Here is a link to a forthcoming Suffolk Law Review article by Northwestern Professor John P. Heinz, the widely cited legal profession scholar. His entry in the Suffolk Law Review is entitled "When Law Firms Fail," and it has an abstract that is as compelling as its title:
Large firms had, until last year, been advised to grow, enter new
markets, and concentrate on "high value" work, especially in structured
finance. Now, those firms have terminated thousands of lawyers and
other employees, and some well-established firms have gone out of
business. The firms that expanded most aggressively are now in the
most trouble. Those firms competed for high stakes cases, for which
they could charge premium fees, and the resulting "winner-take-all"
market incentivized risky strategies. The firms hired large numbers of
associates to exploit the human capital of the partners, but when the
credit bubble burst in 2008 and transactional work declined sharply,
corporate lawyers became underemployed and associates were then the
most readily terminated. As assets held by the firms declined and
lawyers left, voluntarily or involuntarily, banks that had extended
credit to the firms began to demand repayment, forcing some firms into
insolvency. Corporate inside counsel sought to take advantage of the
buyers' market by pressuring the law firms to restructure billing
practices, especially advocating or demanding fixed fees and reduced
rates for the time of junior associates. These pressures, together
with other developments in the international market for corporate legal
services, promise fundamental change in the business practices of the
firms.
On a related note, legal process outsourcing guru Mark Ross is discussing another economic trend: the increasing use of third party litigation funding. Mark offers his thoughts as to how the trend will accelerate the move to LPOs and alter the economics of litigation.
It's hard to know what the future holds for the legal industry, but I suspect that the next ten years will produce greater change than the last decade. That's a pretty easy prediction to make, given some of the shakeout currently underway. The challenge, of course, is predicting what those changes will look like, and Professor Heinz and Mr. Ross offer some interesting food for thought.