Thursday, February 22, 2007

How many lawyers does a firm need?

The largest U.S. law firm, Baker & McKenzie, now has over 3500 lawyers according to The NLJ 250 posted on Law.com. As a solo practitioner, I think about adding one or two lawyers, maybe growing to five or ten in few years (or maybe staying solo). I can't imagine growing into a firm with hundreds of lawyers, let alone thousands of lawyers. And, on a day-to-day basis, I don't think much about what the big firms are doing. Most of the time it seems that the big firms are part of another world. How does it affect me?

I believe the legal industry is going through a major period of transition, one that we have not seen in the history of the profession. I think the transition is being forced by the advent of new technologies, improved methods of communication, and globalization. The question is where is the legal industry going? What does it mean for solos and small firms?

Big firms are getting bigger. For each of the last two years, the largest 250 law firms in the U.S. grew by 4 percent or more. The smallest firm on The NLJ 250 had only 172 lawyers. I don't know the statistics, but when I graduated law school in 1986, I would guess that a 172-lawyer firm would have been in the top 25, or top 50 at least. The legal profession in the United States has been around for about 200 years. So, why is it that in the last 20 years, firms are now growing so big? Does it mean we all need to part of a mega firm to practice law?

When most clients go looking for a law firm, do they think "we really need a firm that has at least 1500 lawyers to be able to handle our legal needs?" Do they think 1500 lawyers work more efficiently under one roof? Law firms are getting bigger because they can, and because other firms are getting bigger.

Big firms are being structured more like traditional businesses with new management such as CEOs, COOs, CMOs and other C-level executives. More management means more overhead. Also, big firms are beginning to realize that knowledge management will drive law firms of the future and have started to invest more money in technology and training. These developments increase overhead, which means firms must continue to grow in order to maintain efficiency and profitability.

At the same time that big firms are growing, computers and the Internet are enabling solos and small firms to reduce costs and improve the quality of their practice and quality of their lifestyle. How can this be true that technology increases costs for big firms and decreases costs for solos and small firms? Because the latter don't invest in management, IT systems, training, and consulting. They rely on the consumer marketplace.

What this means is that the legal industry is undergoing a massive transition, which may take years to settle out. My prediction is that the number mid-sized firms will shrink. There will be big firms and small firms, but few in the middle.

What do you think will happen? How big should your firm be?

2 comments:

D. Todd Smith said...

Interesting. If your prediction holds true, I suppose mid-sized firms will either be merging with the larger outfits or fragmenting into smaller shops. I tend to think it will be the latter, since mid-sized firm clients will not take kindly to large firm fee structures. What do you think?

By the way, I have posted about your prediction here.

Roy J. Watson, Jr. said...

The large lawfirms are growing, I think because they must. Their overhead drives their need (and ability) to market. The problem is, as you and others have noted not everyone needs nor wants to share in the cost of such size. The problem is that small firms are gradually being pushed out of the market (especially the specialty markets) by the ability of the large firms to market and market aggressively. We need to become like Apple under Microsoft's curve.