The latest American Lawyer piece on BigLaw’s record profits showcases a huge problem.

It might be easy to miss; after all, we have been conditioned over decades and de-sensitized to big firms posting ever-rising profits such that these new levels scarcely register. Unless we pause.

Why, in 2019 and consistently year-over-year, do we see firms growing profits on a massive scale?

What drives these results? Is BigLaw immune to the economic forces that most companies must navigate? Is there a secret sauce to the BigLaw business model that the rest of the world doesn’t understand? I don’t think so. 

I believe there are two possible explanations for the regular and consistent profit bonanza. It could be that firms are innovating in new ways and unlocking new value for their clients, who in turn are willing to pay more. Or, firms could just be getting better continuously at charging more and making their clients accept it.

Unfortunately, my sense it is the latter.

Let me be clear, I don’t object to firms making money. We work with many firms on this list. We might not love writing the checks, but they do important work for us and should get paid. That’s fair.

...these results do not seem to be driven by new innovation, increased efficiency, or superior impact

My issue here is that these results do not seem to be driven by new innovation, increased efficiency, or superior impact, which tend to be growth levers for most industries and businesses. If they were, you would expect to see regular re-shuffling of the leader board, as different firms achieve different breakthroughs over time. But this list is remarkably, almost impossibly, stable.

Thus, the only real “innovation” at play here seems to be in the area of billing. And that is hardly something that I feel like celebrating.

Who is footing the bill?

The firms themselves seem too willing to celebrate these results. This is hardly new; firms have been bragging externally about rising profitability for as long as I can remember. They are much quieter on the topic of what is driving these profits, leaving us to speculate.

I see most firms making painfully slow progress...

From where I sit, as a customer and as a close follower of the industry, I see most firms making painfully slow progress in terms of incorporating innovative new technology, processes, and business processes.

Some firms are moving faster than others, certainly, but the overall state of the industry is changing at a snail’s pace. Even the most basic shifts – like moving away from a pure billable-hour approach – are either put off completely or implemented in a very limited way.

Now contrast that slow pace of innovation with the rapid, continuous and systemic rise in billings and profits. I can’t help but note the disparity, and I know many of my GC colleagues feel the same way.

When profits increase much faster than the quality and impact of your service, your customers notice. More than anything, they want to know how exactly you achieved those results. Was it at their expense?

Will a reckoning come?

These results suggest BigLaw firms are falling into a golden trap of their own making. Even as the industry faces true structural disruption from technology, alternative service providers, and the like, BigLaw is leaning ever-more on its antiquated billable-hour business model. They are squeezing their customers ever harder to maximize profits in order to keep the party going well after last call. 

But, don’t expect any changes when next year’s list emerges. As long as the billing machine can be run ever harder, as this year’s list bears out, there is little incentive for BigLaw to make real investments and changes. 

Chances are those profits will keep rising, right until the breaking point arrives. But what will create that breaking point? Clients clearly have a long way to go to modernize our engagement with our law firm partners. If we are exorcised by ever growing profits, then we need to take responsibility for this too.

Coming next, I will suggest what legal departments can do to shift this dynamic.