Law in the global marketplace
For better or for worse, the practice of law isn't what it used to be.
Neven Bijelic / istockphotos
It isn’t what they typically prepare you for in law school, but the market for legal services is undergoing a sea change. Of course it’s impossible to say with any degree of accuracy what the legal marketplace will look like in 10 years. But this much you can expect: It will be significantly different than it is today. Already the landscape of law has been disrupted in ways most of us couldn’t have imagined possible as little as a decade ago. Here’s how.
1. The legal Big Bang
The term is tinged with hyperbole, to be sure. Deregulating the legal services industry in England and Wales hardly compares to the violent origins of the universe. But it is no small matter either. With a new regulatory regime in place for legal services and the launch of alternative business structures (ABSs), Britain now has one of the most liberalized legal markets in the world. Law firms in England and Wales can now accept external investment from non-lawyers — something few expect to see anytime soon here in Canada. Funding could take the form of a private equity investment. Some firms are even considering the possibility of following the example of Australian personal injury law firm, Slater & Gordon, by going public. Even regular companies — supermarket chains for example — can run their own legal arms. How equity investments and ABSs will impact the North American market remains to be seen. Traditionalists naturally resist the idea. But law firms have become businesses, hungry to grow their market share. The more aggressive among them will feel compelled to find ways to raise outside capital in more accommodating jurisdictions. Already in the U.S., certain quarters are calling for deregulation of the profession. As of this writing, North Carolina’s legislature was trying to pass a bill that would allow non-lawyers to invest in law firms. And California-based Jacoby & Meyers was trying to convince a federal court in New Jersey to change state laws forbidding non-lawyers to do just that. That’s the thing about a big bang. In theory, the initial explosion is followed by a long period of expansion.
2. Outsourcing lawyers
The idea of offering in-house counsel services on an outsourced basis is not exactly new. On-demand law firms like New York’s Axiom Legal Solutions, Toronto’s Cognition LLP and Montreal’s Delegatus have been doing precisely that for years. Because they have much lower overhead costs, they can charge lower rates than traditional law firms. They also offer their clients flexible arrangements, to fill temporary staff shortages in a legal department, for example. What’s more, the new generation of lawyers has little patience for the rat race and insane billable targets, which explains how on-demand law firms can rely on a growing pool of talented legal minds who place an emphasis on work-life balance. Now the big firms are eager to get into the game. In 2009 Berwin Leighton Paisner (BLP), a leading U.K. firm, with offices in eight countries launched Lawyers on Demand, a service built around fielding a team of freelance lawyers to do contract work at the client’s office or at BLP’s headquarters. Eversheds, another international firm based in London, has recently launched a similar on-demand service. Still, the real game-changer is legal process outsourcing (LPO) which, fuelled by technology, is in the process of creating a global market for legal talent that is pitting higher-cost suppliers against real bargains operating out of emerging countries like India. And if there is any doubt that legal services outsourcing is poised for growth, consider this: Last year, Nixon Peabody outsourced the bulk of its e-discovery work to Pangea3, part of the Thomson Reuters empire and one of the world’s most established LPOs, with offices in New York, Mumbai and New Delhi.
3. Following the money trail
Speaking of emerging markets, you might have heard about the recent merger formation of King & Wood Mallesons. If not, you’ll be interested to learn that it is now Asia’s largest law firm, with close to 2,200 lawyers in China and Australia, London, New York and Tokyo. What does that say about the legal marketplace today? Well, there was a time, not so long ago, when an ambitious young lawyer, keen to build an expertise focused on capital markets at a top global firm, would face two choices: moving to The City or to The Big Apple. While London and New York obviously still stand out as the two top legal centres in the world, there is no question that capital flows are dispersing to emerging financial centres. And increasingly, ambitious globetrotters are turning their gaze towards those markets. That said, there are still major obstacles to practising in some emerging countries. Brazil, India and China (not Hong Kong) still have restrictions in place against foreign lawyers practising law. But expect more liberalized legal markets, such as Australia and South Korea — both in a strong position to capitalize on the rise of Asia — to become major draws for legal talent.
4. The profit squeeze is here to stay
Yves Faguy is the senior editor of National.
These are uncertain economic times and as downward pressure on legal fees continues — thanks in part to a new global division of labour in the legal services market — it should come come as no surprise that law firm leaders are feeling uneasy about the outlook for profit growth. You can thank the 2008 financial crisis for accelerating the onset of the profit squeeze. But it has become part of a new normal of law firm economics, and this is proving to be a major plight for many young lawyers who had their sights set on annual bonuses and a fast-track to partnership. The truth is, even before the crisis law firms had started operating like real businesses: making cuts to personnel, hiring fewer associates and — horror of horrors — de-equitizing some partners or asking them to leave because they don’t fit the firm’s growth strategy. Lockstep partner compensation systems are far from dead in North America, but law firms — in the U.S, especially — are asking that partners maintain a minimum client base to keep their equity. The lesson for would-be partners? To stake your claim, make sure you either bring in new clients, or at the very least be a key part of the firm’s efforts to keep existing clients on-board.