The structural environment for Big Law has fundamentally changed in recent years. It is becoming increasingly clear that the law firm of the future will not be that of the traditional hierarchy which has dominated to date. In response, law firms are experimenting with different business models, billing methods and service delivery as clients demand more value amidst increased competition. While Big Law faces a number of threats, there are significant opportunities available for those willing and open to explore them.
Big push of the accounting firms
The steady advance of the big four accounting firms into the legal services market in Australia has caused unease within the legal fraternity. The accounting firms have targeted services adjacent to their core accounting business, including corporate restructuring, insolvency and litigation support. Packaging these services with non-legal service offerings such as general corporate advisory, the Big Four have positioned themselves as strong alternatives to Big Law. In attempting to mitigate the advances of the Big 4 the question is: how do lawyers position themselves as multi-disciplinarians?
AI and automation
AI and process automation have transformed the legal profession in many ways, and hint at the ability of law firms to re-configure existing resources to achieve innovation. Big Law has been slow to respond; the inflexibility of the traditional model makes it difficult for firms to shift their thinking. Legacy structures make implementation of new processes and technology a costly and difficult exercise. Further, traditional remuneration structures do not encourage large and long-term investment in new technology and systems. As more and more firms adopt similar technology, the ability of firms to connect with clients and develop their relationships will instead become the dominant innovation paradigm.
Burnout and culture
Traditionally, Big Law has a high rate of employee churn. Lawyers are increasingly looking for purpose, strategy, vision and a positive working environment – and they aren’t afraid of walking out the door if these needs aren’t met. While churn has a significant impact on the bottom-line (It is estimated that churn costs top American law firms more than US$9 billion a year), we often forget the hidden costs. Beyond billables, the costs of disruptions that occur as a result of churn - project delays, loss of institutional knowledge, dilution of team culture and morale – are significant. The game of lateral movement includes playing defence as much as it does playing offence; how do we create a culture not only conducive to high performance but also to employee satisfaction?
Margin squeeze and client expectations
Clients are continuing to look for the best value, whether through alternative fee arrangements, caps, blended rates, outsourcing or greater work efficiency. In the traditional law firm model, this places considerable pressure on margin. Rather than analyse the overall firm strategy and alternative methods for delivering services, the common response of many firms to this pressure has been to simply increase billable targets.
Firms need to change the way services are delivered – large, hierarchical teams, with scores of junior lawyers will no longer provide the value clients are seeking. Further, as clients become more cost and value conscious many are pursuing ‘best of breed’ strategies, building ties with individual partners or practice areas rather than with firms as a whole. To be successful, firms will need to become comfortable with and remain flexible to these changing client expectations and preferences.
The collaboration imperative
In this age of change, the importance of teamwork has become increasingly clear. The greatest asset in any knowledge-based organisation is the expertise of its professionals. However, the growing complexity and integrative nature of client issues demand that professionals collaborate with not only other lawyers who have the required specialist expertise (both within and outside of the firm), but also with non-legal service providers and technology solutions. Gone are the days of lawyers sitting alone at their desk working solo on a complex M&A mandate.
Forget the traditional partnership model; a corporate structure allows law firms to explore new ways to remunerate (through the issue of securities), exchange value with clients (by taking equity instead of cash fees) and attract capital (through external investment). Many law firms now find themselves pursuing an IPO – not as a final destination; rather as part of a broader strategic mandate. No longer can we rely on the traditional partnership model to deliver value in the era of innovation or inspire high-performing staff. Firms need to constantly consider a range of options and opportunities, among them a potential listing, to help realise strategic objectives and stay ahead of competition in our dynamic market.
It's clear that the current legal environment provides growing threats to the continued success and profitability of Big Law. The firms that succeed will be those who remain flexible, are best able to differentiate their offering and digitally transform their operations to ensure they are using people, processes and technology to deliver the best client experience.
About the authorsMorgan is a lawyer in our corporate team with a focus on mergers and acquisitions and private equity transactions. Prior to joining Hamilton Locke, Morgan worked at Ashurst across both the corporate and property practice groups. Her research on statutory unconscionability, misleading and deceptive product design and corporate liability, specifically with respect to the gaming and entertainment sectors, has been published in both domestic and international commercial law journals. Janelle Watts is Hamilton Locke's Corporate Development Director and an experienced corporate and commercial lawyer. She has worked within large national and global firms, and prior to joining Hamilton Locke, worked in-house at Telstra, looking after the Telstra Ventures portfolio and muru-D (Telstra’s start up accelerator).