Next Generation Law Firms.

-- By WookJinChung - 18 May 2015

Disruptive force: unhappy lawyers.

Innovation disrupts the established order at a fundamental level. Large railroad companies and steel mills led by the Vanderbilts and Andrew Carnegie gave way to innovators such as Henry Ford and Thomas Edison, or more correctly, Nikola Tesla. While advancement in technology has also brought innovations in the legal industry—such as virtual law firms and smartphone applications that generate standard legal forms—it has not amounted to a formidable threat to the establishment. On the contrary, big law firms have enjoyed relatively stable status for decades. Occasional innovations were nothing but disruptive to the incumbents. The Cravath system became the standard model for modern law firms, and Skadden’s “ungentlemanly” hostile tender offers were quickly adopted by competitors to expand their businesses.

However, a new kind of pressure that will seriously challenge the current establishment is building up from the inside. It is visible. Unhappy lawyers are leaving the guarded walls of big law firms. Junior associates see themselves as replaceable parts of a large pyramid organizational structure. Senior associates no longer perceive partnership as an ultimate payoff for their dedication to the firm. In an industry where talents are the core assets, new entrants who will get three things right—namely client service, firm structure and incentives—will disrupt the current establishment of big law firms and may pull the rug from under.

Three pain points.

(1) Distorted client service.

Lawyers, to a great extent, derive satisfaction from the recognition that they are effective advocates. Client service does not necessarily coincide with fulfilling client’s desires but is about striving to provide advice that is in the best interest of the client—although it may be hard to swallow. However, client service under a big law firm structure is distorted in many different ways. To a newly minted partner, dedicated client service may be mainly about pleasing clients with a hope that he or she will provide a steady stream of projects. For an associate, it becomes a measure of his or her willingness to compromise the intellectual integrity or personal values at the whim of client demands. While trusted advisors are obligated to dissent, workhorse associates face an uphill battle as they first need to overcome the push-backs of the firm’s seniors who are heavily invested to please clients. It is really not the long hours that is draining, but the lack of control and power over one’s work. This asymmetric relationship between lawyers and clients is not inherent in the nature of lawyering. It was only an inevitable outcome of big law firms turning their practices into assembly line like businesses with neophyte junior associates reviewing most of the documents and billing $500 an hour. This exploitive structure has made named partners billionaires, but it was possible at the expense of producing unhappy lawyers and skeptical clients.

(2) Structure that breeds politics.

Cultures among big law firms can vary widely. Some highlight the collegial atmosphere among their lawyers while others make note of their care for diversity. Despite these variances, a common characteristic that overshadows all other cultural differences is the way big law firms organize their resources—namely how firms structure its hierarchy and the implicit rules of climbing the hierarchy. Big law firms are not organized in practices with optimal number of lawyers where expertise is nurtured. They have ambitiously adopted a pyramidal structure with an oversized pool of generalist associates who are weeded out along the arduous pathway of making a partnership. It is also clear that the most important factor in partner selection, other than the strength of one’s client platform, is winning the love of the decision makers—finding powerful senior partners who will pound the table for you no matter what. Politics becomes an integral part of lawyering at a big law firm and in turn creates an ample ground for bias and favoritism. This explains why non-white male or female making an equity partner at big law firms is disproportionately difficult.

(3) Dissipated incentives.

For a long time, there were few careers that could compete with a job at a big law firm. It provided an attractive balance of generous salary, social status, and work that was intellectually stimulating. However, the reality has changed. Lawyers face disillusioned clients who no longer harbor mystical perception towards big law firms. At the same time, firm lawyers are frustrated by piecemeal works that are shoved to them based on his or her availability and find many of their works being increasingly commoditized. On top of dissipated status and less intellectually stimulating work, the deadly workload of 90 hours a week compounds the unhappiness of practicing law at a big firm.

Alternative solutions.

As long as big law firms continue to produce unhappy lawyers and sub-optimal client services, there will be abundant room for new players to provide alternative solutions that hone in on the pain points. More players like Joshua Horowitz armed with tech specialty or Jay Edelson with subject matter expertise will become attractive alternatives to clients who seek efficient solutions. Clients will ask entrepreneurs such as Gary Berger and Deborah Henry—founders of the virtual law firm “bliss lawyers”—to build out project based law firms to cover their special needs. This trend will empower lawyers who have the knowledge, the experience, and the insight in their niche area to build strong independent practices. It will also encourage law students and young lawyers to seek out their area of interest in practicing law early on in their careers.