Waste Not, Want Not: Law Firms And The Current Economic Crisis
Rahm Emmanuel is famous for saying "a crisis is a terrible thing to waste." But another crisis truism comes to mind as well: "by the time you recognize a real crisis, it may be too late to do anything about it." The question for the day is whether law firms yet today recognize the real magnitude of the crisis they are facing. There is scant evidence to suggest they do.
As I was driving in today, I heard a report on the unprecedented decline in business travel, business bookings at hotels and related markers showing that businesses are not close to rebounding from the extreme difficulties created by the economy. Last night, the report was that the current recovery in the stock market is following a historic pattern that suggests a further decline is still on the horizon. Then there was the report about the continuing decline in home values, meaning Americans continue to lose wealth and the resulting buying power. People are forgoing retirement because they no longer can afford to retire. And so on. The point is that American business is facing uncertain times for longer than they care to imagine.
So what are law firms doing in the face of this? They have played at the periphery. A few lay-offs (but more on the horizon according to Peter Zeughauser), some salary cuts counterbalancing paid vacations for new associates, eliminating free coffee and other moves to trim expenses. The essential model is unchanged, which leads only to one of two conclusions: a) law firms still do not understand that their business model no longer works; or b) they get it but don't know what alternatives exist--a failure of imagination.
In the meantime, the value of the current crisis is being wasted. Law 360 contained an article today, Firms Rethinking Business Model in Recession, that initially gave me hope that more was happening than was public. But this sums up the article:
While legal consultants said few firms had made changes to their governance so far, all agreed that law firms were reassessing every aspect of their businesses. Some consultants, however, cautioned that the middle of a recession might not be the best time for wholesale changes because no one knows yet where the chips are going to fall.
Governance! That's like the owners of the Titanic asking is they should change the color the ship as it was sinking into the Atlantic. Maybe that second truism has some merit to it after all. A crisis may be a terrible thing to waste, but law firms that do not re-examine their fundamental business model are doing exactly that.
