The major trends in the legal market – Disaggregation
When I started out as a lawyer in the mid-1980s, the typical situation was that a client turned up in my office with a big box full of files and instructed me to solve the problem documented in those files.
When it was about the acquisition of a firm, for instance, the instruction was: “Please look after all the legal issues concerning the transaction!” The law firm thus retained then dealt with all the legal aspects, from the rather complex structure of the transaction and the concept of funding, which in individual cases may well have been rather testing, to due diligence or the reorganisation of employees’ contracts. The last two working steps may not have involved any great challenges in legal terms, but were good for the occupation and the learning process of young colleagues in the law firm – bread and butter business!
Richard Susskind demonstrated as early as 2008 that this way of awarding mandates was threatened with extinction. Today, clients make a precise distinction between what components of the mandate require a high degree of legal competence and what components do not. The mandate is thus “disaggregated”, dismantled into its parts. Demanding work can still be done by a qualified law firm, and the law firm can also invoice the time spent on it at attractive hourly rates. “Simpler” work is done by companies that specialise in it today; for example, such firms may employ special software to analyse big data volumes for critical points or to generate individual standard contracts by machine. Such companies are often no longer law firms proper, but so-called “alternative legal service providers” which work for fixed rates independent of time and which complete the work originally done by law firms at more favourable prices and – to be honest – often also of better quality. Sometimes, however, parts of a large-scale transaction are also passed on to small or medium-sized law firms, which proceed to implement projects conceptualised by a qualified big law firm.
What this means for qualified law firms is clear: the bread and butter business, which generated nice contribution margins, is missing. What is also missing is the work with which young associates could be trained and prepared for more extensive work. This has jeopardised the business model of these law firms, which after all is based on funding a law firm’s overheads, investment in the development of the law firm, and the partners’ profits through the work done by associates. If this is thought through to its logical conclusion, the so-called high-end law firms will be unlikely to grow as strongly in the future as they did in the past. Nonetheless, a few of these law firms have skilfully repositioned themselves by setting up special units that are capable of doing standard work using specific software or in cooperation with competitors specialised in such jobs. The former include the two British Magic Circle law firms Allen & Overy and Freshfields. In the US, but also in continental Europe, there appear to be only few law firms which are moving in that direction yet.
However, tactically proper positioning with regard to “disaggregation” is crucial for the future. “Disaggregation” must indeed be seen as actually having paved the way towards further trends such as the growing importance of modern technologies in our business or the pressure on fees charged by medium-size or small non-specialised law firms, in particular. I will focus on these two phenomena in my next two blogs.
This blog was originally published on 5 April 2018 in Vista, the online magazine of the Executive School, University of St.Gallen, Switzerland.
About the Author Prof. Dr. Leo Staub is a Titular Professor of Business Law and Legal Management at the University of St. Gallen. He also is one of the Directors of the Executive School of Management, Technology and Law of St. Gallen University where he chairs the division “Law & Management”. Leo can be reached at email@example.com