2/5/13

Is Making Money a Bad Thing?

Image [cc] StockMonkeys
Some recent activity on Twitter got me thinking. People love to bag on BigLaw (me included). Much like taking shots at Microsoft or Blackberry, BigLaw is an easy target for many. Large firms move slow, are managed by committee too often, and appear to have an aversion to decision making (see how I did that?).

But recent comments about how BigLaw has been making too much money have struck me as odd.The crowd appears a bit fickle and hypocritical. We attack BigLaw for not acting like a business, then we turn around and attack them for acting like a business.

From my economics porthole, BigLaw has behaved quite rationally for the last 15-20 years. The market presented a scenario and BigLaw moved to maximize profits in that situation. And unlike Microsoft or Blackberry, BigLaw did not hold some monopoly, or near monopoly on the market. Admittedly, it did have a favorable market with growing demand, but no one firm was in a position to dictate terms and pricing. And based on BigLaw’s performance in this period, any other business would be jealous of its sustained growth in profits over time.

Yet now, not just based on the recent Twitter remarks, but also based on an apparent client backlash, this rational market behavior is being held up to scorn.

The market dynamic has now changed and BigLaw will adapt or it won’t. Last summer I posted on 2012 as the Year of Pain for law firms. It turned out it was less painful than I predicted. I am still reviewing year-end reports and thinking about how that played out, but the bottom-line seems to show BigLaw is not crumbling. Does this mean they are they adapting? Without enough pain it’s probably too early to tell. However, I will say there is significant and growing motivation for change and some really smart people running these firms (for the record I am not talking about me). So I wouldn't count them out.

Unless making money suddenly becomes socially unacceptable, I expect BigLaw to continue in its rational market behavior, finding ways to maximize profits, likely with a modified business structure.

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4 comments:

Anonymous said...

The question is flawed and your supporting analogies only partially relevant, at best. If any group can handle a little criticism, it is BigLaw. If you can't take the heat, stay out of the kitchen.

Steve said...

We are all dumber for having read that comment. Thank you, though.

Anonymous said...

1. The question is flawed - "is making money a bad thing?" That is not question at all. The question has to do with greed and excessive profits and how much is too much. This is alluded to in the text of the original blog but never addressed.
2. and your supporting analogies only partially relevant, at best. - Law firms are not analogous to the businesses referenced. There are any number of differences, ethical rules, self-regulation, duties to serve client, etc...and law firms go to great lengths to maintain these differences.
3. If any group can handle a little criticism, it is BigLaw. - Lawyers care most about winning not whining.
4. If you can't take the heat, stay out of the kitchen. - You are apparently the ones who cannot take a little criticism and feel the need to create this ill-conceived propaganda to stick up for the poor, put-upon lawyers in BigLaw. Lucky for you the internet was created so that truth and justice can finally prevail.
5. Steve - Your comment is stolen from the movie Billy Madison, without attribution. Perhaps that is the extent of your intellectual capability.
6. In sum, there is nothing of value or interest in the original blog. Steve's pathetic comment only further supports that position. That is all.

Steve said...

Hey Anonymous,

U Mad Bro? (want me to attribute that to the mall T-Shirt shop, too?)

I don't think Toby was defending Lawyers at all. He points out, from a pure economics standpoint, that BigLaw isn't exactly crumbling like many predicted, and that, taking the market forces into account, BigLaw can still be profitable with very little change in the way they do business. It's not about the "poor put upon lawyers not taking criticism" but rather about the argument that somehow the way BigLaw is operated actually works in the current market (which seems to be counter to everything you read in the legal business publications.)

Clients are demading change and will continue to demand change in the way firms operate. That will eventually drive change because the market conditions will finally shift far enough to make status quo unsustainable. Until then, to quote Richard Susskind (cause we seem to be in favor of citing our sources here) "It's hard to tell Millionaires they are doing something wrong."

Hope that wasn't too pathetic.

 

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