"It was much pleasanter at home, when one wasn't always growing larger and smaller ..."—Alice in Wonderland, by Lewis Carroll
How do law firms remain competitive in an economy where uncertainty is the only consistency? It's a question many in Big Law often reflect on. Do we restructure and get bigger and more global, as in the recently announced mergers of Norton Rose and Fulbright & Jaworski or SNR Denton, Salans, and Fraser Milner Casgrain? Or do we become smaller and more nimble, by reducing overhead and relying more heavily on technology to deliver client services?
As it now stands, the 23 most successful firms in the nation - firms like Skadden and Latham - average profits per partner that are $1.1 million higher than those ranked in spots 26 to 53 of the AmLaw 200. The gap grows larger moving down the list, and firms below the top tier also continue to lose market share to boutique and virtual law firms.
Though the emergence of boutique law firms has captured headlines lately, they are not new, particularly in California. In the 1970s and '80s, the firms now known as Wilson Sonsini Goodrich & Rosati and Cooley focused on representing emerging technology companies and the venture capitalists who fund them, while Townsend, Townsend & Crew (now Kilpatrick, Townsend & Stockton), and Fenwick & West served the computer law and IP needs of companies in Silicon Valley and the Bay Area. All four firms realized so much success that they began diversifying their range of offerings, in the process expanding their client bases until they too became Big Law firms. Now these firms are being challenged by the next generation of boutique law firms.
So, just as Lewis Carroll's Alice drank a potion that made her small and ate a cake to make herself big, when many Big Law firms look in the mirror they still struggle to find the ideal size. Increasingly, however, they are taking a cue from their smaller counterparts, narrowing their focus to act more like boutiques while exploiting the wide range of resources that Big Law firms traditionally boast about.
In practical terms, here's what big firms need to do:
Focus on core areas of skill and expertise.
For too long, Big Law has tried to be all things to all types of clients. Boutique firms have taken advantage of this by competing effectively in practice areas where Big Law firms are seen as overpriced or lacking in vision or nimbleness. Big firms, then, need to make tough decisions about which areas they wish to focus on, and pare back capabilities that do not support those core areas.
Change operational models.
In recent years, most Big Law firms have modified their practice operations from those primarily centered on geography to a model focused on practice or industry sectors. This is partly the result of their clients increasingly becoming national or international. But this approach also plays to Big Law's strength: A wide and deep array of legal talent across many locations and practice areas can quickly and effectively meet clients' needs based on their particular industry's unique demands.
"Big firms, then, need to make tough decisions about which areas they wish to focus on, and pare back capabilities that do not support those core areas."
Go beyond the Fortune 500.
Big Law cannot stay viable simply by relying on bet-your-company litigation and highly complex cross-border transactions for their Fortune 500 clients. According to the popular legal blog Law21, just 10 percent of all legal work falls into this "mission critical" category. Such a narrow business base cannot sustain Big Law in a highly competitive marketplace. Large firms now routinely seek to represent clients - especially international ones - that have historically been represented by regional or boutique firms.
Big Law has become significantly more receptive to the full range of alternative fee arrangements. These offer substantial discounts to clients who use a diversity of services across multiple practice areas, or vary the pricing of services based on whether the client needs help with a complex cross-border transaction or a simpler contract negotiation between business partners. Savvy Big Law firms should be able to use their size to negotiate lower prices with technology providers or other vendors based on the larger number of licenses or hand-held devices needed, for example, in much the same way their clients do.
Lewis Carroll once wrote, "If you don't know where you are going, any road will get you there." But that's not something big firms today can count on. Still, these firms have demonstrated that they are, over time, remarkably adept in responding to new market conditions and challenges. Their battles with boutique law firms will thus continue for decades to come.
This article originally appeared in the June 2013 issue of California Lawyer.