut down the bloat and focus on efficiency, allowing them to offer more competitive rates while providing equal or superior services.
If the intractable BigLaw model is Blockbuster, these enterprising attorneys are Netflix. The future is theirs.