A less gilded future?

Written by: Noah Waisberg

May 5, 2011

3 minute read

The Economist had a very good article today on changes and challenges for large law firms. Well worth reading. A few points prompted by it:

  1. The biggest thing hurting large law firms now is that there are significantly less transactions then there were in 2006-07. Non-cyclical issues (cost pressure from clients, globalization/outsourcing and technology) are all real issues, but firms and corporate lawyers will do fine if/as deal volume picks up.
  2. Entry-level lawyers shouldn’t be upset with increased use of outsourcing and technology at large law firms. While I sympathize with law grads having a hard time finding employment, the work that outsourcing firms and technology take away from junior lawyers is not work junior lawyers would like to do–if unemployed law grads had biglaw jobs, they would be complaining about this work. I was a corporate associate for several years at a large NYC law firm. As a first year lawyer, some of my work was challenging and interesting. But a decent portion of my first year work seemed like it could have been done by someone making $10/hr, and that they would have done a better job at it than I. Turns out going to a top law school is not necessarily good training for turning changes in a document. And knowing that someone’s paying >$300/hr for you to make those changes and that you’re taking home $160k a year to do it doesn’t make the work any more fulfilling or you any happier in your job. Use of outsourcing and technology at large law firms may cause some law grads short term pain (I will discuss in a later post whether more efficient practice hurts junior lawyer employment prospects over the medium term). But it means more interesting, challenging work for those who get jobs at big firms. And more interesting, challenging work should make employed large firm junior lawyers happier in their jobs. Meaning they will be more likely to stay at their firms longer.
  3. Technology (and outsourcing) can help law firms make more money. While “It has also made it harder to sustain a business model in which partners sit atop a pyramid with a fat base of associates who carry out expensively billed work, some of which is routine and repetitive”, technology that does low-level legal work (depending on how it is paid for) offers the opportunity for firms to replace fixed costs with variable costs. That is, firms can get the help they need, when they need it as opposed to having people on hand to help in case of need.
  4. Technology can increase quality of lawyer work product. Specially designed software systems focussed on improving a specific legal process can lead to findings that a human might miss or do work more accurately than a human could. Especially when the lawyer being replaced or supplemented is recently out of law school, unfamiliar with the task in question, tired, and not enthusiastic about their part of the project.

Good lawyers and firms add significant value to transactions they work on. They are compensated for this and they will continue to be compensated for this. There may be changes in the legal industry. But providers of quality legal services who embrace change will keep doing well.

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