Rising from the Rubble: A New Legal Industry
In 2008, the Great Recession rocked the world economy and shattered paradigms.
In the decade that followed, the legal industry — a seemingly impenetrable monolith of stone, now fractured and collapsing — has struggled to repair the fissures that mar what was once the unchallenged power of elite law firms.
Thus far, these efforts have been a band aid over a deep wound, a surface-deep façade: expenses were cut, partners de-equitized, growth slowed, rates increased if not realized. In other words, Big Law—the old kings of the industry—pulled back on the levers of past glory in order to achieve a semblance of the old equilibrium.
A decade since the Great Recession, that façade is crumbling to reveal that the cracks beneath have only grown larger. But what lies underneath? The curtains are being pulled back to reveal something new, something better—a new, innovative legal industry.
Those who are prepared can see the signs of the changes unfolding.
Despite consecutive years of overall economic growth since 2008, the number of legal-jobs has yet to recover to pre-recession levels. Demand for law firm services have flat-lined or are on the decline. Corporations are investing their legal spending on in-house law departments instead of on outside counsel.
The age of the billable hour is on its way out. Alternative Fee Arrangements (AFAs) are taking over. As of 2015, AFAs accounted for $21.1 billion of outside counsel spending. In 2017, Corporate Counsel Magazine reported that 26% of corporate legal spending on outside counsel was structured under an AFA. Law firms are losing market shares to increasingly beefed up corporate legal departments and the rapid growth of alternative legal service providers (ALSPs). These ALSPs, though still only accounting for a tiny fraction of total US law firm revenues, are being empowered by the advancement of information technologies to chip away at ever greater portions of law firm revenues. In turn, the growth of ALSPs empower corporations to take advantage of greater positions of leverage against law firms. Meanwhile, the Big Four accounting firms are preparing to bite off their slice of the US law revenue pie, with each firm targeting global legal revenues of $1 billion by 2021.
The solid foundation of the old legal industry is giving way. Today, it is hunt or be hunted, as firms compete with each other over the ever-shrinking pool of corporate legal spending. Those firms that are the first to adopt the new principals of efficiency and value-oriented services are eating up the slow and outdated, as top-performing law firms consume those unwilling to change.
The truth is that the 2008 recession was not the cause of this paradigm shift, but merely the accelerant. The financial turmoil of the Great Recession hid a much greater force that has been brewing ever since the advent of the personal computer and the world wide web—the technological advancement of the information age.
For those who stubbornly resist, change can seem to be the enemy.
But for those in the legal industry who are willing to embrace change—firms and corporation alike—the future is bright. For law firms, technology means increased efficiency, reduced overhead, and greater profits realized with less effort. For corporations, technology is the realization of total information parity in the marketplace. In the new legal industry, the client and agent will no longer wage war—they’ll become true partners, under an innovative paradigm of a virtual marketplace that will significantly reduce or perhaps even eliminate the burdens of the old business.
For the future leaders of the industry, technology is regenerating and rejuvenating the practice of law in the 21st century.
A leaner, meaner, sleeker legal industry is waiting to be unveiled underneath the cracks of the old. It will take the coordinated integration of technology—custom-tailored to the needs and desires of all members of the legal industry—to finish the work of sculpting out the new. A legal industry freed from the constraints of the old paradigm, re-imagined within the unified framework of a virtual legal marketplace. Faster, more efficient; fairer, more transparent; simpler, yet more powerful; unified, yet more diverse than ever.
And it’s coming faster than you think.
The future of the legal industry is not waiting to be built. It’s already here.
Are you ready?
- Center for the Study of the Legal Profession & Thomson Reuters Legal Executive Institute, 2018 Report on the State of the Legal Market, Jan. 10, 2018 (the “2018 Report”)
- Forbes Legal Council, “The Future of The legal Industry,” com, Nov. 10, 2016.
- BTI Consulting Group, BTI State of Alternative Fee Arrangements, 2016 (“State of AFAs”)
- Jennifer Williams-Alvarez, “GCs May Get Rid of Underperforming Firms in 2017, Survey Says,” Corporate Counsel, Jan. 31, 2017.
- Citi Bank & Hildebrandt Consulting LLC, 2018 Client Advisory, 2017