Law Firms, Disrupted
While the impact of the 2008 financial crises on Wall Street has been both well documented and seemingly short-lived, there was considerable collateral damage. A recent article in The Economist suggests that law firms also suffered a downstream contraction, but more importantly, have experienced structural shifts that will make it harder for them to bounce back to their previous shape.
A demise in legal fees for M&A activity and other corporate work quickly mirrored the declining fortunes of Wall Street, however there is also scant evidence that these are following the pendulum swing back up, as law firm hiring is stuck in reverse gear: negative growth for the past three years and, at best, anemic hiring anticipated into the near future. Prospects for new lawyers are now so bad that some recent graduates are suing their law schools for fraud, and some schools are even gaming their hiring statistics.
The Economist also argues that there are deeper structural changes. The most interesting of these is increased pressure on the basic business model of expensive hourly pricing. More and more companies are simply less likely to accept high hourly rates – especially for junior lawyers – and many are requesting (and receiving) alternative fee arrangements, including fixed, capped, or contingent fees. Add to this the prevalence of both software (such as eDiscovery programs) and outsourcing to replace some of the monotonous work (which is often both steady and profitable), and the pyramid structure of law firms seems increasingly unattractive for those at the bottom, and precarious for those at the top.
For the final twenty-five years of the last century, the legal business grew at a pace four times faster than the rest of the economy. Now, at least one expert predicts the equivalent of a hundred year flood. Mamas, you might just be better off letting your babies grow up to be cowboys.