I launched Law Firm Transitions a year ago this week. My goal for starting a blog was to join and help drive the conversation about changes law firms need to make to better serve clients. From my perspective, the business model needs to change.
So it seems apropos that I chose this week to report on a presentation Peter Zeughauser gave last month at the ALM Law Firm Marketing and Business Development Leadership Forum. Arguably the best legal strategist in the business, he caused me pause with his rosy forecast for the legal services market.
“The law firm business model is not broken. The reset button has not been pushed. It’s been a tough two years but there is a lot to look forward to,” Zeughauser told a crowd of about a 100 CMOs gathered at the Harvard Business Club in New York City.
In the context of the broader economy, the legal profession survived the financial crisis unscathed. Yes, we lost a few firms, but there were no bailouts. In the end, the larger firms proved fairly nimble, he said.
Yet his positive outlook came with some fairly dire undertones. Law firm consolidation, shifting global economic centers, and the disproportionate role multinational companies are playing in the economy — the trends Zeughauser says will have the greatest impact on law firm strategy — will make it an uphill climb for all but a chosen few.
According to Zeughauser, the AmLaw 100 is vanishing, giving rise to the Global 25. In 2010, the AmLaw 25 held 47 percent of the market share of legal services. These top firms will be able to cherry pick the clients and the top talent from all the other firms. They will simply not be able to keep up.
Shifting Economic Centers
The IMF has predicted that China would take over the US as the largest economy in the world by 2015. Capital markets are losing their dominance as private money plays a larger role. New York and London were once the dominant financial centers. That’s changing. Lawyers are a “follow the money” business, so this will have a huge impact on strategy. Firms may not need a global footprint to take advantage of the shifting financial centers, but they will need a global brand, Zeughauser said.
The Role of Multinationals
Multinationals make up less than one percent of the companies in the world but they account for 31 percent of growth in the U.S. gross domestic product. Relative to their size, they play a disproportionate role in the economy.
According to Zeughauser, if one believes the world’s economy is going to continue to grow, the future is bright.
The question I have is, “What will be left after the AmLaw 20 or 25 take their cut?”
This is where most firms find themselves. Zeughauser’s advice? Figure out what your NOT going to be good at. Saying you “do it all” is no longer credible. Firms need to have a clear vision and identify what it is they are best at. That often requires choosing what you are NOT going to be the best at.
That’s not to say that making such a choice does not come with its challenges. Firms need to assess what clients are most profitable, how to take advantage of global economic trends, and how they define what makes a successful partner.
For the chosen few, I agree with Zeughauser that the law firm business model may not be broken. For the rest, however, there is more work to do. I look forward to another year of the discussion.