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Bar Journal - June 1, 2000

Preparing to Practice Law in the 21st Century

By:
 

A New York law firm announces that it is increasing associate starting salaries by 50%. The news rocks the legal profession. Sound familiar? A recent news story? No...it was in 1968 when Cravath, Swaine & Moore raised its starting salaries from $10,000 to $15,000 a year.

Spiraling associate salaries. An oversupply of lawyers. Escalating costs. How many times have we been warned of formidable challenges facing the legal profession? In each case, commentators have alarmed the profession by warning lawyers that life, as they know it, will never be the same. But, the years pass by and many lawyers continue to practice as they have in the past.

Today predictions for the future of law practice are causing concern to some of the most courageous lawyers. Others seem oblivious to the concern and take comfort by their proven ability to survive the challenges of the past. However, with each passing year, change has become more constant and rapid. We need to ask whether the alarms being sounded by the commentators now are different in nature and degree from similar warnings the profession has faced in the past. To answer the question, we need to examine both the legal profession and the business world that it serves.

A LOOK AT THE LEGAL PROFESSION

This is a great time to be a lawyer. The economy is good and clients are engaging lawyers like never before. The 1980s were not nearly as lucrative we are told. But...how can that be? Surveys show that a high percentage of lawyers are dissatisfied. They are leaving the profession in record numbers. Some firms are struggling; others have closed their doors. Not all lawyers are sharing in the good times.

Never before has the legal profession been split between lawyers experiencing the best of times...while other lawyers are facing the worst of times. In the past, the profession has been subject to cycles based on economic conditions. While there has been some variation based on practice area or geographical region, there has never been such a dramatic split between lawyers who have achieved success and those who have struggled to stay in business.

Four categories of law firms emerged during the 1990s. These categories were defined not only by size, but also by the nature of their client base and the scope and reach of the services they provide.

  • Solo and Small Firms
    Solo and small firms perform the majority of local work. The work tends to be of a commodity nature although some lawyers bring high levels of expertise to certain local practice issues. The firm's practice areas can be general or limited. Overhead tends to be low. Marketing involves networking and participation in community activities. Profits can be modest or high, depending on the pricing of the services and the practice management skill of the lawyers.
  • Boutique Firms
    The boutique firm is small in size and narrowly focused in one specialty area. While the work may be local in nature, some boutique firms gain regional reputations by successfully marketing their expertise beyond the borders of the state in which they are located. Large profits can result from high level work, good practice methods, and modest overhead.
  • Large Single Jurisdiction Firms
    Large firms within a single jurisdiction tend to serve a wide range of clients, from large corporations to small businesses and consumer clients. They compete with small firms, boutique firms and an increasing number of regional firms who are looking to capture an increasing share of the national corporate clientele.
  • Regional and National Firms
    There has been a tremendous growth of regional and national firms during the past ten years. Counsel from major corporations want outside firms that can cover a region. They no longer want a different firm in each state. Regional and national firms are growing and becoming extremely profitable.

There may be a fifth firm category that is beginning to emerge. There are a number of firms representing .com companies that seem to be setting themselves apart from other large firms. The separation became apparent when a number of firms in major metropolitan areas raised the starting salaries for their associates to $140,000. We have yet to see the shake out, but many firms are discovering that traditional corporate clients plan to resist the hourly rates that flow from the new salaries. Stay tuned on this one.

Firms need to develop a vision, a budget and marketing plans consistent with the category in which they fit. If successful in making the match, they will have an excellent chance of success. Firms that cannot find their identity within the category choices or act in an unfocused way will struggle and risk failure.

WHAT CAN WE LEARN FROM THE BUSINESS WORLD?

The changes in the business world should be a signal to every lawyer that the challenge of change in the next ten years will be different in nature and degree than anything we have seen before. Profound and fundamental change is overtaking the business world. We are in the midst of a raw redistribution of power as large bureaucratic businesses struggle while individual global entrepreneurs are becoming wealthy. Business guru, Tom Peters, predicts that within the next ten years 90 % of the white collar jobs will disappear or be transformed into an unrecognizable state. We are in a white collar revolution. It is like nothing we have experienced before.

