Law firm model is broken, expert says

Recession speeding up changes that were inevitable, according to Bruce MacEwen of 'Adam Smith, Esq.' A revolution in the big firm business model, spurred in large part by the recession, is just beginning, says Bruce MacEwen, a lawyer who publishes a website dedicated to examining the economics of law firms. “The economic model of big law is showing terrific stresses and strains,” said MacEwen, a lawyer and consultant to law firms on strategic and economic issues, and founder and editor of the website Adam Smith, Esq. “It’s hard on partners; it’s hard on associates; clients don’t like it. There have to be smarter ways to run this business.” MacEwen sat down with USC Law Adjunct Professor Bry Danner during a lunchtime talk Oct. 14 to debate whether today’s law students would be better off if the law firms’ responses to the economic maelstrom result in a major change of direction or just a minor detour in the evolution of the firms. It was the third and final installment in a discussion series launched by Danner last month, “The Evolution of Large Law Firms: Effects of the Storm – Major Change or a Minor Detour?” The first two sessions focused on the recent history of the big firm business model (read about them here). With a flip of a coin determining which side of the “major change or minor detour” debate he would argue, MacEwen made the case that it would be better for law students if the current situation resulted in a major change of direction. “The law firm model is broken,” MacEwen said. “The reason large law firms have done so well from 1992 to last September is they felt they had God-given entitlements to things like rate increases and revenue increases.” He said that, in the current law firm model, most associates start work at law firms planning to leave, leading to an attrition rate of 80 percent within five years. The new model, in which firms hire fewer associates but focus on training, is one on which associates can build long-term careers, he said. In his coin-flip-assigned counterargument that a minor detour would be best for today’s law students, Danner reasoned that abrupt and major changes, including reduced hiring, lower starting salaries, an end to annual compensation increases, and the institution of formal apprenticeship programs, were neither necessary nor advisable for USC Law-trained lawyers. “As graduates from a first-class law school, you’ll do well on the current track,” Danner said. “You’ll prevail among the competition. You can have a good and useful experience even if your time in the law firm is relatively short.” Danner also pointed out that the large law firms already were changing in some positive directions before the recession, and will continue to do so even without the impetus from this specific economic situation, albeit slowly. In taking questions from students in the audience, MacEwen predicted that less emphasis will be placed on the billable hour and more on the value that clients get from their lawyers. “Firms are going to find it in their own interest to bill differently,” he said. “Clients want more value for their money. They don’t want tonnage; they want sharp, perceptive advice.” Big firms’ entire approach to litigation would be affected by a major change, he said. Firms would stop “throwing armies of associates” at cases and instead focus on a core of well-trained associates. Clients would likely turn to alternatives to litigation, including mediation, and develop closer relationships with their lawyers as they get them involved earlier. -Story by Lori Craig