The NYT on the White & Case meltdown

The NYT has a fairly mundane article on the Big Law meltdown, focusing on White & Case.

So why are big law firms suddenly shrinking? Partly, the Times says, because “in the first quarter of 2009, demand for legal services in New York decreased by nearly 10 percent over 2008, according to the Hildebrandt International Peer Monitor Index.”

Demand is down.  Duh.

We’re also told that

Big Law — especially in competitive New York — is facing a potential paradigm shift as fundamental as the one that has hit investment banks and the auto industry. Big, as a business model (let alone as an expression of the national mood), seems bound for obsolescence.

What is that “paradigm shift”? Partly it’s the bursting of the financial bubble, leaving firms with too many associates. Again, demand is down.  But that sounds like what’s hitting everybody, not a “paradigm shift” for big law.

The article also says:

But the natural order of this world has been set on end by the economic crisis and the possible disappearance of fixtures like the pyramid system (under which associates are thrown en masse at certain cases, fattening the fees), and the billable hour itself (increasingly replaced by flat rates or retainers in a client’s market). The tectonic plates have begun to shift in a nauseating manner, bringing fear, ambiguity and psychological scars.

Well, yes, but these are symptoms. What is the cause?

Philip K. Howard [the famous lawyer and author] says that market forces are taking over from “the emotional and professional commitment that goes along with being an adviser and a solver of problems.” This is the old saw about law suddenly being a business. But that's hardly a recent phenomenon.

How about this, from a W & C partner:

The loyalty of the institution to its people, and vice versa, isn’t really there anymore — it’s a different animal from what a lot of us were used to. It’s much more of a business now and less of a true partnership. The problem is we’re supposed to all be in this together. But at some point, you stop and think: ‘Well, maybe we’re not.’”

This starts to get at the problem. Where is the glue that is supposed to hold large firms together? Turns out maybe it was simply faith that the money would keep pouring in in large enough quantities to support the current business plan. Sounds a bit like a Ponzi scheme.

The real problem is that large firms don’t really own anything but faith, which is fine for religion, but not much of a glue for a business. Here’s my analysis of the meltdown of another big firm, Wolf Block, and some deeper explanations here and in this draft paper.  I’m hard at work on a longer elaboration.

Comments

[LDC]

Of course it's a ponzi scheme. Did you ever read the old tale about the monkey and the cherry in a bottle? The monkey sticks his hand in the bottle to grab the cherry, but his fist is now too big to remove his hand and keep the cherry. He is unwilling to let go of the cherry so when the monkey-hunter walks up, he is easy prey. The hunter taps him on the elbow and forces him to let go of the cherry. Now he has lost both the cherry and his freedom. In my sadly under-consulted opinion, the problem that law firms have today is not that law firms are treated as a business, but that everyone in our culture today seems to think that business has to mean trying to accumulate wealth and power.