"[T]he challenge I lay down here is for all lawyers to introspect, and ask themselves, what elements of their current workload could be undertaken differently — more quickly, cheaply, efficiently, or to a higher quality — using alternative methods of working."
— Richard Susskind, The End of Lawyers? Rethinking the Nature of Legal Services
The above quote from author and legal industry commentator Richard Susskind should be every lawyer and law firm's modus operandi. The legal industry today is profoundly different from what it was even five years ago. We have seen the dissolution of major firms, such as Heller Ehrman, Howrey and more recently, Dewey & LeBoeuf. Other firms have taken a hard look in the mirror and decided to make radical changes, such as Debevoise & Plimpton, which shed its estates and trusts practice.
Our interconnected world means firms no longer have virtual fiefdoms thanks to simple geography. This is coupled with the fact that they are catering to ever more sophisticated buyers of legal services as the Internet's democratization of information and increased firm competition has rendered the simple "for services rendered" billing explanation obsolete. Billing for tuna fish sandwiches is no longer acceptable, and at least one major firm — K&L Gates — has actually opted to fully disclose its financials.
The legal landscape will never return to the way it was before the Great Recession. This is not to say that the industry is not healthy, or that opportunities for smart, strategic growth do not exist. In fact, quite the opposite is true. The danger, however, is that for some firms, Susskind's analysis is the equivalent of profane and inappropriate graffiti festooning a pristine restroom rather than a clarion call to action.
Smart firms are rightly placing greater emphasis on not just the touch-points mentioned by Susskind, but also on overall organizational, fiscal and operational soundness, presenting an opportunity for the consideration of alternative business models. Growth, as defined by sheer office locations and number of attorneys, is no longer an assumed path to increased profitability. For some firms, the answer has been adopting a network-based approach, offering reach and a greater depth of client services while negating the risks associated with individual firm expansion.
A Client-Centric New Model
The Employment Law Alliance — a worldwide network of 3,000 labor and employment and immigration attorneys — began with the question, "How can firms evolve with their clients, and continue to effectively and efficiently handle their needs across multiple jurisdictions while maintaining independence and stable, profitable organizational structures?" The global economy means companies today have unprecedented opportunities to structure their business to take advantage of labor costs and logistics and to enter and exit markets virtually overnight. However, this also means that they are now exposed to vastly different laws, creating a need and an opportunity for quick, efficient, high-quality legal services. Failure to cater to these demands can be a death knell for client-firm relationships. No one wants to hear the line, "We love working with you, but our needs have changed" — a devastating take on the old chestnut, "It's not you: It's me."
Previously, two scenarios generally played out: 1) A growing company would retain relationships with current counsel and contract with additional firms based on jurisdictional need; or 2) companies would opt for one-stop shopping and partner with global firms that operate satellite offices around the world.
The first is simply inefficient for a company. Legal concerns and the "preventative medicine" aspect of the law are best addressed and administered with a 360-degree view of an organization. (It should also be noted that not every company has, can afford or needs its own in-house general counsel.) In terms of inefficiency, consider, for instance, the multiplier impact of standard — and unavoidable — "cost of business" administrative expenses each firm is billing.
The second method certainly simplifies the chain of command, but it has its own drawbacks. Companies partnering with globe-straddling, multipractice colossus law firms often encounter the scenario where a partner firm has a Beijing office, but labor and employment is not really much of a component at the outpost. Often, a foreign address can be a bit of a misnomer as, for instance, immigration work for clients operating in China is done by a firm's Singapore or New York office.
For many firms, looking to create a presence in local jurisdictions, the law firm network approach has been shunned in favor of gobbling up small firms and rebranding them as local offices. Again, this gives the client the perception that a firm is "on the ground," but there is a major difference between an eight-person boutique in which one attorney practices a particular type of law and a 160-plus niche-specific firm. For clients, it's time-consuming and exhausting to perennially be pausing and asking the critical question "Is this type of law merely a sideline for this office?" Roots matter.
Another disadvantage of this one-firm-fits-all approach is that rates are routinely pegged globally, meaning that clients pay New York or Chicago prices for work completed in a locale where the exchange rate for the dollar is highly favorable or the legal industry's economic pricing model is just not as costly as in the U.S.
The ELA model was created to knit together firms of all sizes to provide clients with seamless representation in any jurisdiction. It now provides labor and employment and immigration services to clients across six continents, in more than 135 countries, every U.S. state and each Canadian province. Clients are charged local rates for work done by local counsel who know the country, its laws and the courts. Companies have counsel wherever they go, but the original ELA attorney and firm they partnered with remains a unifying point of contact.
A decentralized model like this also furthers a goal that Susskind details in his book, in that it pushes work through the pipeline and to completion more efficiently through effective relationship management — the client contact drives the work and the network is incentivized to produce quality results as in the future, or simultaneously, a scenario with the roles reversed will surely occur. Susskind notes that achieving what clients are looking for — namely quality, speed, efficiency and value — requires changing work products from being "bespoke" to being "commodities."
The term "commodities," however, needs to be considered carefully. A law firm network such as the ELA isn't designed to run like a factory line — churning out identical answers for identical problems — but rather as a network of diagnosticians skilled in a particular field. This is due, in part, to the inherently local nature of employment law — which extends all the way to knowing the unique manner in which judges interpret the law. A broader geographical footprint and a deep bench of truly local attorneys produce a tangible benefit to clients. It is simply not cost-efficient, and often not effective, to have an attorney try and get up to speed on a Malaysian wage-and-hour statute while sitting in Singapore.
Flexibility, Scalability and Relationship Security
The costs for a law firm to expand into additional jurisdictions can be significant, saddling it with both high-levels of debt and unsustainable fixed costs. From a business standpoint a network such as the ELA is in tune with the current cost-focused, lean and productive economic gold standard. By partnering with others, members gain a global footprint without ever leaving the neighborhood or sacrificing autonomy for scale through a merger.
An additional benefit of the cross-jurisdictional law firm network model is that, on a macro scale, the organization provides clients with a high level of stability. Should a firm in the network dissolve or have its practice group suddenly walk out to a different firm, a new member will join after being carefully vetted and evaluated by current membership. Often, through the course of an engagement, relationships will be built not just with the originating member but with other members who have been tapped as resources.
A further strategic advantage for firms participating in this model is access to and availability of organizational marketing and communications resources — which can be costly to maintain and not always feasible for some firms to adopt. By taking advantage of economies of scale, members can offer services, such as webinars, sponsorships and print/web collateral. Firms also benefit from the strength of the network's brand, which serves a function similar to the Good Housekeeping "Seal of Approval."
All these benefits and advantages notwithstanding, law firm networks cannot be created overnight. A network's success and sustainability depends on attracting and maintaining high-quality members. The organization needs to define its guiding principles and select only those firms that match the established criteria.
The paradox confronting the legal industry right now is that companies need increasingly sophisticated services, delivered around the globe and at manageable price points. Law firms need to find a path towards operating efficiently and cost-effectively, while also providing these complex time-consuming offerings demanded by clients. One way for firms to do this is to create or join an interconnected network.
This method may not be for all firms, but it is a viable alternative. And when it works, clients and firms can achieve cost savings and global reach.
Stephen J. Hirschfeld is a founding partner of Hirschfeld Kraemer and the CEO and founder of the Employment Law Alliance. Both organizations are based in San Francisco. He can be reached at shirschfeld@HKemploymentlaw.com or via his firm's website: www.hkemploymentlaw.com.