As journalists and managing partners hit reporting season the understandable urge rises once more to make sense of the legal world. Nearly six years since Lehman Brothers’ collapse did something substantive to the law game, what lessons can be learned?
Fewer than you would think. The famous line from veteran screenwriter William Goldman (pictured) that ‘nobody knows anything’ about success or failure in the movie business could equally apply to the legal business for all the discernible patterns seen in recent years.
Flight to quality, commoditisation, consolidation, the transformative impact of technology, the mid-tier squeeze, business model re-invention – take your pick of the predictions that have piled up in the legal industry. And yet crunch the numbers on a five or six-year basis and there is as much evidence to directly contradict these assertions as support them.
Just consider some of the main forecasts. The global reset was contradictorily supposed to be a flight to quality on one hand, while directly challenging the economics of the $2m-plus PEP club on the other. Yet there is little to back up either claim; the New Normal was neither triumph nor disaster for the Wall Street and City elite – they just muddled through.
Flight to value? There’s little to support that, perhaps because law firms ape each other’s margins. In plain English, smaller and mid-tier firms haven’t charged that much less than the top-tier, meaning they struggle to make hay on price differential in a way that Uniqlo would against Louis Vuitton.
Death of the mid-tier or nationally-focused law firm? Not at all – the last few years have in general been a pretty good period for the better run City and UK law firms. While it’s clearly the case that a less forgiving market has meant weaker firms have suffered far more than in a buoyant economy that process has been apparent in many sections of the market.
If claims regarding the mid-tier were just wrong – there has at least been some evidence of the predicted commoditisation and business model innovation but such developments remain so far fairly cosmetic.
The New Normal was neither triumph nor disaster for the Wall Street and City elite – they just muddled through.
Perhaps the most substantive claim is there would be a run of consolidation globally and in the UK. Bear in mind this has been predicted annually for the last 25 years and has usually utterly failed to occur. In relative terms, there have indeed been more mergers over the last five years, in part because of distressed sales and an outbreak of risk-taking among London’s chasing pack. But we’re still way off the more frequent claims made about the ‘correct’ number of law firms or lawyers for that matter.
The arguments for huge consolidation do sound convincing. But the only sensible conclusion as to why it refuses to happen is that there are powerful structural and cultural factors continuing to defy the immutable laws of legal punditry. You could say the same for many of the other predictions, which likewise have much to commend them and still annoyingly refuse to happen.
The only thing to hang on to is that the world is a very complex place that will continually refuse to even humour our attempts to impose order and meaning on it. The best hope for law firm leaders is to accept that awkward reality and strive to achieve what Goldman notes is the best case scenario in decision-making: that your guess about the future is an educated one.
alex.novarese@legalease.co.uk