.Copyright 2009. Incisive Media US Properties, LLC. All rights reserved. National Law Journal Online
August 17, 2009
Law firm economics are pretty simple. There are only a handful of drivers of law firm profitability: productivity (billable hours), leverage, realization, expenses and rates. It's self-evident that — for the past decade — law firm profitability increased by upwards of 10% annually and even more in some firms. But only one profitability driver was operating: unrelenting annual increases in hourly rates.
For better or worse, the current economic debacle has stalled substantial annual-rate increases and led many leaders of the profession to declare that the current law firm business model is broken and must be replaced. In the past year I haven't been to a conference where the business model hasn't been declared dead, but none of these conferences has resulted in consensus as to what can or should replace the current model.
There is a lot of talk about moving away from billable hours, but alternative fee arrangements are neither new nor making much headway. Greater use of contract lawyers, off shoring, fewer equity partners, a cutback in associate salaries and more differentiation in associate pay and promotions — are all being discussed and even modestly implemented. But all of this has been around for at least a decade, and none of it has so far done much to make clients happier either about their legal bills or the quality of the services they pay for. The conventional ideas for changing the way law firms do business are, in other words, insipid and inadequate.
So perhaps this is the time to go beyond the conventional, to push our profession in ways that are radical, so radical that they would require significant changes in our code of professional responsibility.
I have often reflected on how aspects of the American legal profession still resemble medieval guilds in the control lawyers continue to have over the rules.
Our professional leaders continue to defend self-regulation, focusing on the need to protect client confidentiality, guard against conflicts of interest, protect the public from the unauthorized practice of law, maintain the independence of the legal profession and ensure access to justice and high standards of ethics. Despite self-regulation, it's pretty clear that we have fallen short of the last goal. It's also clear, at least to me, that it no longer makes sense to regulate the delivery of legal services to individuals the same way that we regulate legal services to businesses.