Magazine article Medical Economics

Lawyers: The Pain Is Just Beginning

Magazine article Medical Economics

Lawyers: The Pain Is Just Beginning

Article excerpt

By the year 2023, Harvard Law School Dean Robert Clark predicts, there will be more lawyers in the U.S. than people.

Call it pre-emptive self-deprecation, with a grain of truth. Inside of five years there will be over a million lawyers in this country. Roughly 70 percent of all the lawyers on the planet will be plying their trade in the U.S.

The growing horde of lawyers is about as popular with their fellow Americans as the average army of occupation. "People feel they've been raped, pillaged, and plundered by lawyers," says one New York lawyer, who asks not to be named. "To make matters worse, lawyers hate each other as well. We really don't get along. Look at the O.J. trial. It was the most celebrated trial in history, and the defense team was basically not talking to each other. It was about egos, insecurities, and conflicts. It was wonderful microcosm of what goes on in the profession as a whole."

It's almost enough to make a strong man cry. But not quite.

Perhaps youngsters entering this $100 billion industry are daunted, but few of their elders are on their way to the poorhouse.

Take Peter Angelos, part-owner of the Baltimore Orioles. Three years ago his investor group paid $173 million, the highest amount ever for a sports franchise.

How did he pay his share of the bill? From years spent as a plaintiff's lawyer specializing in personal-injury litigation in the Baltimore area. That's one of the world's biggest hotbeds of litigation over asbestos-related diseases.

"He had all this money to live out every man's dream, to own a baseball team," says another lawyer. "Don't forget, this guy became a multi-multimillionaire off the blackened lungs and deaths of his clients."

Even lawyers who will never be able to afford their own sports team still have special ways to keep their own paychecks healthy.

Explains a lawyer who also doesn't want his name used: "Historically, we in the legal industry never, never paid attention to costs. To cover increased costs, lawyers would just increase hourly rates or take longer to do a job so they could charge more. What business doesn't worry about expenses, but only about revenues?"

Despite openly hostile clients, however, there was nothing to stop the legal profession from gouging. Until now.

For the first time, thanks to their expanding ranks, lawyers are about to be reduced to commodity status--like so many cans of garden-variety pesticide.

As long as demand was increasing in mergers and acquisitions, bankruptcies, wills, and real estate transactions, the profession was able to absorb the continuous stream of new lawyers entering the business. From 1985 to 1990 the legal industry's revenues grew at a robust 13 percent a year.

Since the early 1990s, however, growth has slowed to a mere 2 to 3 percent a year. With legal work drying up, lawyers can no longer pass their costs on to their clients. Couple that with high rents and a glut of lawyers and you have all the makings of an oversaturated, mature market.

The worst is yet to come, and most lawyers know it.

"As competitive as law is, we ain't seen nothing yet compared to what consultants and accountants have been through," says David Maister, a consultant and former Harvard Business School professor. "Lawyers are still able to sustain incredibly high billing rates, and they are still treated quite gently compared to accountants. Does it hurt enough for lawyers to actually change? Lawyers in firms aren't hurting enough yet. But they're going to."

While many think tort reform is the panacea that will put the brakes on the legal industry, they're probably wrong. Ambulance chasers and their ilk account for less than 10 percent of all litigation in the country.

The really significant change is happening in boardrooms throughout the land, as legal costs are studied with new intensity. Consider the following:

General Electric's "Manhattan Project" is designed to end the company's use of New York City law firms, which the company considers too expensive. …

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