Robert Crandall and Clifford Winston, both of the Brookings Institution, have an opinion piece in today’s Wall Street Journal, The Law Firm Business Model is Dying. Here is the money quote:
How have regulations caused the demise of long-established “white-shoe” law firms? Much legal work is performed by associates, who in most states must graduate from a law school accredited by the ABA and pass a state bar examination. This form of licensing significantly limits the flow of new legal practitioners. It also means would-be lawyers must make a substantial upfront educational investment in money and time that must be recouped in high salaries later.
Such salaries can be and are paid because licensing limits competition in the legal profession, and because partners derive much of their own inflated earnings from associates’ work.
But when law firms are under pressure to reduce costs, it is difficult for the partners to significantly reduce their reliance on associates without severely affecting their ability to serve clients. Efforts to outsource some tasks have met with only limited success.
The opinion piece is interesting, and there is some merit to the points discussed. But to suggest the law firm model is failing is like looking out the wrong end of a telescope. The model is toast. History. Those who haven’t changed are dinosaurs living in an electronic era. But that quibble aside, the problems that caused the failure of the law firm business model are simpler and more profound. Competing with your customers for profit has never been a ticket to success. Rewarding inefficiency likewise not the best idea. These two features alone, without more, were fatal for the patient.