With all the discussion out there about the economics of law firms and the collapse of the market for legal services following the the crash of 2008, it’s important to remember that lawyers are professionals first and foremost and that law firms are not traditional businesses. Many observers of the legal industry discuss the depressed market for legal services at big firms using traditional business models to discuss things like profitability, profits per lawyer, profits per partner, billable hours, etc. They also tend to prescribe solutions in purely economic terms without regard to the unique nature of law firms and the practice of law. However, what those observers seem to miss is the fact that law firms cannot and should not be operated like traditional businesses. Here are my thoughts as to why:
The fundamental problem underlying the dilemma that law firms face is that the law is a *profession* not a trade, and law firms cannot be managed or analyzed like traditional businesses for a number of reasons:
- Lawyers are not in the business of selling widgets; they are in the business of selling their advice, counsel, and judgment. These things are not commodities that can be produced in ever greater numbers with ever greater efficiency and economies of scale. There is a limit on the number of hours of work that a lawyer can provide, based not only on the number of hours in the day, but also on the amount of work a human being can provide before burn out ensues and the judgment and advice offered begins to suffer.
- Commoditizing legal services is totally at odds with the rules of professional responsibility and the fundamental role of attorneys as fiduciaries to their clients. Unless we are willing to entirely throw away this model, the idea of maximizing profits by treating legal services as a traditional business is based on a fundamental fiction that lawyers can sell ever increasing volumes of time and advice through a highly leveraged “assembly line” of associates consistent with the obligations of professional responsibility. Advice and judgment cannot be produced on an assembly line. We need to stop thinking about lawyers as assembly line workers, and we need to stop demanding that big firms grow like businesses sold on the stock market.
- Asking law firms to produce continuously increasing profits is like asking brain surgeons to create a brain surgery business and maximize profits of that business by maximizing the number of brain surgeries the business performs by delegating the brain surgery to armies of associate brain surgeons and asking them to perform brain surgeries constantly for 60-80 hours per week, 50 weeks a year. Would anyone want to go to Brain Surgery, Inc. as a “client” to have their own brain surgery performed?
- What lawyers are trained to do, and what they do best is to offer sound advice and judgment. The current trend towards disaggregation of legal services is likely based in part on the recognition by business clients that lawyers are not good or efficient at providing goods and services outside their area of comparative advantage (i.e. providing legal advice). Lawyers and law firms should focus on their highest and best use, delivering legal advice and letting other providers (e.g. Legal process outsourcers, clients, etc) do the rest of it.
- The flat management structure of law firms is inconsistent with the idea of maximizing efficiency and profit. First, for the reasons stated above, legal advice is not a commodity that can be generated through a system of hierarchical, matrixed departments. Second, in law firms the work is not effectively or efficiently divided efficiently among specialized teams. Law firms tend to adhere to the myth that lawyers that are “partner material” can do all things well. To the extent they do have specialized teams (e.g. a discovery center staffed by contract attorneys, or an IT group focused on document or matter management software), those specialized teams are not well compensated or respected by the partners that receive all the money, prestige and incentives to work hard. By contrast, businesses people tend to be better than law firms at recognizing that different employees have different skills and strengths and they organize employees accordingly into specialized teams and adequately reward them for their special contributions.
- Rules of professional responsibility, including those that prohibit ownership of law firms by non lawyers and generally prevent lawyers from sharing in the profits of their clients, are designed to ensure that lawyers act as independent, trusted professionals, with a responsibility first and foremost to care for their clients as fiduciaries, not to extract maximum profit from them. These rules also prevent law firms from operating like a corporation, with business managers and investors deriving high levels of compensation and profits from “products” being manufacturd by the company’s factory workers (ie, the lawyers).
Simply put, the nature of the “product” sold by lawyers (legal advice) and the regulatory structure of the profession (embodied in the rules of professional responsibility), make it impossible for law firms to operate as a true business, and therefore attempts to analyze law firms and the legal services market like a traditional business market — and apply normal economic principles of growth, profitability etc. market — are fundamentally flawed.
With all of the above in mind: Aspiring lawyers should not go to law school with the idea that they will become rich like investment bankers if they want to pursue a traditional law practice upon graduation. They should do it because they find the work itself inherently rewarding and only if they are satisfied with a comfortable but not excessively high standard of living. If on the other hand they want to apply the skills of critical thinking, sound judgment, oral and written advocacy, etc. (ie skills that that one learns in law school) outside of a law practice (eg as business managers, investment bankers, entrepreneurs, etc.) then their skills may be well utilized in any number of areas that may lead to high levels of wealth and other rewards.