Nearly all the leaders of the firms in the 2012 FT Law 25 had the same observation this year: the market is flat so the only way to grow is to win business from competitors or to create new markets.
Most of the top US law firms have similar strategies – to focus on retaining premium work and to avoid commoditisation. To achieve this, they need continually to prove that they are ideal for handling complex, high-value matters. This is not easy in the $240bn US legal market, which is both broad and deep. In 2010, the vast majority (78) of the top 100 most-profitable law firms globally were American.
The only way these firms can maintain their position on the value curve is to prove to clients that they are unique. This onus on differentiation may be one reason why they have been keener than ever to show the Financial Times their innovations. A flat, paralysed market has taken innovation from something that is nice to have, to being a “must-have”.
The competition in the FT report reflects the struggle for market differentiation. The rankings reveal lawyers working at the intersection of different practice areas and technologies, actively changing their behaviours and assuming different roles.
The submission from Morrison Foerster, a firm that started on the west coast, exemplifies these trends. Its commitment to the US covered bond market in the mid-2000s broke new ground to allow institutions access to additional capital. And its ability to marry its technology expertise with its capital markets practice recently gave birth to FrankNDodd, named after the Dodd-Frank Wall Street Reform and Consumer Protection Act. This tool allows institutions to navigate the regulatory tangle of new legislation. Both innovations are ranked in the 2012 FT report.
Four years into the downturn with no sign of a boom means clients have the upper hand. Nearly all the 200 clients interviewed to compile the report wanted better fee arrangements and efficiencies from their law firms. While a few firms still feel they can sidestep client demands, most have sought to improve their process innovations and, in particular, the value proposition of their younger lawyers.
On the process innovation side, the significant trends have been a more widespread adoption of fixed and predictable fees, project managers and low-cost centres. In terms of changing the value proposition of lawyers, the trends have been subtle but more interesting.
Brad Malt, chairman of Ropes & Gray, says: “Buggy whip manufacturers went out of business as they did not adapt to the car. We are faced with a buggy whip moment. Firms can pretend that old market dynamics exist – but they don’t.” For the firms who agree with this, changing the behaviours of their lawyers to align more with clients’ demands is imperative.
Paul Hastings has put behaviour change at the centre of its Superior Performance and Coaching programme, designed to place the competencies most valued by clients at the core of its associate career development.
The firm analysed the behaviours of role model lawyers in the firm before building a proprietary framework around them. Although this is not new in the corporate world, the systematic and comprehensive way that the firm has sought to replicate desired lawyer behaviour is unusual for the legal profession.
Crowell & Moring realised that to get the whole firm to use professional project management techniques required behaviour change. “We started with the notion that we, not an outside consultant, had to change behaviour before an online tool would be effective,” says the firm. After putting more than 400 lawyers through the training, the firm’s project management approach is now becoming a differentiator for it in winning pitches.
However, the pace at which the US firms are adopting process innovations is much slower than in the UK. Part of the reason for this is because the financial crisis has continued to deliver a rich seam of legal work for the lawyers. Work coming from the collapse of Lehman Brothers, the US investment bank, from the big financial institutions and from litigation relating to residential mortgage-backed securities still creates situations where lawyers can craft the innovative solutions that dominate the FT rankings.
The nature of the financial crisis has also driven unexpected opportunity. While the image of the bankers is tarnished, the legal profession retains its reputation for integrity and independence. Several law firm leaders felt that clients were increasingly looking to their lawyers instead of the bankers for more all-encompassing business advice.
Chris White, chairman of Cadwalader, Wickersham & Taft, says: “There is a void as to who the CEO can turn to. They are relying more on the lawyers and not so much on the bankers. This gives the profession an opportunity to innovate.”
This year’s FT Law 25 shows west coast firms Latham & Watkins and Paul Hastings rising through the tables to challenge previous incumbents Davis Polk & Wardwell and Skadden, Arps, Slate, Meagher & Flom. With strong submissions across the board, these firms display resilience to changing market conditions and a commitment to innovation that marks them out to their clients.
Another firm that has done significantly better in the rankings is Weil, Gotshal & Manges – up 16 places – which has appointed younger partners to head the litigation and corporate departments. Executive partner Barry Wolf says: “Our lawyers are adapting to the moving cheese. We preach the wow factor – the idea that you have to continually impress clients.”
Most of the top US law firms are well-managed businesses. But management writer Clayton Christensen, author of The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail, points out that even the best-managed businesses can fall from industry leadership.
The question for the US legal profession is whether the financial crisis is a turning point similar to that facing Sears, the department store, in the 1980s when it failed to read the implications of discount retailing for its core business.
All the chairmen of the top firms talk about change and the need to “not fight the last war”. And yet at the same time they cannot, they say, see their firms being all that different in five years’ time.
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