In a recent interview with Lee Pachia of Bloomberg Law, Bruce MacEwen of Adam Smith Esq outlined the essence of his new book entitled: Growth is Dead, Now What? – his belief that the data indicates that growth is dead for large law firms. MacEwen said he sees no dynamic in the market that will change that going forward. He now sees the future as a battle for market share. Globalization, technology and the recent financial services crisis, are the root of the cause of this new reality, according to MacEwan. Clients are exercising market power they’ve always had, but perhaps were not aware they had, he noted. And he sees increasing market segmentation by law firms. Some firms doing well – others struggling.
MacEwen believes the template for success in big law will require more productivity up and down the food chain. Working harder, longer hours – and increasing scrutiny of non-equity partners. Firms need to get smaller, faster, Pachia noted during the interview.
According to MacEwen, the emerging BigLaw landscape will be very elite firms doing fine. As will boutiques and “category killers” (firms dominant in practice areas or sectors) – but after these three categories – then you have a relatively undifferentiated mass of mid-market firms. These firms are at most risk, according to MacEwen. “That’s the sector I would short”, he said.
MacEwen went on to state that firm management teams need to maintain discipline on price to preserve the perception of value.
There are alternative views
The only way firms can grow their practices in the future will be to take business away from competitors – or create new markets themselves. So says the Financial Times in a recent study of the top 25 innovative BigLaw firms in the U.S, as reported by Legal Skill Prof Blog.
Notably, George Beaton of Beaton Research & Consulting argued recently that law firm service diversification, as practiced by the large accounting firms – would serve to help law firms expand market share in the future. As Mr Beaton argued in The Global Legal Post: “law firms serve the same corporate and government clients as the accountants and have just as much access to c-suites and boards, yet they are allowing others to eat their lunch, so to speak.”
Why I don’t believe growth is dead
I disagree with Mr MacEwen – as I believe his analysis does not address a fundamental shift law firms can make to generate more work from new markets (both domestic and international) and a diversification of their services offer. Simply put, Mr MacEwen’s analysis presumes law firm services offers and management systems will remain static into the future. I don’t believe that’s a given at all.
Law firms can achieve new growth via new markets (both domestic and international) and diversification. However, in order to do so they must build internal business development departments capable of identifying, pursuing and capturing new clients in a highly sophisticated fashion and establish new services offers akin to those seen in big accounting or DC lobbying firms.
As the Hildebrandt Institute recently outlined, and as a spate of recent news reports have underscored, law firms are aggressively pursuing international markets as a means by which to increase revenue. With the EU and the US economies week, high-growth markets in Asia, Latin America, Africa, the Middle East and Central Asia, have become a prime focus for law firms seeking growth from new markets. I’ve previously written extensively about markets throughout the world – where growth is oftentimes reaching into the double digits. High growth regions are not the only international markets where lawyers ought to be looking – as more mature financial hubs are transhipment points for investment in energy, infrastructure, government contracts and numerous other sectoral opportunities. But as I’ve outlined, it takes a sophisticated business development effort to identify, pursue and capture clients associated with these abundant global opportunities.
In the United States, the Middle Market economy, were it a country, would be the 4th largest economy in the world. That market is under-served by professional services providers. US law firms are not effectively pursuing clients in this market – and I have previously outlined ways in which they can do so far more effectively.
One practical solution for the law firms Mr MacEwan describes as among the undifferentiated mass – would be to take a bold step to capture business in the Middle Market: Establish call centers to sell your services to that market. This would penetrate the Middle Market in an unprecedented fashion – and generate so much work that the legal services sector would transform itself overnight – to growth rates reflecting that of LPO’s.
As George Beaton has outlined, accounting firms have successfully diversified their service offer – and taken market share from law firms in the process. One example of a law firm seeking to diversify its’ service offer is the recent case of international business law firm Becker & Poliakoff of Coral Gables acquiring Miami-based lobbying firm Fuentes Rodriguez Consulting Group – as the Florida current recently reported. In addition to legal services, the joint services offer will provide clients with public affairs expertise. An often vitally important tool for companies seeking to do business while navigating often complex regulatory and political regimes.
Growth is there for the taking
Growth opportunities in domestic and international markets are available to law firms should they make the management decision to establish sophisticated business development units capable of identifying, pursuing and capturing new clients related to those opportunities. A myriad of legal specialities would benefit from such an effort. And considered diversification of services can only contribute to a firms ability to capture new work. The choice is now in the hands of law firm