Dr. Stephen Moss, Managing Partner and Chairman at ECP Legal, writes about the changing structure to law firms and the resultant emergence of contract employment.
It is now well established: the legal industry is in a state of flux.
Law firm leaders are grappling with the reality of technological advancements undermining the traditional large law firm model. In-house teams are getting bigger, corporate lawyers more savvy, and more lawyers are opting out of the traditional career path in favour of alternatives.
Contract employment is on the rise – two recent US surveys from Emergent Research and Altman Weil found that:
- 25% to 30% of the current US workforce are contractors or “contingent” workers;
- 80% of large corporations are planning to substantially increase their use of this flexible workforce;
- 72% of US law firms agree that contract lawyers are here to stay;
- 3% of responders stated that their firm is currently pursuing contract lawyers as an alternative staffing strategy, and
- 6% of firms with 250 staff or more stated that they are currently using contract lawyers.
The 2018 CommBank Legal Market Pulse reported that top-tier and mid-tier firms in Australia are forecasting that 10% of fee earning work will be outsourced in two years. This equates to more than $1 billion of fee earning work being outsourced annually by 2020.
These forces, combined with recent deregulation in the sector, have paved the way for a plethora of “new law” offerings to abound, both as stand-alone offerings like Axiom, Legal Vision, Riverview Law and Lawyers on Demand and law firms having their own contingent offering for alumni and external lawyers like Minters Flex, Corrs Orbit, Allens Accelerate, Allen & Overy Pierpoint, Lexco and Law advisor. Most firms will have such platforms in years to come.
Outsourcing and Alternative Legal Services are here to stay. The question is who in the market will get a dominant position. Players like Axiom and LOD have a first mover advantage, but there remains space in the market for a high quality offering, based on values of accessibility, respect for the contractor and focussed client service.
Large elite law firms will never abandon the traditional law firm model, based on leverage and a strict partner driven hierarchical structure. The leading global and independent law firms that specialise in large scale litigation, M&A and financial services work have had a bumper last few years based on a buoyant corporate market and the recent Financial Services Royal Commission. Revenue and Profits per Equity Partner (PEP) have risen on the back of this surge in demand for high calibre legal advice from the top end of town.
Large institutional clients are willing to pay top dollar for ‘bet the farm’ matters. However, whilst clients are happy to pay for a premium and specialised service, the number of firms that are actually seen to be credible in this elite space is shrinking. This has put enormous pressure on mid-tier firms, who are being squeezed at the top by the elite, and facing increasing pressures from the alternative law firms below them who can offer a less expensive, more technically efficient and nimble suite of legal services.
As a result, a number of struggling mid-tier law firms have sought larger, ‘white knight’ merger partners to rescue them from legal oblivion. TressCox merging with HWL Ebsworth, Kemp Strang being picked up by Thomson Geer, DibbsBarker going across to Dentons and Henry Davis York merging with Norton Rose Fulbright are all examples of this. We will only see more such mergers and combinations in the future.
The real strength of the ‘new law’ firms is that in the market, they are viewed as being genuinely different from large law. They are seen as being less expensive, less rule bound, offering more flexible work options and having a greater affinity with technology and the modern age. They will continue to go from strength to strength at the expense of the mid-tier, facilitating more flexible work environments for lawyers. The age of the contract lawyer is coming at us fast.
Dr Stephen Moss, Managing Partner and Chairman of ECP Legal, is an international law firm advisor and strategic consultant. He has worked with a number of Australian, UK, US and Asian-based law firms on their international strategy and introduced a number of mergers over his 25 year track record in the legal services sector. Contact Stephen at [email protected] or connect via LinkedIn and Twitter .