I’m seeing more and more rhetoric of the large law firm paradigm crumbling. I wouldn’t really say that it’s “crumbling.” They’re more or less re-vectoring their resources to fit the realities of the market. There’s been a number of mergers occurring in the south. Also, I’ve seen more talk of legal work migrating overseas, commonly referred to as legal process outsourcing. In a recent article about the LPO industry, the author writes,

Every student thinking about going to law school needs to take a step back. Look at the global economy, look at the cost of attending law school. Use a calculator if you need to. It’s still a good deal for some people, but don’t get into this racket expecting milk and honey.

In my opinion, the legal services industry was an enormous bubble and it’s going to take a long time for it to correct itself. Whenever there is a monopoly over a product or service, you can charge whatever you want. Now that technology has officially flattened the earth, work will float downstream to people that can do quality work at a lower price. And like I’ve said before, there will always be large law firms, but I don’t think there will be as many.

The cartoon says it all.  Tough times are coming for the legal profession.  In my opinion, this represents an enormous opportunity for the solo practioners and small firms to steal some business from the large players.  

With the housing bubble, the values of homes were artificially inflated due to the amount of funny money in the market.  Banks carelessly extended credit on the premise that property values would continue to appreciate.  The more loans they issued, the more money people could borrow, which led to higher property values, which led to larger loans, which led to higher property values….and the music stopped.  As it turns out, in their haste to dish out credit, banks overestimated the appraisal values of the properties.  Do you see where I’m going with this?  

In the U.S. stock market…same story.  There’s definitely less liquidity in the market now.  Cash is king.  And people are slowly starting to place a higher value on a hard earned dollar.  

With large law firms today, they’re pyramids with a large base of associates at the bottom feeding the few shareholders/partners at the top.  There’s absolutely nothing wrong with this practice, as most companies resemble a pyramidial structure.  But large law firms are unique due to the massive, immense, inordinate amount of overhead associated with running a large law office.  There are highrise buildings, posh furnishings, countless paralegals, expensive recruitment budgets, marketing expenses, secretaries, technology infrastructure, case managements systems, benefit packages, and oh yeah, lawyers.  Each year, I would read about how various law firms would pay first year associates $150K plus.  The salaries were justified in the name of competition…they wanted the best and brightest from law school.  Honestly, most first year associates are barely qualified to run the copy machines, let along generate work worth $300 per hour.  So in the interest of recruiting the top talent, the expenses seem to have balooned out of control.  And who bears the cost for this excess?  Clients.    

As an in-house attorney, it’s my perspective that clients are getting tight with their money.  But is this really a surprise?  I mean, intuitively, we all knew it would end at some point, right?  Clients are no longer willing to pay for the fluff without the substance.  Clients are starting to figure out they can get equivalent services at a much smaller operation.  If a lawyer works out of a smaller office, learns to outsource the no-brainer tasks, does his own research, he could easily save the client 75% in legal fees.  The future belongs to the agile.  And the 50+ lawyer firms better take the hint.