Two significant and unrelated legal industry events made news among the 800+ delegates at the ReInvent Law conference in New York on February 7.

The collapse on February 5 of Heenan Blaikie, an establishment Canadian BigLaw firm, and the announcement on February 7 of British Telecom’s appointment of Axiom Law, a NewLaw firm, to handle commercial and anti-trust matters could have been just news stories.

Heenan Blaikie was a 500 attorney, 40 year-old firm with former prime ministers, premiers and judges as partners. Declining profits, tensions between offices, a divided leadership and the difficult environment for law firms resulted in the flight of a large number of partners; and the abrupt dissolution of the firm.

In contrast, Axiom Law is a 12-year old, 900 person firm that serves half the Fortune 100 from 10 offices across the world, including Hong Kong and Singapore. The BT–Axiom Law deal is for to commercial contracts and anti-trust work in the UK, US and Asia. This will drive Axiom’s 30% compound growth that put the legal services provider at rank 61 in AmLaw 100 tables in 2013.

Bad medicine for BigLaw firms

The announcements are bad medicine for BigLaw firms (BigLaw is the business model of the great majority of traditional law firms, not a description of their size). And it is sweet nectar for NewLaw businesses (NewLaw is also a business model description of providers).

BigLaw is a $500billion global industry, and its firms are remain very profitable. The thousands of large BigLaw firms around the world are structured as partnerships and have perhaps as many as 500,000 owners. These partners are smart and hard working – and they earn very large incomes. They have much to lose if the prosperity and reputation of their firms is not maintained. This a powerful motivation to respond to the changing environment of their clients and NewLaw competitors.

This means transforming their business model to meet new demands of clients and new competitors.  ReInvent Law speakers were divided on the prospects for BigLaw’s will and ability to reinvent themselves. In our opinion some BigLaw firms will very successfully adapt, but many won’t.

How fast is danger approaching BigLaw firms?

The biggest uncertainty is how fast the danger is approaching BigLaw firms. Opinion is divided. Some, including some in NewLaw believe danger is 10 to 20 years away; others point to signs that suggest the disruption is already occurring, including in parts of Asia.

Whatever the right answer, it does mean more Heenan Blaikie-style collapses. Only they will occur at a faster rate, especially in economies with little growth.

However, the majority of firms will not fail. But they risk competing away their profits in the struggle to maintain market share and their partners’ incomes will fall to a small fraction of what they do today.

By George Beaton and Nick Seddon, partners of Beaton Capital, advisers to the legal profession.  Dr Beaton’s most recent book NewLaw New Rules is available on Amazon.

Posted by George Beaton

George Beaton is Founder of Beaton Capital and a senior advisor to the professions on strategy, governance, client service, innovation, and value.

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