Paul L. Caron
Dean





Sunday, January 10, 2016

Law Firms Risk Obsolescence By Following Kodak's Path

KodakNew York Times: Law Firms Risking Obsolescence, Report Says, by Elizabeth Olson:

As the legal industry faces sluggish demand for services, weakened pricing power and falling productivity, a new report is warning that the country’s law firms are failing to make “bold, proactive changes.”

The report, compiled annually by the Center for the Study of the Legal Profession at the Georgetown University Law Center, said that firms needed to overcome resistance to change and even shake up the partnership structure if they are to thrive. Comparing the situation to the Eastman Kodak Company’s refusal to face major changes in the photography industry, the report found that the legal industry was ignoring recent transformations in its marketplace, at its peril.

Georgetown Law Center for the Study of the Legal Profession, 2016 Report on the State of the Legal Market:

Chart 1

m Chart 2

https://taxprof.typepad.com/taxprof_blog/2016/01/law-firms-risk-obsolescence-by-following-kodaks-path.html

Legal Education | Permalink

Comments

Some law schools are indeed teaching, or at least grappling with how to teach, how to manage Big Data:

http://www.legalbusiness.co.uk/index.php/analysis/4868-deep-blue-sky-thinking-the-cutting-edge-of-legal-ai

(I realize that's a UK paper, but some U.S. law profs are cited therein)

Posted by: anon | Jan 11, 2016 1:25:15 PM

I don’t know who Ms. Olson is, but this is a hack job. Comparing Kodiak to the overall legal field is similar to comparing Tesla to the car industry. Looking at the demand growth by practice graph, for example, it appears law firms should fire their bankruptcy guys and hire real estate gurus. Reality, of course, is the opposite. Today, I’d rather be a bankruptcy than a real-estate attorney.

What Ms. Olson missed is the growing schism between Big-Law and everybody else, i.e., Big Law is getting bigger and smaller at the same time. In litigation, due to the increasing use of Big Data, only they and they alone can handle the big fed cases or mass torts such as Volkswagen. The same is true with deal work and so on. Meanwhile, Big-Law has to do more with fewer people because Big-General Counsel is no longer giving them a blank check. In fact, Big-General Counsel is taking on more and more of what Big-Law used to do.

The talented lawyers who leave Big Law typically form pancake shaped boutique firms where everybody works and overhead is cut to the bone. These lawyers service primarily mid-market firms, but can ramp up if necessary.

Everybody else either joins the corporate world or dives into the - plaintiff, divorce, real estate, criminal, work for smaller private companies, or whatever pays the rent - world.

Which leads to a follow on a question: If the primary purpose of Big-Law School is to produce gristle to feed the machinery of Big-Law, how will Big-Law School respond to this changing environment? I’m sure teaching C-Law is a lot of fun, but what about Big Data? How will a recent grad apply his or her C-Law knowledge when faced with 25 million emails written in three different languages?

Thoughts?

Posted by: Dale Spradling | Jan 11, 2016 12:34:23 PM

But that junior law professor who practiced for a whole year told us that there can never be structural change in the legal profession in an almost entirely uncited section of a paper, so how can it possibly be true that alternate legal services providers are monstering law firms???

/s

@What You Measure,

Funny how you didn't include new hire salaries as a measure of law firm demand and growth. Oh, that's right - large law firms haven't increased their starting salaries in nine (9) years now, even as the tuition at several feeder law schools has increased 50%. Anyways, productivity is increasingly irrelevant as productivity gains are no longer reflected in wage increases to employees, but are instead horded as corporate profits. The important issues, as always, are thus: demand for law firms is stagnant, at best. The boundaries of UPL are constantly shrinking and are under assault by organizations many many times larger than the largest law firm. Most Americans cannot afford a traditional attorney anymore and likely never will be able to in the future. And we graduate far more attorneys than the economy can absorb, with all of the dismal debt, un- and underemployment issues that result from it.

Posted by: Unemployed Northeastern | Jan 10, 2016 10:08:53 PM

Am Law 100 firms have Revenue per lawyer >$850K. It's not quite Google, but it's not bad.

Posted by: What you measure | Jan 10, 2016 8:53:56 PM

Here's a little problem with the study: "Productivity is defined as the number of hours (billable time only) worked by lawyers divided by the total number of lawyers."

If law firms are shifting to flat fee models from billable hours models, of course billable hours will go down even if revenue, work, and productivity do not.

Or if law firms are charging more per hour--because they are more productive in each hour worked--that won't be reflected in "productivity."

Revenue per lawyer, profitability, and bonuses--better measures of productivity--are all up.

Posted by: What you measure | Jan 10, 2016 8:36:38 PM

I think a better parallel is the Cadillac brand. A few years back, owning and driving a Cadillac was the height of prestige. It told the world you made it. It was class! Today, if you purchase a Cadillac, all you get is a gussied up 40k Hyundai or a chromed up 80K Suburban. You are viewed as either dumb or old. You see them in Walmart parking lots. What happened? Cheap leases, cheap rentals and inferior quality destroyed the brand. Same thing with our law degrees. Prior to 1999, in order to attend an ABA accredited law school, one needed at least a 3.4 (even then you were probably wait listed), a decent essay and a high LSAT score. Not anymore. There are several schools with open enrollments and many schools are dropping admission standards, just like Cadillac. Our degrees have been cheapened.

Posted by: Sy Ablelman | Jan 10, 2016 2:57:26 PM