Changing Models
of Law Firm Organization
in the New Economy
Bernard A. Burk
University of North Carolina
School of Law
Q: Why have larger law firms grown since c. 1970
as much and as fast
in the configuration we see
A: Consistent forces foster
growth
loose coherence (brittleness)
A: Important evolutions in
the market (buyer/client sophistication)
the nature of larger-firm work
Growth
1968: 38 firms > 50
largest firm = 168
1988: ~500 firms > 50
~150 firms larger than the largest in 1968
largest firm = 962
2008: ~700 firms > 50
>250 firms larger than the largest in 1968
~25 firms > 1,000
largest firm > 4,000
Configuration
Paradigm into the 1980s: 2-class system
Partners and partnership-track associates
Associates move up or out
Paradigm has eroded over the last 20 years:
More firms have more indefinite-term non(-equity)
partners
Associates = 60% of large-firm lawyers in 1987
55% in 2001
48% in 2010
Leverage
Mid-1960s: between 1.1 and 1.5
Mid-1980s: between 1.5 and 2.2
2003: average 3.5; 75th percentile > 4
Coherence (Fragility/Brittleness)
1968: lateral movement rare
1988: ¼ had acquired ½ their partners laterally
¼ had acquired ½ their associates laterally
2000-2005: over 14,000 lateral partner moves in the AmLaw 200
~½ of BigLaw partners changed firms in 6 years!
At the same time, firms have continued to grow in number
of lawyers
The Great Recession (2009-??)
Widespread lawyer layoffs by larger firms (10-15% or more,
predominantly more junior lawyers)
Stringently reduced entry-level hiring (20%-50% smaller
entering classes)
Widespread partner “de-equitizations” and dismissals
1/3 or more of new law grads unable to find full-time legal work
CYCLICAL OR STRUCTURAL?
Structural Trends
Increase in buyer (client) sophistication
Better understanding of their own needs and how to meet them
More thoughtful “make vs. buy” (in-house vs. outside) decisions
More selective shopping for outside counsel
Decline in client stability and exclusivity
Disaggregation of legal services
“Hire a lawyer, not a law firm”
Recent drive towards dis-integration within single projects
Focus on individual lawyers rather than the whole firm
Individual experience, reputation and connections win work
Partner compensation based on individual marginal product
Less and less of a lawyer’s “human capital” is firm-specific
Changes in Cost and Technology Reconfigure the Law Firm
Firm is bounded by what it is cheaper to make rather than buy
Change in the world: The digital revolution
Change in the work: Legal process becomes a greater part of
the effort and cost in legal services
Who and how:
Insourcing
Outsourcing
Downsourcing
The Future of the Law Firm
Disaggregation accelerates
Far fewer high-paying entry-level jobs, and significantly fewer
full-time legal jobs overall
Old 2-class configuration fanning out into a 4-class structure:
True Equity Partners (more concentrated; based on
marginal product/relational capital = rainmaking ability)
Associates (fewer; perhaps a vanishing class)
Nonequity “Partner”/”Counsel” (more numerous)
Staff/Contract/Temp (paid and billed at low rates; law
license optional?)
What makes the modern law firm worth more than
the sum of its parts?
Focus on individual achievement, individual retention by clients
and individual marginal product minimizes shared risks and benefits
Law firms become aggregations of individual practices sharing
only overhead
Economies of scale exhausted
Diseconomies of scale increase with size
How do you pursue success and cohesion
in the “new normal?”
Larger practices:
Rethink:
Up or out
Leverage
Hire smarter:
Know your practice’s core competencies (plural!)
Hire to those competencies
Retain longer:
Find the right place for anyone who fits
Tailor status and compensation
Grow better:
Cultivate complementarity of practices, skills, reputation,
connections
Build client relations tighter:
Seek long-term, stable relationships
Explore pricing arrangements based on such relationships
Smaller practices:
Consider growth to achieve economies of scale
Diversification or complementarity?
Use technology, downsourcing and outsourcing to cultivate the
“footprint” of a larger firm without the overhead
It’s already natural to hire to your competencies and retain
Build long-term, stable client relations as your practice allows
Explore pricing based on long-term relationships
Your ship won’t sail itself any more:
Figure out which aspects of the weather are likely to toss your boat
Watch the horizon—Storms ahead!
“Good evening Mr. and Ms. America,
from border to border and coast to coast
and all the ships at sea.”