The recent story of General Motors provides an interesting point of comparison for law firms. Before approaching the government last December for bailout money (and a tone-deaf request at that), General Motors had decades to change itself into a company that could compete in the future. It failed. Between December and last week, GM had a chance to change itself, or at least create a plan for change, that would allow it to survive. It failed. It was then forced to sacrifice its CEO and try yet again, this time with substantial direction from the Federal Government. You know things are in bad shape when the Federal Government has to provide what is, to most informed observers at least, direction and guidance on some fairly fundamental points. Three chances. GM is down 0-2 in the count and time will tell–and not much time at that–whether it swings and misses yet again.
No law firm is going to get a government bailout. Firms had a chance before the economic crisis to structure themselves in a way that would make them effective competitors in the post-downturn period. If any of the AmLaw 200 took advantage of this opportunity, it would be news, and i certainly haven’t heard about it. That means that most of these firms are going to have one chance–and the clock is ticking–to make material changes to their business models and get it right. Once again, there is scant evidence that firms are taking advantage of this opportunity. Strike 2–and its a two strike league–is on the way for many.
What will the end look like? There will be some abrupt explosions. We’ve seen some examples already, with Heller coming to mind. There will be come mergers, akin to the marriage being forced on Chrysler and Fiat. Two economic lightweights combining will only yield a larger economic lightweight, so these forced marriages will at most buy some time, but the death watch will be on. There will be a growth in partner departures, as those who can do so will look for smaller, more nimble ships to use as a platform. At the same time, the strongest of the large firms will use the period as an opportunity to cherry-pick talent, and they will make themselves stronger. Banks, landlords and retirement debt will be play a critical but hidden role behind the scenes. Lastly, the continued pressure by clients to cut costs will effect firms differently.
Darwin is at work here in so many different ways. But unlike GM, there will be no government to hold firms’ hands and guide them to survival.