There are a number of 21st century concepts that are affecting all of us:

  • Globalization and E-Commerce
    In a global economy it doesn't matter where you are located. Worldwide businesses can be operated from a computer terminal. There is a lawyer with an international practice who operates his business from a computer in a renovated barn at the end of a dirt road in a remote area of Great Britain. There is an international business consultant and lecturer who operates a small office on the side of a mountain in Colorado.
  • The Information Age
    The web has given us instant access to information. Successful e-commerce entrepreneurs are becoming providers of information. Most web based companies attract customers with free information. In this new era, customers are attracted by the dissemination of information.
  • Discontinuity
    Encumbancy has never been worth less. The older and more experienced people will not lead us into the new world of the 21st century. The reason is simple. The more one knows about the old world, the less likely they are to be able to set the old rules aside and think in terms of this "new world order." It is the young "revolutionaries" (with empty heads, one might argue) who will come up with the innovative ideas and strategies for the future.
  • Disintermediation
    Disintermediation is the removal of the middleman. When we buy airline tickets on the web, we are removing the travel agent from the process. When we set up an account to trade stocks with the click of a mouse, we are eliminating the stockbroker. When we buy a computer over the web, we are eliminating the retailer. Soon we will be buying insurance and cars on the web, removing other middlemen.
  • Reintermediation
    Successful entrepreneurs are reinserting themselves in a different point on the value chain. A number of brokerage firms are providing their customers with internet trading. There is a new storefront business that acts as a clearing house and assists businesses in using the various overnight delivery services. There are also web based companies that provides settlement services over the internet.

Each of these concepts is a sign of fundamental change. We, as lawyers, need to think about each of these concepts and consider what application they may have to the legal profession. It is unrealistic to think that the business world can experience such dramatic change without affecting the lawyers' methods of practice.

A PARADIGM SHIFT

Lawyers are facing a paradigm shift. Oh, oh....I can feel trouble as I write the word "paradigm." Lawyers do not tolerate the word or the concept of a paradigm shift. Could it be that we have stumbled onto the root of the problem? Lawyers have their own set of rules. Many are inherently unable to set aside what they know and think in terms of innovative ideas. Most lawyers think that they are magically protected from the affects of change.

A paradigm shift occurs when the "old rules" are no longer adequate to solve problems. The evidence is clear. Lawyers are facing a number of problems that cannot be resolved by traditional solutions. Think about the problems:

  • There is heavy competition from an oversupply of lawyers.
  • There are a number of other professionals encroaching on the lawyers' turf.
  • Clients are not properly perceiving the value of legal services and are turning to self-help books and other solutions.
  • Clients want more for less and are shopping price.
  • Lawyers are forced to lower hourly rates to compete.
  • Hourly rate billing has given rise to guidelines, auditors, and financial distress.
  • Law firm costs are on the increase.
  • Technology has become a burden, not an advantage.
  • Regional law firms are competing for the best clients.
  • Associates' training gives way to the increased billable hour pressure.
  • Law firm cultures are in decline.

In the past, lawyers have solved these problems by increasing hourly rates, increasing billable hour expectations, decreasing costs, becoming more timely in billing and collections, and hiring more associates. These traditional solutions will not solve today's problems. Business as usual will not do. This is a classic case of a need for a new paradigm.

CREATING THE NEW PARADIGM

Perhaps you are convinced; a new paradigm is the only answer. Here is how to do it. First, forget everything you know. Forget about partners, associates and paralegals. Forget about billable hours and corner offices. Forget about traditional law firm structure and standard practice methods. Start with a blank sheet of paper.

You have to free yourself of all of the baggage of the past to be able to think effectively of new ways of doing things. As you stare at your blank sheet of paper, consider these questions:

  • What do clients in your practice area want?
  • What talent and skills do you have?
  • What value you can you provide these clients that is consistent with your talents and heir needs?
  • Is there a unique way or a different place in the value chain to provide these services hat will distinguish you from the others?
  • What is the minimum infrastructure and support that you will need to provide those services?

