New Structures for Law Firms?

Julie Adams has written an article in Accountancy Age speculating on new structures for professional partnerships. She makes it clear that younger partners do not see the traditional model enduring.

Conventional partnerships will change into more "employee-owned" forms along the lines of the John Lewis department store model. See this discussion for how it works. This would enable employees and partners to participate in ownership but with greater ease and flexibility of movement. Their equity would be tradeable.

Of course there are other models such as the Goldman Sachs quasi-partner model which isn't a partnership but behaves like one. Stephen Harper has written about this.

Both John Lewis and Goldman have very high leverage ratios (if John Lewis can be said to have one). While some people may spend their entire careers with the firm, average tenure is short. In the case of Goldman burnout occurs after 7 years. Or as the Jesuits would say, "Give me the man and I'll show you the corpse."

Moreover, the advent of ABS there will be increased competition for senior positions as more professionals participate. The world will be more multi- and inter-disciplinary.

Technology and client demand, according to Adams, will lead to a greater segmentation of services and their delivery. Commoditization and standardization and new forms of service delivery are the key here. It's worth reading Jordan Furlong's paper "The Talent Portfolio: New Options for Where, How and By Whom Your Work Gets Done."

The part I like in Adams' article is her depiction of the changes wrought by Generation Y who use work and technology differently from earlier generations. We haven't got to grips with the potential of the scale of change here yet. In part I suspect people discount Gen Y as a fad, even chimerical. It's not and we won't be able to impose our values on it. See, for example, the shillingmesoftly blog. So, as a necessity, change will happen.

New Structures for Law Firms?

Are Partners Any Good at Running Law Firms?

I was interviewed today by a legal journalist on the future of law firms once alternative business structures (ABS) enter the market in October 2011. The focus was on how partners and business managers/investors would work together.

This pre-supposed an image of integration and colleagueship within a new order. I am not optimistic. As my interlocutor remarked law firms have virtually shed whatever thin layer of management they had to maintain profits per partner (PEP). PEP is that mythical measure that signals to lawyers (and to suspicious corporate counsel) that I'm doing better than you. In the last year we have seen how the maintenance of PEP has stripped any sense of collegiality out of many firms as they have laid off associates, professional support staff, salaried partners, and even equity partners.

Yes, we've seen the final demise of another myth: that there is a tournament to partnership. I doubt there is even an "elastic" one anymore, or it's stretched beyond its limits.

There's a great film that's been re-visioned many times. Punishment Park was a typical 70s Nixon-era film, done in cinéma-vérité style, that follows a group of "convicted" hippies across a desert as they attempt to out run National Guardsmen. If they reach the flag location they will be freed. Of course when they reach the flag, there are the guardsmen and police waiting for them. I leave the rest to your imagination. This is a closer representation of the tournament today.

Once ABS arrive many partners are going to find themselves in the same situation as the hippies in Punishment Park. Investors and managers of the new law enterprises--law firm won't be a relevant term--will have definite ideas about what they want their human resources to do, what targets to achieve, and how decisions will be taken. Partnership, being notoriously inefficient in their eyes, will die out and self-governance will wither.

Why would this happen? Lawyers under the new regimes will find the managerial burden lifted and taken on by others. This will allow them to focus on--the law, what they like. But that is not where the power will lie. Lawyers will let this happen because they dislike management, but having ceded control, well they won't be able to get it back.

So the answer to my question is not very good. And it won't matter how many managing partners are sent to Harvard Business School, we are going to see a dramatic change in the business of law. The profession of law will still be there but much smaller than it once was.

And, finally, if you haven't seen Punishment Park, it's very worth catching if only to ponder its relevance now.

PS. Stephen Harper over at The Belly of the Beast has an interesting post on Biglaw and the Black Swan which picks up on analogous themes to the above post. It's worth reading.

Are Partners Any Good at Running Law Firms?