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The Marcus Perspective

THE LAST DAYS OF THE LAST DAYS

By Bruce W. Marcus

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The Dewey Fiasco Foretells The End of an Era

Big companies, including law firms, sometimes go into bankruptcy. It happens a lot. But when it’s a major law firm, like Dewey LeBoeuf, the reasons for its demise can give us some clues about the future of all law firms.

At least because — courtesy of Bates v State Bar of Arizona (U.S. Supreme Court, 1977) — law firms are in the middle of learning how to compete, using hitherto forbidden promotional tools. At the same time, the world in which law firms function is changing dramatically and dynamically, and obviously, you can’t compete in a 21st Century world using 19th and 20th Century structures, traditions and practices. New legislation, new regulations, new financial paradigms and instrument, new social mores, and new technology — all in a new competitive marketplace — substantially impact professional practice. The rapid growth of firms like Dewey require professional management and new sources of growth capital. For many firms on a growth path, the strictures against capitalization and investment from outside sources and non-lawyers can be a disaster. At the time of its demise, for example, Bruce MacEwen, the noted lawyer, economist and journalist who, as Adam Smith Esq. writes one of the most cogent and elegant of the online law journals, estimates the total liabilities at not less than $255 million, and probably more.

In this new and emerging economic and social environment many law firms have been growing beyond their ability to manage, especially because firm leadership so often falls to lawyers who may be brilliant practitioners, but don’t have the management training or experience — and perhaps the temperament as well — to manage these new large firms. The result is poor management decisions, greed at the top, the failure to use associates well and massive debt. Nor do they have the ability to make the fast decisions required by the new marketplace. These are the apocalyptic horses that trampled Dewey. These are the factors that are counterproductive and non-competitive in today’s market for legal services. These are the factors that make so many of today’s law firms ultimately susceptible to significant change. And change is inevitable, and beyond any reluctance to change.

Change doesn’t happen overnight. It evolves. And so it will, impelled by not only the demands of competition and new technology, but by those excesses of Dewey. Says Jordan Furlong, a leading law practice blogger and a principal of Edge International: “I don’t think this structure is all that unique among large firms. A ‘partnership’ — an increasingly useless word in big firms — of hundreds or even thousands of lawyers, in dozens of locations, with unequal earning power, political clout and marketplace influence, simply can’t be managed without a de jure or de facto inner circle that runs the show with a huge degree of autonomy and not much oversight.” Moreover, he says: “It seems naive to think that this sort of disaster couldn’t bring down other firms in the foreseeable future.”

The Future

What, then, does the Dewey failure tell us about the future of the legal profession and its structure and practices? How radically will firms have to change to be competitive in the future? It suggests that:

  • Giant firms may be too big to manage, particularly with traditional firm structures and business models;
  • The boutique firm may be the wave of the future;
  • The current partnership structure is inadequate to the needs of law firms to function in a dynamic economic, regulatory, and social world; and
  • In periods of rapid firm growth and consolidation, firms can’t continue to be financed primarily by partner contribution and debt.
Without trying to answer these questions with sheer prognostication, which is impossible, the past and the evolutionary process suggest that new business models are emerging. They’re likely to be characterized by:
  • New rules that permit outside investors, and possibly the public ownership of law and accounting firms;
  • New rules that allow non-lawyer governance. The trend towards professional management of firms has already begun, with many firms employing professional managers — non-lawyers with experience in management. That we begin to see that now is discussed in detail in Professional Services Marketing 3.0 (www.icontact-archive.com/rRNQRindhS4xpX1VkgJFvkKodp0bj0row_iPntGs9C4=?w=3);
  • Independent boards of directors, who can bring a variety of management experience to a firm;
  • The growing use of teams, as defined and developed by International consultant, Iris Jones;
  • Substantial and pragmatic changes in the role of state bar associations;
  • A universal acceptance of the role of marketing and practice development as integral to the success and competitive success in the profession;
  • The growth of value as a law firm discipline, for both better billing practices and firm performance. That’s value to the client, not just to the firm;
  • Not to be overlooked is the role of technology, which is itself constantly evolving. It’s use as a competitive and productivity tool is increasing, and there are now relatively few firms that are not using technology to great advantage. An example is the growth of the mobile office. There are now very few technology-illiterate lawyers;
  • Greater role of public education about law and lawyers, as an integral part of marketing; and
  • A possibility that’s been shot down in the past is melding the two professions, in large part because of the disparity in practice and temperament. But like everything else, if and when it proves to be advantageous to both professions, it can happen.
Is there a way to anticipate these changes? Several possibilities:
  • Follow trends. Trends in law firm actions, in the industries and clienteles served by the professions, in regulatory environment, and in social activities Learn to read them;
  • Develop competitive intelligence procedures to keep competitive;
  • Examine your own management skills, assess them, and consider hiring professional managers as operating managers;
  • Learn to accept marketing as a management tool, and improve your understanding of the marketing process, and marketers as well;
  • Learn to understand the process of change, to both keep your firm relevant and responsive to the changing needs of your marketplace. Learn to manage change, which should not be done arbitrarily, but as each change can be justified for management and competitive purposes;
  • Reexamine the skills of associates, particularly those that might otherwise not possess partnership skills. Compensate their skills appropriately, and not on arbitrary factors, such as longevity.
  • Be active in your local bar association, and lobby to modernize the profession. Is the Dewey disaster an impelling force for change in the profession? To a degree, yes. It would be hard to look at the factors described here and not see at least a warning — an alert to the shortcomings of the traditional firm in the 21st Century.
The evolution of the future firm, like the evolution of human beings, is a slow process. But it’s happening. Now.
Bruce W. Marcus is a Connecticut-based consultant in marketing and strategic planning for professional firms, the editor of THE MARCUS LETTER ON PROFESSIONAL SERVICES MARKETING, (www.marcusletter.com), the author of PROFESSIONAL SERVICES MARKETING 3.0 (Bay Street Group, 2011 http://bit.ly/MarcusBook), from which this article is adapted and the co-author of CLIENT AT THE CORE (John Wiley & Sons, 2004) His e-mail address is marcus@marcusletter.com. © 2011 Bruce W. Marcus. All rights reserved.

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