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Law is broken

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It started in 2008 with the global financial crisis and it’s clear that many in the legal sector still haven’t accepted that the industry they once knew is broken. But the fact is that law firms’ clients are in revolt, partners are spooked and associates are being worked into the ground – or worse, made redundant!
 
So why is law broken?
 
Over 150 years of precedent has effectively made the legal sector an immovable monster and it is now being crushed by the weight of its own heritage. Burdened by the billable hour and profit-per-equity-partner business model, law firms have become sclerotic – rigid, unresponsive and unable to adapt.
 
And it seems that at least one of our clients agrees with me. According to Andrew Chamberlain, Partner at Addleshaw Goddard: “… the legal market is broken, clients aren’t happy and haven’t been for years and they want greater certainty and innovation around pricing. The economic crash was the final piece of the jigsaw to make a perfect storm.” 
 
Lessons from the Titanic
 
My favourite analogy is thinking of a law firm as the Titanic. It wasn’t just an iceberg that sank the Titanic and created the disaster. Here are some key facts:
 
  • Everybody thought the ship was unsinkable. As a consequence, the crew did not keep an adequate look out. In fact, the binoculars that should have been available had not been seen since Southampton
  • Six iceberg warnings were received on the day. The radio operator ignored them as he was too busy transmitting passengers’ personal messages
  • When the iceberg was sighted the engines were reversed. Ironically, this sealed the ship’s fate because it couldn’t turn as quickly in reverse 
  • The "watertight" compartments of the Titanic's hull were not actually watertight. They were open at the tops
  • While the Titanic carried over 2200 people, there were only enough lifeboats for around 1200 of them.
 
Why are these facts relevant to law firms? Because they tell us that disaster isn’t inevitable, it’s brought on by a combination of factors. But they also tell us that the cost of not keeping a look out, ignoring warning signs and resourcing inadequately can be calamitous. 
 
Licence to print money
 
The centuries old model of a law firm was a guaranteed licence to print money. Partners got richer, associates worked on a treadmill and firms grew without consideration for the future. In 2010 the UK had over 10,000 law firms – 85% of those had 4 partners or less and 40% were sole practitioners. The Top 100 firms accounted for 74% of the total market revenue, whilst the Top 10 accounts had 39% of the market revenue. And, by the way, that market revenue was approximately £26bn! In the UK we have six firms whose annual revenue is over £1bn, as well as 8 firms who employ 2000+ lawyers.
 
So, with a history of law firms making lots of money in spite of themselves, and having the client pay for their inefficiencies, when the global financial crisis struck it’s not surprising that they put out the sandbags and settled down to wait out the storm. 
 
But the storm wasn’t going away. Clients were under pressure to reduce costs and, in a buyer’s market, realised they had more purchasing power. So they began to tighten the screws. General Counsels (GCs) became more focused on efficiency and procurement. A large number began to drop law firms from their panels altogether. The legal market was shrinking
 
Will it come back?
 
Who knows? But one thing is certain. The market has changed for ever. Even if it starts expanding in the future clients will never accept the old model again. So law firms will have to adapt themselves. Exactly how has yet to be determined. But you can be sure that, right now, the best minds in the industry are applying themselves to the question of what the best law firms will look like in the future and how they will operate. And at LexisNexis we’re helping them by providing a forum where they can come together and share ideas.
 
Law is broken. It’s not the time to look back for guidance, it’s time to expose inefficiencies, to change minds and cultures – it’s time to act. Watch this space for more thoughts on how law firms can prosper in the new environment!

About the Author:


Stu Gooderham leads client engagement for LexisNexis Enterprise Solutions' ERP solution LexisOne in the UK and US markets. Consultative in style, he works closely with law firms to support their decision-making process for the adoption of LexisOne; and remains personally involved in projects from inception through to go-live and beyond. The implementation of LexisOne at Fieldfisher is the most recent example.

With a focus on the Top100 law firms in the UK and the AMLAW 250 in the US, and thriving in client-facing roles, Stu continues to play an instrumental role in educating the legal market on the business benefits of ERP. He was the founding member of the LexisOne Future Insights Group, which saw senior representatives of the Top100 law firms come together to brainstorm and articulate the dynamic nature of demands that clients had of their law firms in the 21st century. He has used the insight gained from this forum to convincingly illustrate to the market how LexisOne is well-placed to overcome many of the common problems faced by law firms – including continuous improvement in customer service levels, client retention, driving new business and always being operationally optimised.

Stu joined LexisNexis Enterprise Solution, following the company's acquisition of Redwood Analytics, a business intelligence software provider.

Prior to these positions, Stu worked at Oracle, selling the Oracle 11i ERP system to the legal market. He is an engineer by training and also has experience in the manufacturing sector.

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