I find myself somewhat reluctantly keying in on a national tragedy to try to make a point but here it goes. The resilience of Boston after the senseless bombings at last year’s Boston Marathon is striking. Adam Sandler tweeted last year that Boston is the only city where, if you mess with them, they will shut down the city, stop everything, hunt you down and find you. The mass mobilization of first responders, and the heroism of so many civilians, are details of the bombing I will never forget.
I remember talking to a friend in the wake of everything. My friend commented that nothing would ever be the same, having been particularly troubled by the death of the 8-year old boy, Martin Richard. Having seen the slow recovery from the 9/11 attacks from northern New Jersey, I was confident that Boston would rebound, and that things would, indeed, return to normalcy for most. Boston and New England would emerge stronger. Little news of the remaining bomber (whose name I will not repeat here) has certainly helped. And indeed, the last week has shown the resilience of that great city.
Often, as in Boston’s case, resilience is a positive thing. Resilience has a darker side, however, and it is dangerous for much of the legal industry right now. Commentators have described the past few years as a “double-dip” recession, with a dip, then a partial recovery, and another dip. Not being an economist, I’m sure that’s true, but frankly, my own anecdotal experience does not include any partial recovery. In my view, it’s just been bad for a while. But there are certainly signs of life, and the legal industry historically has been slow to react to both recession and growth. (To some extent, this is necessarily so, as the work that stems from outside the legal industry is often reactive, so the lawsuit follows the reaction, which follows the decision-making process of whether the issue will resolve, which follows the recognition that the issue exists.)
So what’s the problem? The problem is that resilience breeds both learning and “muscle memory”. We can divide the legal industry into a few groups. There are firms that have built their model around the “new normal”, such as Valorem and Riverview. As we’ll discuss below, the resilience of the legal industry is probably very good for them. Next, there are more traditional firms, like my own, LeClairRyan, and Seyfarth, Dechert and others, who believe in the transition of the industry into value-based billing, efficiency, etc. I believe the resilience of the industry is going to be good for those firms who have truly adopted the concept, and will present challenges to those that have “dipped their toes in the water.” Finally, there is the “old guard”, meaning those firms that have either refused to transition or have dabbled in it only when forced. For this group, the resilience of the industry will have a chilling effect in the long run.
Well-run businesses learn from changes in the marketplace and their effect on the bottom line. Those that do not learn will ultimately collapse, and I’m not really talking about them in this post. The problem for many is not that they do not learn, it is what they learn. Take, for example, a larger firm that falls into the third category. Our hypothetical firm has a few hundred lawyers, with one very large office, and a few smaller offices. We’ll give it about 40 years of history behind it, and label it as a “go-to” firm historically for legal needs in the top two tiers of work: high value, high rates.
As it has for the last 40 years, our hypothetical firm has weathered the storm of recession and is emerging from it now. While it felt some rate pressure, it has resisted the wide implementation of value-based billing, process management, and this type of client development. Rather, it has opted for what it has always done. Widespread layoffs when work dried up. Leveraging debt against profit in order to retain or attract rainmaker talent. Raising rates when additional income was needed. Cutting bonuses and perquisites. Now that some of the spigots have been re-opened, bonuses are reinstated; additional funding has been inserted to attract additional talent; eyes are on expansion by merger.
So what did our hypothetical firm learn from the ordeal of this past recession? Nothing positive. What it learned is that it can continue to operate in the same manner that it has for the last 40 years, and the inherent resilience of the industry will ensure the continued success of the firm. It learned that profit can be generated by reducing overhead and raising rates.
More important is what our hypothetical firm will learn over the next 10 years. I suggest that it will learn that momentum and inertia are powerful and dangerous forces. It will learn that a steadfast refusal to adapt to clear changes in the industry put it well behind the curve when adaptation became required, rather than merely advisable. And it will learn that its only true capital, its human capital, have responded to the collapse of the debt-ridden firm not with loyalty, but with free agency.
As for the first and second groups, I think they both show the positive side of resilience. This resilience is not specific to the recent recession, although that did shine a spotlight on it. Rather, it is the positive resilience of the industry to cope with ever-changing market conditions. Those market conditions have been forever altered by influxes of data and technology that have never been seen before. We will continue to see new ideas being born from the sheer increase in information that is available to anyone who is looking for it. Many within our industry are seeing this positive resilience and are ahead of the curve on the development of the next generation of “normal” legal services. We care for our clients and the people within those organizations. We take pride in our work and in making our clients succeed for their internal clients. We are strong, and the future is here.