Thomson Reuters and the Georgetown Law Center for the Study of the Legal profession have released an insightful report, "2013 Report on the State of the Legal Market", that examines the basic changes that have been underway for some time that promise to reshape the practice of law.
The report points out that it is not only the effect of the worldwide economic downturn that is responsible for the difficulties in the legal marketplace. But several interrelated changes and trends that have been emerging, that have been accelerated by the effects of the economic crisis.
Some of the key factors the report identifies include :
Emerging technologies and new workflows that simplify tasks and allow a more competitive playing field and the entry of new non-traditional actors into the market.
A commoditization of legal services that enable a division of legal services into tasks that can be accomplished routinely for less cost, either within the firm of by new non-traditional providers. Corporate client are also dis-aggregating matters. Parcelling out parts of matters to different firms which can provide the most cost effectiveness.
A fundamental change in the power of clients to bargain with their hired law firms. Because of the economic environment, clients are no longer willing to accept rising fees for legal work that they had little influence over. Clients want and now get alternative fee arrangement, input into legal strategies and continuing accountability for work being done.
There has been an overcapacity of new lawyers even before the economic downturn. Prior to 2008, "productivity growth in the legal market was essentially flat". The declining economy has exacerbated this overcapacity with firms laying off staff and associates and even partners to reduce costs. The report relates that legal consultant, Bruce MacEwen, states that"for the next ten years it is likely that American law schools will be graduating over twice as many new lawyers as will be needed to fill the jobs available".
Law firms will need to be even more competitive to survive. Internal use of business re-engineering methods and project management will be needed, to achieve the efficiencies and prices demanded by clients. Firm will also need to play to their own strengths to differentiate themselves among competitors.
In the area of the globalization of legal services, big firms have actually been very actively moving into international markets. The report says that "2012 was a banner year for global expansion of U.S. and international law firms." This appears to be the one area where firms are showing strategic judgement.
The report does not have high expections that current management in U.S. law firms takes these changes and their implications for the legal profession, seriously. They cite a"2012 law Firms in Transition Survey" by Altman Weil, that while 90% of managing partners recognized these trend as permanent. Many partners at firms "...have shown only a low level of seriousness about changing.
The report opened with reference to what Hernando Cortez told his soldiers to do, to insure that they would not be able to go back on confronting the indigenous population - "burn the ships". In other words, removing the safety net and fundamentally changing your options, may be required to deal with a new reality.
It still appears that many in the legal profession are still just bailing water with no vision to fundamentally re-structure what they are doing on their "ships".