Hello, and welcome to our first column about the changing face of law firms, written by me, Roy Strom. To those who have previously read my work on the legal market, welcome back!
About me: For those of you I don’t know, I’m based in Chicago and have been reporting on lawyers and law firms since 2011. I’ve written exclusively about the business of Big Law firms since 2016, and for the past year I’ve done it with an eye towards how firms are adjusting (or not) to an evolving marketplace.
What to expect: We’ll talk about law firm strategy and changes to how firms sell their services, compete for talent, and adopt new technologies and business models. It’s about law firms, money, and exploring where the market is headed. We’ll also have some fun while we’re at it.
Almost any change to the prevailing Big Law business model takes a long time. Like, a really long time.
Here’s an example: Kirkland & Ellis recently said it plans to invest up to 10 times more on plaintiff-side, contingency-fee litigation.
There are some obvious reasons to do this. Kirkland thinks it is already good at it and one leader there has said alternative-fee matters were the most profitable part of the firm. Kirkland has a lot of money, so why not try to make more?
There are also reasons that have less to do with Kirkland’s abilities. Namely, more evidence that financing lawsuits can be profitable. Just look at litigation funders. Those companies’ profits, to some extent, come from taking on risk that law firms have traditionally been uncomfortable with or viewed as unnecessary thanks to the reliability of the billable hour.
But if you’re a law firm that wants to do that kind of work and believes in a particular case, you could just, you know, finance it yourself. It’s a matter of risk tolerance.
For litigation funders, there has always been a risk that Big Law would become their competition. Co-founders of Longford Capital said as much when I spoke with them all the way back in 2014.
“In a fully efficient commercial litigation finance business, law firms would be a very significant competitor of ours,” Mike Nicolas told me for a story I wrote for Chicago Lawyer magazine. “Particularly large law firms. They have the people. They have capital they’re generating by way of collections. They could compete.”
I called Nicolas last week to ask him if the premise of the article had come true; that Big Law had become his competition.
“I can tell you that they have not,” Nicolas said. “The reason this Kirkland example is getting so much attention is that it is unique. If everybody was doing what Kirkland is proposing to do, it wouldn’t be a story. It would just be the way law firms operate.”
Like other litigation funders, Nicolas says Longford views itself as a “bridge” to help law firms become more comfortable taking on risk in contingent fee cases. That line also sounded familiar. Back in 2014, Nicolas’ colleague and Longford co-founder William Farrell Jr. told me, “Ultimately, I might be creating my own demise 10 years down the road.” If law firms can get over risk on their own, who needs a bridge?
It’s been about half that time, and publicly traded shares of Burford Capital—another high-profile litigation financier—are worth more than 10 times what they were at the end of 2014. It’s not that Kirkland taking on more contingency fee work is a new idea. It’s that they’re taking advantage of an opportunity that still exists, at least in part, because Big Law is slow to change.
If there’s a lesson in any of this, it’s probably that the slow pace of change in Big Law is not an excuse to stand still. It’s all the more reason to plan for the future and act decisively. You’ll probably beat your competitors to the punch.
Considering Rule 5.4 Changes
Here’s another instance where that lesson might apply: California’s bar regulators recently asked the public to comment on a set of rules that would make the Golden State’s legal market a lot like the one in the U.K. Most notably, they contemplate allowing people without a law degree to own shares in law firms. Regulators in Arizona and Utah are considering similar changes, with a report on proposed changes to the Utah Supreme Court, scheduled for June 30, now overdue.
How should law firms react? They have plenty of time to decide, judging from what’s happened—or not happened—across the pond.
The U.K. passed a law allowing so-called “Alternative Business Structures” in 2007 and began issuing licenses in 2012. Seven years later, the U.K.’s Solicitors Regulation Authority says there are fewer than 800 ABS licenses compared to more than 10,000 law firms.
All the while, some of the most successful firms in the U.K. during that timeframe have been U.S. law firms that have imported salaries for legal talent that native firms haven’t been able to match. If something is changing in the U.K. Big Law market, you could make a pretty compelling argument that it is not being driven by investors lining up for law firm shares.
“I’m not seeing anything on a broad base that says, ‘Wow, this really is taking off in a way that we hadn’t contemplated,’” David Cambria, the new chief services officer at Baker McKenzie, told me this week. “It’s still slow.”
But, hey, the point here is not to ignore this stuff. Remember, just because change is slow doesn’t mean it never happens.
Cambria thinks liberalizing bar rules in California could be a “steroid shot” to more quickly change how corporate America buys legal services.
Luckily, there is time. As usual, a lot of it. California’s proposed rules aren’t slated to be delivered to the state’s Supreme Court until the end of the year. Even assuming they are adopted, who knows how long it would take to implement the new regime. But that’s no excuse not to start planning—better yet, engaging in some scenario analysis—about how to react in a world where lawyers aren’t the only ones owning law firms. If a business opportunity arises, why wait five or seven years to pursue it?
Worth Your Time
On Big Law C-Suites: David Cambria’s elevation to the C-Suite at one of the world’s biggest law firms (technically, a Swiss verein) was a nice win for the man who’s been called the “godfather” of legal ops. It also signals that Baker McKenzie may be making some progress in the often tricky process of getting more traditional lawyers on board with tech and project management driven perspectives.
On Demand: The sharp increase in the use of trade sanctions has driven demand for lawyers, Jacob Rund reports. Squire Patton Boggs, for instance, has experienced double-digit revenue growth in its sanctions and anti-money laundering work in recent years, and many firms are looking to hire away competitors in the sanctions and export control space.
On Elections: Jones Day and Perkins Coie are still making a bunch of money on advising presidential candidates, as I wrote earlier this week. But firms are getting involved in the race in other ways, including by playing host to candidates. Take this dispatch from the Twitter-verse from Milbank: #Milbank2020PresidentialTownHallSeries may be the longest Big Law hashtag of all time.
That’s it for this week! Thanks for reading and please feel free to send me your thoughts, critiques, and tips.