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The Shift: The Work Considered Worth “Fleeing to Quality” For Is Shrinking
While the phrase “flight to quality” unfairly suggests providers outside the Am Law 50 or 100 aren’t top notch, the willingness to seek out the counsel and the pay the rates of those high-end law firms was in full effect during the pandemic. Companies had more issues that warranted a price-insensitive approach to legal advice and they wanted the best brands to help guide them on these unprecedented, existential crises.
That has started to shift, recent reports and conversations suggest. Economic constraints coupled with more routine legal issues have put other providers (smaller or boutique law firms and ALSPs) in the hunt for more legal work.
We’ve heard after prior recessions that, while clients will likely rationalize legal spend with lower-cost providers in down times, that hasn’t always come to fruition. But there is evidence to suggest it may already be happening this economic cycle.
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Just this week, Andrew Maloney reported for The American Lawyer that clients are moving more price-sensitive practices down market to smaller firms, while specialized firms—those with 70% or more of their billable hours in a single practice—have recently outpaced their peers on multiple financial metrics. The findings, coming from the 2023 State of the Legal Market report by Thomson Reuters and the Georgetown University Law Center on Ethics and the Legal Profession, suggest what the authors call a “re-segmentation” of the market.
“Increasingly, a number of practice areas appear to be moving down market, creating opportunities for smaller or boutique firms and narrowing the range of practices in which the high-priced firms are truly competitive,” the report stated.
The layoffs at several Am Law 100 firms in recent weeks were attributed by the firms to a decline in demand for the foreseeable future.
The TR and Georgetown report noted a demand drop for Big Law wasn’t unexpected. After 2021′s fever pitch in demand, a drop in productivity was mathematically predictable, TR’s Bill Josten told Maloney.
“It’s not a reflection on the lawyers. It’s the amount of work that’s available relative to the number of heads that’ll do that work,” he said. He pointed to that 0.1% overall decrease in demand in 2022, and said that “just looking at this year, it’s 3.5% to 4% more heads, and 0.1% less demand. So, we’re taking a little less demand, and spreading it across a lot more people.”
A shift in buying calculus has implications for everyone in the provider ecosystem. Big Law is facing demand drops, profit loss and layoffs.
Midsize firms, while not immune from those pressures, could see a spike in work, and ALSPs and legal technologists should be everyone’s best friend as they look to help clients and law firms do more with less. It should be noted, however, that the legal tech space is facing its own challenges of layoff and demand issues.
The work won’t just immediately flow to these other providers. They have to let clients know they exist and offer compelling reasons for their services. Law companies and legal tech providers need to explain why the investment in new tech will help clients do more with less or help them manage talent pipeline issues in a cheaper way.
Law firms should be executing on a long-desired wish from clients for the firms to partner with appropriate providers that can price pieces of the matter appropriately, or use technology to streamline certain routine offerings, leaving the lawyers to do the highest-value work.
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For Big Law, the key will be finding that work that is still consultative and high-value in nature. As we wrote in this column before, there are still existential, board-level issues that clients need help with and the law firms and clients themselves don’t always see firms as the providers to help. That is a mistake and an opportunity. Big Law made its reputation in decades past on solving clients key business issues. It’s about looking beyond matter to matter and instead finding the forward-looking, consultative role they can play.
There are other solutions clients need that firms of any size can help with, particularly through the use of automation, tech, knowledge management and scaled services. As clients move more work into the commoditized sphere, boutique firms can make good money with the right staffing and tech models. (Large firms can, too, for that matter.)
ALSPs are perhaps facing their biggest opportunity yet, after a decade-plus post-recession of refining their offerings, selling directly to clients and growing their tech stacks. With the right understanding of selling clients solutions to their actual problems rather than selling them a tech tool, ALSPs can have a big year.
For any provider, even those pitching lower-cost solutions, price doesn’t dictate everything. A differentiated model that ties in a keen understanding of the client’s business, solves actual problems they face and mitigates against future risk is critical.
Gina Passarella is editor-in-chief of global legal brands at ALM, overseeing The American Lawyer, Corporate Counsel, The National Law Journal, Law.com International, Legaltech News and China Law & Practice. She also works closely on Law.com Pro and GLL Advisers. Gina's coverage focuses on the business of law, client relationships, law firm strategy and the future direction of the profession. She also has a particular focus on mental health in the legal profession. Contact her at [email protected].