Virtual Law Firms Evolve So Fast They Risk Their Own Destruction

Welcome back to the Big Law Business column. I’m Roy Strom, and today we look at how virtual law firm spin-offs increase competition and broaden the offerings available to partners. Sign up to receive this column in your Inbox on Thursday mornings.

Big Law firms aren’t known as paragons of innovation. Most employ a version of a business model that dates to the early 20th century, known as the Cravath System.

But there is a segment of the business evolving on the fly. Here, new law firms pop up from established players all the time. They keep the parts of their old firms that they liked. They change things they didn’t.

I’m talking about “virtual” law firms. They’re sometimes called “distributed” or “new model” firms. They provide few frills and let lawyers keep a much larger portion of their revenue than traditional Big Law firms—as much as 95% in some extreme cases.

Every time a virtual law firm splits, competition increases. And partners considering a move to, or within, the virtual world get new options.

With recent upheaval and interest from private equity funds and segments of the AmLaw 200, the virtual law firm world might be poised for its own version of a Cambrian explosion.

“This is corporate Darwinism happening right before our very eyes,” said Frederick Shelton, CEO of Shelton & Steele, a national legal recruiting, M&A and consulting firm that specializes in new-law models.

“It is survival of the fittest. The firms that do not continue to evolve will continue to lose partners, groups, and clients,” Shelton said. “The firms that continue to evolve will continue to improve the practice of law overall, because breaking a model that hadn’t changed in over a century was long overdue.”

The original firm of its kind, FisherBroyles, launched in 2002. It has now produced multiple progeny. The largest offspring was officially born this month, when the leaders of FisherBroyles’ corporate and litigation practices formed Pierson Ferdinand.

The new firm’s website lists more than 50 former FisherBroyles partners. Its founder, Michael Pierson, told me the firm has “commitments” from as many as 130 former partners to join the new firm. That is nearly half the partners at FisherBroyles, which had cracked the AmLaw 200 firm with $135 million revenue.

I reported that the split came after some partners inside FisherBroyles grew frustrated with what they viewed as firm leaders’ lack of investment in the firm and their handling of a tax issue in California.

To differentiate itself, Pierson Ferdinand has stressed a profit-sharing plan with early hires.

It’s an interesting new twist in the virtual world. FisherBroyles’ model never contemplated sharing “profits” with partners. The deal was simple: Partners could keep up to 80% of their collected bills. The “firm” would get the rest.

That 20% mostly went to the firm’s founding partners, James Fisher and Kevin Broyles, who used it to pay for expenses. The duo then kept the bulk of what was left over.

This is where the evolution in virtual law has coalesced: How much of the revenue founders keep, and what services they provide. As a general rule, firms that keep more of the revenue provide more services. Some provide marketing, associates and office space. Most don’t.

“The first and probably best-known distributed firm was exactly this: You keep 80%, and we’ll pay for the website and for the professional liability insurance, and that’s about it,” Shelton said.

The largest such firm besides FisherBroyles, Rimon Law, has had success offering more substance for less money. It had 217 attorneys in late December, according to T.J. Henry, chief legal and growth officer.

Rimon added 50 lawyers last year, its most on record, Henry said. He expects the firm could beat that record this year.

Rimon offers a marketing team, associates, clerks and full-time tech support. Its partners keep closer to 70% of revenue, said Shelton, who recently placed a 10-lawyer firm at Rimon in New York, the largest combination in the operation’s history.

The firm’s back-office operation, Novalaw, received a private equity investment from a portfolio company of Alpine Investors.

In the virtual law firm community, that is viewed by some as a way for firm founders to cash in on what they’ve built. But examples of such deals are rare.

Another example of evolution in the space comes from large firms building out a “virtual office.” The best example is Husch Blackwell’s remote-work offering, dubbed The Link. Other traditional firms have kicked the tires on launching virtual arms.

Still, most virtual firm spin-offs are small shops run by defectors who make their own rules.

Timothy Parlatore joined FisherBroyles from a solo practice in early 2016. He quickly bought into the business model and was satisfied with the services the firm provided, which he said at the time did not include a computer (multiple former partners said the firm now provides computers). The firm did provide a subscription to Best Buy’s GeekSquad for computer troubles, he said.

Parlatore left the firm nearly three years after joining, feeling it wasn’t interested in his clientele: defendants in white-collar investigations and criminal cases. Parlatore is best-known for representing Donald Trump in the investigation into government documents he kept at Mar-a-Lago. He departed the legal team on the case before criminal charges were brought last year.

The New York-based lawyer launched his own firm in 2019, Parlatore Law Group, keeping many principal aspects of the FisherBroyles model. He tweaked it to allow partners to keep a greater share of revenue as their collections increased. The highest billers earn up to 95% of some work.

Since there is a trade-off between how much the “firm” takes and the services it provides, Parlatore is upfront that his firm does not provide many frills.

He has a simple rule when it comes to deciding what he will pay for as the firm’s owner: If it doesn’t benefit everyone at the firm, then it’s an expense for individual partners. That includes legal research products like LexisNexis and CaseText, which he offers to partners at group subscription rates.

“I could give everybody something like 70% of the revenue and then give them all the services they need,” he said. “Or I could give them 80% and let them choose which services they need.”

It’s a simple lesson in innovation, and perhaps a warning for leaders of virtual firms. Once lawyers get a taste of the new model, little stands in the way of them building a competitor that better suits their needs.

Worth Your Time

On Law Firm Diversity: As women and minorities posted their biggest gains in law office representation last year, firms worries about lawsuits after last year’s US Supreme Court decision threaten progress, Tatyana Monnay reports.

On Legal Briefs: Winston & Strawn was sued last month by a Boston boutique law firm alleging copyright infringement after the firm filed a nearly identical copy of its motion to dismiss. The case raises questions about how copyright law applies to legal briefs, Kyle Jahner reports.

On Law Firm Chairs: While many law firms are ringing in the New Year with fresh leaders, King & Spalding has re-elected Chair Robert Hays to his seventh term, Meghan Tribe reports.

That’s it for this week! Thanks for reading and please send me your thoughts, critiques, and tips.