The Firms

February 17, 2009 5:30 AM

Welcome to the Future: A View from the Left Coast

Posted by Paul Lippe

In Friday's New York Times, both Paul Krugman and David Brooks wrote on the same topic--whether as a country we have the leadership to manage through the current crisis to overcome fear and inertia. Naturally, we are all asking the same question about law.

While the conventional wisdom is that lawyers fear and resist change, I am glad to report I often encounter firm leaders who are cognizant of the need for and open to the possibilities of change.

When I was in law school, Perkins Coie, Bogle & Gates, and Davis Wright Tremaine (DWT) were considered the leading firms in Seattle. Since then, Bogle broke apart, with some of its lawyers now part of the large global K&L Gates; Perkins is a "semi-national" firm of over 600 lawyers; and DWT has expanded to nine cities, including New York, San Francisco, and Los Angeles. I think it's fair to say no one would have foreseen those developments 25 years ago.

As we face an even more uncertain transition, I asked David Baca, the chairman of DWT, and Mark Usellis, the firm's chief marketing officer, to share their views about what's happening in the market now as firm leaders wrestling with the current environment. I wanted Mark to be a part of the conversation because, in most industries, marketing plays a strategic role in aligning companies with their market, and because the level of trust and teamwork among senior law firm leaders will be quite predictive of how effective those leaders are at managing change.

How would you characterize the current environment for law firms?

Dave Baca: It is certainly a challenge. Many of our clients are wrestling with a lousy environment. They are economizing where they can and asking us to share [in] their pain. We are doing our best to help them, [mostly] in two ways: first, by understanding their business imperatives so we can provide insightful, creative legal service to help them overcome problems and realize opportunities; second, by working with them collaboratively to develop economic relationships that are value-based and align our incentives with theirs. This is something we should have been working on for a long time.  One benefit of this bad economy is it may inspire both law firms and their clients to move away from the billable hour arrangement, which, in my mind, often doesn't make a lot of sense.

Mark Usellis: In a soft, buyers' market, differentiation is critical. And we want to differentiate ourselves by our ability to customize our service to the particular needs of a particular client in a particular context. If you look at our industry through the lens of Michael Porter's Five Forces, you'll see that all five--buyer power, supplier power, substitutes, barriers to entry, and rivalry--are turning against law firms.  So if we want to keep our heads above water, we need to focus on developing great, personalized relationships where we know people well enough that we can customize our service to them and really help them succeed. So we're cutting out a lot of spending on things that provide general visibility or one-way blasts of information to the general marketplace. We want to spend money and lawyers' time on quality face-time that will help us uncover opportunities to help clients succeed and then deliver the service in a way that treats each client as an individual, every project as unique and that aligns our success with theirs.

Law firms traditionally have claimed that law is countercyclical. What do you say to this?

Baca: Some specific practices are, but we are not, as a whole, countercyclical. We have a diverse mix of clients, practices, and geographic markets. We certainly do better when our clients do better and less well when they struggle. Some firms that are less diverse than ours rode the wave higher than we did and have now fallen farther. Some boutiques that focus in areas such as labor/employment or bankruptcy are doing well today.  Our diversification makes our results relatively less volatile, and it can enhance our client relationships. Both are important in any organization that is held together by personal relationships.

DWT is a strong mid-size firm. Many law firm consultants have argued that the mid-size firms will have to merge up into national or international firms in order to survive.

Usellis: I don't buy the argument that you can't serve clients well if you are not a globe-straddling behemoth, especially in today's technological environment. I think clients want lawyers who know them and their industry, who customize their service model for their clients' particular needs and preferences, and who create economic arrangements that align our success with theirs. That's a better value proposition than saying the sun never sets on our lawyers, and, by the way, that will be $1,000 per hour. We have a strong regional presence in the west but we also have a series of strong industry practices with national and international reach.

What key strengths will firms need in order to emerge from the downturn intact?

Baca: There is nothing more important than a relentless client focus. Really, if you take great care of your clients, you'll probably be OK. Being able to do that when our clients' worlds are changing so dramatically means we have to be flexible, adaptable, and nimble. We have to listen really well. We have to be willing to dig into our business model and change things that don't make sense anymore. And finally, it helps to run a tight ship because, as the country music song goes, a lean dog can run a long way.  That all sounds pretty self-evident but the fact that it's obvious doesn't mean we're all good at it.

What firm characteristics are likely to fail?

Baca: A lot of law firms have been run based on internal priorities, not client priorities. Rates and staffing have been set based on how much money partners wanted to make, not on what made sense in the market or to the client. Reluctance to partner with clients in the true sense of partnership, which means getting on the same side of the table and truly sharing risks and rewards. Excessive comfort with the status quo, which has until now allowed people to avoid introspection and hard conversations. Blind faith that things will "get back to normal" soon. I just don't see how that's a winning formula anymore. I think a new "normal" is being created for our profession.

There is a lot of conventional wisdom in law about resistance to change and slow adoption of new technology, do you see this? What is the difference between the lawyers who will lead and those who will wait to follow?

There is no question in my mind that technology will upend the legal industry. Clients aren't going to keep paying for information they can get for free online. They will pay for judgment, for talent aggregation, for things that increase their profits or peace of mind. But we're going to have to redefine what our "service" is and how we deliver it. As with all industries that technology has upended, some firms will end up doing really well and some will struggle or cease to exist.

Most law firms, including ours, aren't doing as well as they should using technology to create more value for clients. In most cases, we all haven't felt the same sense of urgency that our clients have. Candidly, the dominance of the billable hour model has meant that there has been very little reason for law firms to innovate or to use technology to enhance efficiency. Moreover, the structure and decision-making processes in a large partnership makes change hard and slow. The status quo has been pretty good to most of us. And a lot of firms have wasted a lot of money on technology projects that weren't thought through or properly executed, which makes people more skeptical. Technology is dislocating and most people don't embrace the concept of having their world upended. But there will always be entrepreneurs--within law firms and setting up new firms--who will drive the market forward. I hope we are among them.  If nothing else, the next generation of lawyers, who have a completely different relationship with technology, will make this happen as a matter of course. And if that means I need to learn how to Twitter, so be it.

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