6/11/13

Death by a Thousand Cuts

Image [cc] doni19
Everyone seems to agree that BigLaw is f’d up. The business model is completely screwed up and not in alignment with reality. This allows great sport for those of us who enjoy picking at the various aspects of exactly how BigLaw is headed for disaster.

But what does this disaster look like?

Many prognosticators are on death watch. Which firm will be the next Dewey / Howrey to collapse?

I propose another alternative for BigLaw - Death by a Thousand Cuts. The vast majority of firms will not implode, but instead will fade slowly to black.

Why do I say this?

Law firms, for the most part, act like sheep. They keenly watch the actions of the other sheep and then match them. As we have noted previously on 3 Geeks, most innovative ideas at firms are met with the response: “What are other firms doing?” The result is that firms don’t break away. Instead, they move as a herd.

Alongside the Sheep Factor is the Financially Conservative Factor. BigLaw firms love to brag about being debt free. The point being is that most firms are not in a “Dewey” situation, where their finances are in bad shape. Instead, they will experience profit pressures at the margin. The profitability of their work will slide over time. So instead of facing a cliff, they face a relatively gentle slope.

They will then react in one of two ways (per the Sheep Factor). First they may just accept declining profit. At a former firm I repeatedly heard partners say “Maybe we have been making too much money.” Those partners may be perfectly fine with slowly declining (high) incomes.

The second option will be right-sizing the firms. This will likely take the form of fewer equity partners: be that through de-equitization or smaller incoming partner classes. In this scenario, profits may be maintained or even enhanced, but there will be a smaller ownership pool. So effectively theses firms will shrink to maintain profit.

In either case, these firms will not be in much danger of imploding. They will pay their bills and make partner distributions. Their market share will be shrinking, but there will not be catastrophic collapses.

Of course firms whose financial fundamentals are not in shape should be concerned. But I would venture a guess that after Dewey, most firms took a hard look at those numbers, tightened up their lateral policies and further limited their debt exposure. So there may not be many firms facing a cliff.

Which leads us to our Death of 1000 Cuts – which greatly lowers the entertainment factor of a Death Watch.

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3 comments:

Ann Lee Gibson said...

Toby, call me. My Death Watch list will entertain you.

Brain Injury Lawyer Dallas said...

Watching keenly on other sheeps is actually part of the game. Not just to law firms but also to other businesses.

Steve Bell said...

It's not like the dinosaurs all died the day the meteor hit the Earth. It probably took thousands of years. I share your views on how the new normal will arrive. Incrementally.

 

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