Variety of Factors Lead to Shakeout of Law Firms

Article excerpt

It has finally happened: Law firms are going through the same wrenching changes that their corporate clients have endured. Big firms are getting bigger, small firms are finding niches, medium-sized firms are feeling squeezed.

And the legal world is reacting to the recent demise of Shea Gould, a blue-chip law firm if ever there was one, with the same shocked horror that corporate America felt when it saw the seemingly invincible IBM run into financial and marketing troubles.

"The crashing of Shea Gould has sensitized all law firms to the importance of managing, planning, monitoring partners, acting like a business," said Joel Rose, a Cherry Hill, N.J., management consultant and chairman of the Large Law Firm Committee of the American Bar Association's Law Practice Management Section.

The shakeout has already begun. Shea Gould, which at its peak seemed the epitome of legal prestige and opulence, was not the only firm to dissolve amid partner acrimony.

Other firms, including the New York-based Lord Day Lord, Barrett Smith and Bower Gardner, also expanded too quickly or changed too slowly, and imploded. Other firms then picked their carcasses.

Morgan, Lewis Bockius, for one, picked up nearly 60 Lord, Day lawyers and now has more than 750 lawyers.

Legal experts predict more of the same as the larger firms rethink collegial structures that worked when 25 lawyers were scrunched together but that cannot accommodate hundreds of lawyers dispersed around the world.

"Big general-practice firms will merge with big Wall Street firms, and we'll all go the way of the accounting firms," said Eugene Anderson, one of the founders of Anderson Kill Olick Oshinsky, P.C., a 240-lawyer firm based in New York.

"We'll have a Big 6 or Big 8, with offices in every major city, handling huge cases for huge clients. And we'll have 100,000 tiny firms, offering personal service to tiny clients and handling the bulk of the tort cases."

This will mean lots of obstacles for lawyers with ambitions to become partners. It will be harder for individuals to stand out in the huge merged firms. And small firms rarely have the same partnership opportunities.

But more is changing than just firm size: Morgan, Lewis, once firmly ensconced in Philadelphia, has distributed partners and associates fairly equally among its Philadelphia, New York and Washington offices. "This structure gives us a better chance of hanging on to the star performers in the regional offices," said the firm's Washington-based chairman, John Quarles. Anderson, Kill, where each lawyer is a partner, is rethinking its one-man, one-vote structure. "We will continue to give all our lawyers access to financial information, but it doesn't work for everyone to vote on every issue now that we're big," Anderson said. Bickel Brewer, the Dallas-based law firm, has abandoned the billable hour. It now charges clients a flat fee based on what their cases are expected to yield, and a percentage of any money above that amount. "The billable hour puts incentives in the wrong place," said William Brewer III, a co-founder.

The changes are being driven as much by outside forces as by introspection. The costs of doing business _ like office rents, salaries, and computer hardware and software _ have skyrocketed. And the fabric of relationships between lawyers and clients, and among lawyers themselves, is unraveling.

Clients no longer believe in one-stop shopping, but are parceling out their business to numerous firms. Well-known firms are being forced to participate in what lawyers call beauty contests _ sessions in which several firms vie for a client's business. But even getting invited to compete is hard these days.

Omer S.J. Williams, managing partner of the New York firm Thacher Proffitt Wood, said, "We now have a full-time marketing person whose job is to get us on panels, to arrange seminars, to basically get our name known. …