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Are Traditional Law Firms Unsustainable? A Debate.

ThinkstockPhotos-142079574As many law firms struggle to recover from the near-death experience of the Great Recession, there's a bracing debate going on in the legal futures community about whether the traditional law firm economic model (partners, associates, equity, etc.) will lead back to prosperity through standard growth strategies like mergers and lateral hires or whether a total overhaul is required via a new profitability analysis. (A third doomsday view says it doesn't much matter as most legal services will be delivered via artificial intelligence anyway. To book your trip down that rabbit hole, start here.)

As for the growth strategy versus complete overhaul debate, you won't do any better than to read  "Growth won't solve your firm's problems" from Am Law Daily (re. req.), which features the dueling prescriptions of Harvard Business School's Felix Oberholzer-Gee and Bill Henderson from Indiana University's Maurer School of Law. Henderson thinks "off-the-shelf" corporate strategies are ill-suited to the law firm model:

The law firm market is different because of the ethics rules (around) non-compete agreements and non-lawyer investment and the cultural norms that have grown up around partner-associate models. In particular, those cultural norms require growth in order to maintain comfort and satisfaction inside of the firm,” he said.  For instance, Henderson said, associates work hard, long hours in the belief that doing so may earn them equity partnership while clients mainly pay for the expertise of the experienced partners. Without equity partnership as a motivator, firms would stagnate from lack of new associates, their energy and their ideas and eventually wither from lack of successors. In the long run, Henderson said, the legal industry probably has to move away from the partnership model, as so many professional advisory services like tax and accounting firms have done. But in the meantime, law firms remain dependent on growth, he said.

Overholzer's response? "If the firm grows larger in a less and less profitable fashion, the incentives to become partner get weaker. Why work hard to become partner in a firm that is large but barely profitable?”
George Beaton posts on the Am Law piece here.


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