There was an article earlier on HN about the growth of legal outsourcing in places like India, as well as the prevalence of four tiers of law schools overcrowding the marketplace. In your opinion, is the current state of the law labor market a reflection of recent economic shock, or do you think there is a paradigm shift occurring to some degree?
At their peak in 2008 before the collapse, fee structures had gotten to the point where first year associates were being billed at about $500 per hour, with senior associate rates reaching into $600/hr plus and partners ranging anywhere from $700 to $1,000/hr (even paralegals would be billed at as much as $350/hr plus, not to mention the summer clerks, who also would be billed at such rates).
Even more, the standard practice in such firms is to travel in packs. Several lawyers and a team of paralegals would be assigned to a typical project that comes to the firm and every one of them bills time on the matter whenever they talk to each other about it. Thus, a "team meeting" may wind up costing the client thousands of dollars per hour, as the lawyers and paralegals ruminate over the strategy of a case or the details of a discovery strategy, etc. Now it is not the norm to have everyone globally assembled even for a large matter, but even the routine, day-to-day handling of a matter winds up being double- or even triple-billed, e.g., a court hearing at which a partner shows up to do the argument with two associates in tow carrying the bags.
All in all, not a very efficient system. But, as noted in the article, there is an incestuous network in place between the big firms and the general counsel and other senior in-house counsel who effectively determine to which outside law firms they will farm out the company's most complex matters. Not only do the lawyers on the client have relationships with the big-firm lawyers but they also operate under the "I can't be fired for using IBM" principle - and this has led over the years to strong ties within this network that have assured a steady and growing stream of work for the big firms from the most prominent companies with the most complex legal needs, all in spite of any inefficiency in billing or even overt billing abuses.
For a while, when all was still well, these same in-house counsel, under pressure from management, began to assert themselves by questioning the overbillings, etc. and this led to a pattern by which initial billings in a matter became, in effect, akin to opening offers. Such billings would be scrutinized and returned with complaints about this or that, would be cut back, and would then be paid in what was generally regarded as still-inflated form.
The downturn did change all this, with companies having had enough of this billing model. In today's environment, the large firms have had to adapt and have been forced to temper the old abuses with reduced hourly rates, fixed-fee arrangement, caps, etc. It is still the same old machine but much humbled when it comes to routine billing matters involving the in-house network. Very large and very complex matters still command the old rates and the old multiple-billing mechanisms, and that is why large firms salivate over the prospect, e.g., of getting a prominent role in the Lehman bankruptcy or in defending a prominent class action, etc. The problem is that there are only so many matters of this type, and certainly not enough to support the range of large firms in the manner to which they had historically been accustomed.
Thus, today, the field is much more varied even for the larger legal matters that have traditionally gone to large firms. For discrete issues, such as complex discovery, much of the work is being outsourced, e.g., to the Indian companies you mention. Instead of having a team of U.S. lawyers and paralegals poring over millions of documents at rates of $500 and up, you have a much less expensive labor pool overseas doing this sort of mind-numbing work. You also have a proliferation of smaller, boutique firms throughout the country doing the same work as the larger firms generally do, by comparably qualified lawyers, at half the billing rates. Some are set up "virtually" to enable themselves to compete on price even more effectively. And, in response, as noted above, the big firms themselves are adapting and discounting rates, etc.
All this represents a major change from historical patterns. I would go so far as to say that it has left the large firms "reeling," if that term is not too strong.
Will it result in a paradigm shift? In some ways, no. The network upon which the large firms feed is firmly intact and it does not appear that anything will change the basic ways in which the work is generated for such firms, i.e., they will continue to get the prestige big-company work and this will continue to support the existing structures. To that extent, the downturn has basically caused a short-term shift in the relative bargaining power between the company clients and the large firms. I expect this will shift back over time because law more and more affects large companies, with ever-expanding government regulatory frameworks, etc. in place, not to mention ever-expanding theories of legal liability. In this sense, Big Law will continue to be a "growth" business, albeit one that is temporarily in a slump.
In other ways, yes, however. Modern technology has indeed transformed the way law works and it is far easier today for clients to find good law firms of varying types to compete for their projects. Thus, at this level (which certainly includes the bulk of the startup world), clients have a far broader range of choices and this means more competition among the lawyers and better billing arrangements for the clients. Clients in such cases do not need to put up with things such a double-billing, or paying extensively for the learning time of all those young attorneys who are part of the 3-to-1 ratio on which the Big Law model depends. In these respects, I think the change is permanent. Clients are more knowledgeable and the information is now out there to give them good choices. This will not change going forward and is a good thing from the client side.
The ultimate institutional constraint, though, that will continue to support the current system is the guild system under which lawyers operate. Owing to the force of the law regulating the field, one can only practice law in a jurisdiction in which one is licensed and one who is not licensed can't offer any form of legal services to the public. This system, though intended to be protective of clients, acts much as the old guilds of the middle ages did in making sure that only the licensed artisans get the work. This in turn creates artificial scarcity, leaves it impossible for enterprising people to solve legal problems through creative means, and generally leaves the client with fewer choices and little ability to bargain over price. As long as this system generally prevails, there will be no fundamental changes in the field.
Sorry to go on and on, but I do hope this helps give you an insight into the broader patterns in the field.
It seems to me that the pattern you are describing also applies to Big 4 professional services firms like PriceWaterhouseCoopers, KPMG, etc, in areas anchored around accounting and auditing but characterised by an ever-expanding array of allied services. Would you care to comment on any nuances or differences particular to them as opposed to Big Law?
Thus, as firms trying to expand aggressively into new fields, with worldwide operations, such firms are now subject to all the vagaries of major businesses. In the past, a major law firm or a major accounting firm would not have wild fluctuations in its firm operations - ups and downs, yes, but not wild swings that could threaten its survival. Today, both large law firms and major accounting firms have done the unthinkable: (1) systematically purging their partner ranks to weed out less productive partners, (2) mass layoffs of younger professionals to survive severe downturns, (3) firm explosions that have caused some of the premier firms to go out of business altogether (in accounting, Arthur Andersen, of course; in law, firms such as Heller Ehrman (which was a 150-year-old firm, Brobeck, etc.). These are all symptoms of the shift from staid profession to major business venture. Of course, the rewards of successful expansion have far exceeded the risks over the years, and have enabled such professionals to make returns on average per partner that easily dwarf what such partners used to make under the old ways and hence they have made this shift.
I don't think I am competent to comment on refined nuances between the large firms within the accounting profession versus the legal and so will leave that to others.