Profits are disappearing for law firms as they struggle to maintain revenues, says Dr George Beaton.
VW shares were down almost 17 per cent on Tuesday in Frankfurt, after losing 19 per cent on Monday Marko Cerovac
Last week two significant legal industry events made news among the 800+ delegates at the ReInvent Law conference in New York. Unconnected and each readily dismissed as just another news story, the collapse on 5 February of Heenan Blaikie, a venerable Canadian BigLaw firm, and the announcement of British Telecom’s appointment of Axiom Law, a NewLaw firm, to handle commercial and anti-trust matters set the scene perfectly.
Heenan Blaikie was a 500 attorney, 40 year-old firm with high profile partners, including former prime ministers and judges. Falling profits, simmering tensions between offices, leadership dissension and an increasingly adverse environment for law firms in general, resulted in partner flight and an abrupt collapse into dissolution.
Axiom Law is a 12-year old, 900 person firm that serves half the Fortune 100 in 10 offices across the world. The BT–Axiom Law deal follows BT’s earlier arrangement with UnitedLex , a LPO, which was terminated after three years. Axiom has won work related to commercial contracts and anti-trust in the UK, US and Asia.
Bitter-sweet for BigLaw
The juxta-positioning of the announcements must be bitter-sweet for BigLaw firms (a business model description) and great encouragement for NewLaw businesses (also a business model description). BigLaw is a massive and still very profitable industry. The thousands of BigLaw firms around the world, which are structured as partnerships, are resilient and clever. And their owners have a very big stake in ensuring the continued prosperity of their firms. Increasingly this means evolving their business model to meet the changing needs and demands of clients. ReInvent Law speakers were divided on the prospects for BigLaw’s appetite and capacity to reinvent themselves. In my opinion some will very successfully adapt, but many won’t. Does this mean more Heenan Blaikie-style collapses? Yes, there will be some, but the majority of firms will not fail, they will simply compete away their super-profits in the struggle to maintain revenues.
In the emerging NewLaw space entrepreneurs are racing to develop and monetise many types of legal service delivery platforms. NewLaw, by any definition, is in its infancy. Axiom was an early mover and is the giant of NewLaw and no one at ReInvent Law was suggesting the demise of BigLaw firms at the hands of NewLaw substitutes. But at current growth rates some observers believe by 2018 Axiom will be larger than today’s largest global law firms, Baker & McKenzie and DLA Piper.
The ReInvent conference did, however, agree that NewLaw firms will increasingly take large slices of commoditised work types of all kinds from large and small BigLaw incumbents.
Dr George Beaton is a director of Beaton Capital and Beaton Research + Consulting, adviser and consultants to the legal profession. Twitter: @grbeaton_law. Email: email@example.com.Dr Beaton’s most recent book NewLaw New Rules is available on Amazon.