There’s an old adage that clients hire lawyers, not firms.
The business model of most law firms is built on this foundation. But it is a foundation which is crumbling.
Why would a client hire a high-priced lawyer practising in a conventional law firm when a growing amount of legal work can be de-lawyered and offered by companies that offer a range of competitively priced legal and non-legal services? Writing this week in a guide to setting up Alternative Business Structures (ABS), Crispin Passmore, a director of the UK Legal Services Board, pointed out that what clients want is “problem avoidance and problem resolution – not legal advice”. And, of course, these solutions may be now offered by providers other than traditional law firms.
Meanwhile, most law firms are clinging to the trusted adviser model of legal service delivery. Sure, there will always be a market for trusted advisers in the law and other professions. But it is estimated that no more than 20-30 per cent of professional services work is now of a trusted adviser nature. Not good news for the vast majority of firms that continue to compete on the basis that this is what differentiates their lawyers from the pack.
The inevitable consequence of all this is that, over time, businesses with innovative business models will compete away most of the profits of the traditional law firms.
And now that the economy has turned, this process is accelerating. Not only has the traditional law firm model now become structurally uncompetitive, it is at a time when commercial clients are facing massive pressures to reduce legal spend, and are beginning to vote with their feet. As reported this week, the response of the managing partners at Australia’s law firms is staff layoffs, hiring and spending freezes, and deferred investment in infrastructure. All in the name of maintaining partner profits at levels which reflect a market paradigm which has simply moved on.
What law firms must do to survive is embrace disruptive business models that can deliver superior value to clients, staff and owners.