As Valorem was celebrating its first anniversary on January 1st, I spent a bit of time thinking back on the things that shaped our birth. One of those things was a prescient post by Gerry Riskin way back in August 2007. Gerry is, in my view, the world’s foremost consultant/advisor to law firms. He also is the author of the Amazing Firms, Amazing Practices blog. Before anyone in the legal industry was predicting difficult times, Gerry posted Doom and Gloom For The Legal Profession–It’s Coming. Here was Gerry’s prediction:
Our legal profession is in for very rough times. My message to Managing Partners is not to become pessimistic but simply to have a contingency plan in place.
Most firms will:
a) continue to be hourly billers (for the most part)
b) plan for extensions of the historic linear revenue and profit per partner growth
c) perhaps fine tune by de-equitizing or closing an unprofitable office or two
but few will create a contingency plan for:
a) dramatic drops in demand for many traditionally hot practice areas
b) over-staffing (at all levels and in most practice areas)
c) the cancer of internally competitive behavior as the pie shrinks
Those inclined to tell me I am crazy I ask to wait six months following the next US election – then I will eat this post if I was wrong.
(Clearly Gerry avoidis having to eat the post, without even having to wait six months past the election.)
I had to wonder whether starting a new firm in the face of the such a prediction was a sign of early madness. But I am a big believer that even economic crises create opportunities, especially when you focus on the needs of the consumers. The Valorem business model is designed to help clients reduce costs and better confront the huge obstacles created by the economic downturn. But this post isn’t about Valorem, it’s just that my reminiscing triggered the post.
In September of this year, Gerry Riskin asked this question:
Managing Partners, you may have a disaster plan for fire, perhaps for terrorism – do you have one for the economic train coming off the tracks?
"The message is clear…change or die"
I know all the big firm guys well. They are good guys. Smart, nice. etc.
but, NONE of them think this. NONE.
They regard our views exactly as US auto companies regarded Japanese cars in 1975 or so.
To be clear: the average (median?) partner at the big firms makes, what, 2.7million/year?
This means the top guys running the firms make, maybe, 8million/year
This is big big money in America. Particularly with corporate exec compensation down/controlled, Wall St dead.
The last thing someone making a guaranteed income of this size is thinking of is changing the system that has worked perfectly for him.
NO ONE in any of the large firms is thinking, as we read this, "we must change our model"
They are thinking: "need to get hours up, and work on hourly rate where we can. But, if we just get hours up on each matter, we will do fine"
Nothing wrong with this; just normal conduct of highly successful people.
One last piece of information to make my point. In the January/February 2009 issue of Foreign Policy magazine, you’ll find this:
Taken together, these amounted to the biggest asset and credit bubble in human history; as it goes bust, the overall credit losses could reach as high as $2 trillion. Unless governments move with more alacrity to recapitalize banks and other financial institutions, the credit crunch will become even more severe. Losses will mount faster than companies can replenish their balance sheets.
Thanks to the radical actions of the G-7 and others, the risk of a total systemic financial meltdown has been reduced. But unfortunately, the worst is not behind us. This will be a painful year. Only very aggressive, coordinated, and effective action by policymakers will ensure that 2010 will not be even worse than 2009 is likely to be.
The sobering prediction came from Nouriel Roubini, a professor of economics at NYU’s Stern School of Business and someone who predicted–accurately–what has transpired thus far. Four other economists who "got it right" join him in predicting what many expect to be still harder times and then an "L-shaped" recovery.
If these predictions come to be, or even if they merely come close, what will it mean for our clients? For the business model on which most firms are based? Those who consider these questions, almost without exception, expect the next few years to be a time of unparalleled change and realignment in our industry. Are you prepared for it?