Douglas McCollam, writing in today’s WSJ, notes the suffering of Big Law:
At bottom, what’s in question is the whole economic edifice of the modern American law firm. Like the pharaohs of old, big firms are enamored of constructing pyramids with an ever-widening base of associates and nonequity partners toiling on behalf of a narrowing band of equity partners at the top. Increasing a firm’s “leverage”—as expressed through the billable hour, one of the most pernicious creations in the annals of commerce—has been the key metric driving profitability at big law firms over the last generation. Numerous studies have documented the deleterious impact this model has had upon the legal profession and clients. To date, nothing has been able to kill it. It would be ironic indeed if the economic downturn that has cost lawyers so much ended up being the very thing that saved the legal profession from its own excess.
This is right as far as it goes. But it needs to go further. Even after the leverage bubble pops, there are still going to be big problems with big law. As I said earlier in the summer:
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.
In other words, the problem not just excessive leverage but the basic business model of big law firms. How does that get fixed? I’ve got an article in process addressing that. More later.
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