I’ve been reading Toby’s last two posts about the questionable financial state of law firms (The Fall of the Legal Cartels? and Warren Buffett Puts Another Nail in the Law Firm Coffin) and wondering to myself “Come on Law Firm Management, do you really not see your future? Do you really not get how current cost and compensation models are one-way tickets in the wrong direction? I know lawyers are slow to change, but we’ve been living in a new economic world for quite some time now, and we’re still billing by the hour on most matters? Still giving bonuses based on hours worked? Really?”

So why exactly is it that law firm partners and management haven’t been persuaded to change their models? I’ve been reading the same articles and statistics that you have that explain that clients aren’t pushing hard enough, and that partners are afraid of losing their current levels of profit. I get that. But isn’t making sure your business doesn’t go out of business next year right up there in priority with making sure your income this year remains high? And yet partners and management on the whole are not acting in ways consistent with a recognition that models need to change for business to survive. There are little inroads here and there, but those are still considered the exceptions to the rule, not a new and revised rule.
What is the sticking point? I believe it is not just a desire for profit, but a desire for profit combined with an inability to face our own mortality. Individuals never quite believe that they will be harmed by their own bad behavior, even if research and social wisdom tell them otherwise; so they behave in a slew of self-destructive ways because of the “It will never happen to me” syndrome. Similarly, law firm partners who are enjoying past profits never really believe that the vice of hourly billing and compensating is going to threaten their existence. Even in the face of others’ deaths, human beings still assume that they are somehow special or better or different and are immune to whatever befell the others. So too no law firm, deep in its heart, believes it is going to dissolve and therefore the incentive to take a risk and threaten a significant-profit model just doesn’t exist.
I suspect that nothing short of the likes of a BodyWorlds exhibit — putting the inner workings of a dissolved law firm on display next to that of a successful one, like the smoker’s lung next to the non-smoker’s — will shake the way law firm owners and managers think. But when those owners and managers do realize the very real possibilities of losing clients, losing business, and losing existence, they will also appreciate that they have the power to change their future.
  • Do you think the Law Firm management structure contributes to the myopic outlook? Can executive committees, made up of individual partners concerned with their own legal practice, be expected to make long term decisions in the best interest of the firm, which might be perceived to diminish their own legal practice in the short term? Historically, what's good for the partners is good for the partnership, and that is still true, but it may not be as readily obvious anymore. Are they too close to the business to run it? Do they need to have more distance, like a corporate board, in order to make these kind of decisions?

  • As a group, partners are intelligent, and I believe they do consider their long-term futures (i.e. the success of the business as a whole) along with their short-term ones (i.e. their individual profits). That being said, I think you make a strong point that sometimes they don't take quite a far enough step back to see the whole picture.

  • I certainly didn't mean to imply that partners are not intelligent. And I don't think any of them are scheming to increase individual profits at the expense of the firm. However, I'm pretty sure that partners are human, and as a species we have a tendency to be very short sighted when it comes to our intimate relationships, whether those are business, romantic, or food related. "It feels good" almost always trumps, "I intellectually understand the right thing to do." At the moment, what "feels good" in a law firm is the status quo. Nothing will change until business as usual no longer "feels good". That might not happen until, as you suggested, we can see the internal workings of a failed firm and can compare them with our own. I hope it doesn't come to that.