The answers to these questions may provide you with a new approach to the practice. You may find yourself on the cutting edge of a new paradigm. You will be making a bold change rather than simple incremental changes. You will be first to the market in differentiating yourself from the others.

Most lawyers will not be prepared to take such a bold step without some preparation. There are some things a law firm can do and individual lawyers can do to better position themselves for what lies ahead.

PREPARING YOUR FIRM FOR WHAT LIES AHEAD

While the following steps are preliminary, they are critical in positioning your firm for what lies ahead:

  • Develop a Vision
    Without a single direction, the firm will be nothing more than a number of lawyers with individual agendas heading in different directions. No firm can be successful in this environment without a common vision.
  • Centralize Management
    Centralized management gives a firm an ability to move quickly and take bolder steps in reacting to the needs of its clients. Consensus driven firms will not be able to keep up with the necessary changes and will fall behind the competition.
  • Expand the Role of Non-lawyers
    By shifting a larger portion of the work to qualified paralegals, lawyers are able to provide better service at a lower cost while maintaining or increasing firm profits. This trend will continue as clients resist having all the work performed at lawyer rates.
  • Focus on Value to the Client
    There has been a 180 degree shift in the pricing of legal services. Clients are no longer content with price being based solely on the time invested by the lawyer. Every service has an intrinsic value to the client. Now, price needs to be based on the client's perception of value, with the lawyer having the challenge of producing the service at a profit.
  • Improve Budgeting and Forecasting
    Lawyers need to improve their ability to budget and forecast the cost of their services. While there are uncertainties unique to the law business, lawyers can learn from the planning and budgeting methods of contractors who are required to submit bids on proposed projects.
  • Be Prepared to Take Risks
    Hourly rate billing allocates all of the risk to the client. In the years ahead, lawyers who are prepared to share risk with the client will have a competitive advantage.
  • Become Client Driven
    Clients are more mobile than in the past and will not be loyal to lawyers who fail to meet their service expectations. Excellent client service includes meaningful involvement in planning, predictable fees and a high level of communication throughout the project.

A focus on these factors will position your firm to take the bolder steps necessary to remain competitive in the changing marketplace.

THE AGE OF THE INDIVIDUAL

The marketing of law firms was widespread in the 1970s and 1980s. A large portion of marketing budgets were spent on glossy firm brochures. Beauty contests were the name of the game. But the 1990s have brought us something different. More and more, clients are seeking out lawyers, not law firms. Networking and personal relationships have replaced the firm brochure as the focus of marketing efforts. This has become the age of the individual.

Every lawyer who is concerned about the future needs to make an individual effort. They should not look to their firm or bar association to lead the way. Lawyers are not receptive to arguments for bold change and when joined together, they can become intractable. Some bar leaders recognize the challenge and plan to make an effort, but others are too realistic to hold out much hope.

Some of us will recognize that our practices are in danger and that immediate action is required. Others may conclude that their roles are secure for the short term and that they can continue doing what they are doing. But no lawyer gets a pass on this one. No practice is secure. Every lawyer needs to be vigilant in watching for the warning signs and being prepared to reposition their practice.

As we consider the challenges ahead, individual lawyers should ask themselves these questions:

  • What are the talents and skills I bring to my work?
  • How are the demands for my talents and skills changing?
  • Are my clients finding solutions to problems without my services?
  • How are clients perceiving the value of my services?
  • Are my pricing practices consistent with the clients' perception of value?
  • Are others using technology to better address client problems?
  • How can I create unique value for my clients?
  • Can I find a better place in the value chain to offer my talents?
  • Am I willing to take some risks in order to be successful in the 21st century?

The answers will guide individual lawyers in positioning their practices and making career decisions.

CONCLUSION

The changes lawyers will face in the next ten years will be fundamental in nature and more profound than any challenges of the past. Lawyers and law firms will have to re-evaluate their relevance to their clients and consider bold changes in their methods of practice in order to remain successful. Business as usual will not do.

The Author

Attorney Arthur G. Greene is a director with the firm of McLane, Graf, Raulerson & Middleton, P.A., Manchester, New Hampshire.

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