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Is Your Law Firm Ready for the Sling Shot?

August 28, 2024

 Pratik Patel

Consulting law firm law firm strategy

The best one-word summary of the end of my 2024 summer is ‘conferences’.  Earlier this month, I made my way to beautiful Nashville, Tennessee, for the ILTA conference, where hundreds of law firm leaders and legal innovation providers gathered to discuss new technology and the emerging trends that will impact the legal industry. Next month, Elevate colleagues and I head to Chicago for the Legal Value Network (LVNx) conference, where law firm operational leaders (among them CFOs, COOs, Practice Heads, and Pricing Heads) and law company innovation providers gather to discuss the financial and customer-centric dynamics driving law firm and client success.

Law firm managing partners rarely attend these events.  If that is the case with your law firm, it prompts a genuine question: Is your law firm leadership (managing partner or otherwise) heeding the industry’s ‘tea leaves’, that is, the signals that could foretell significant impending shifts?  My hunch is that although some are, most aren’t.

That’s no knock against the law firm leaders in that group. The legal industry has long operated like a fortress – standing firm (no pun intended!) in the face of three of the past four ‘20-year cycles’ of innovation. The billable hour still dominates, and the price of legal services continues to rise year after year. On one hand, tenured managing partners probably view that as a huge success. On the other hand, incoming managing partners likely see it as the hardest challenge they will have to navigate.

To demonstrate legal’s trajectory over the years compared to the world and our prediction for what’s to come, see the graphic below.  The blue line represents humanity’s innovation cycles over the last 70 years and the jumps associated with each. The orange diagonal line shows my assessment of legal’s smooth and steady trajectory compared to the world. You will notice, we have no “uber-like” milestones or jumps in law to show for all of our efforts.  Traditional law has kept the market managed in a straight diagonal line fashion, which means access to lawyers still generally comes at a premium and is hourly-based vs. value or outcome-based.  But that domination of the game may create, what I believe, to be an even more significant and disruptive ‘Sling Shot’ moment.  Sling shots happen when the stretch is too big and the market decides they’ve had enough.

The tea leaves are clear: a consequence of this stasis is that, sooner or later, a radically disruptive ‘Sling Shot’ moment will arrive.

Here are a few of the glaringly (at least, to me) obvious tea leaves presently falling right in front of our faces:

Other tea leaves are subtle and much less apparent. I find several of them particularly interesting because they give more of a macro view of what’s transpiring:

  • Law school enrollment and the number of newly-minted JDs have declined 20% since their peak in 2012, creating financial pressure on law schools, exacerbated by increasing transparency about the culture of law firms, especially the pay and performance pressure in legal jobs.
  • As reported in Legal Complex in March, $15.21B in venture capital flowed into legal tech from January 2020 and December 2022 alone.
  • According to a May article in Bloomberg Law, the rise of non-equity partners to drive retention has created new management risks.
  • As noted by NBC News this spring, one sector of the licensed professional services industry faces the prospect of 25 to 50% commission reductions in reaction to historically high and allegedly artificially high broker fees.

Some law firms are reading the tea leaves the same way I see them and preparing for and hedging against the potential chaos that a sling-shot moment in law might bring. For example:

  • A&O Shearman and Wilson Sonsini were major firm first-movers in announcing heavy investments in the exploration and use of Generative AI.
  • The sharp rise in law firms’ investment in captive legal tech or law company capabilities, with approximately 22% of law firm respondents telling Thomson Reuters they offer legal tech capabilities (three times the 7% from two years ago) and 17% saying they offer captive law company services (double the 8% from 2022).
  • Leading law firms, including (but not limited to) Reed Smith, Ashurst, Hogan Lovells, Perkins Coie, Clifford Chance, and Gilbert + Tobin, launching strategic partnerships with law companies (including Elevate) to bolster their law + legal operations ‘1+1=3’ capabilities.
  • Last but not least, earlier this month, huge news came from leading firm Goodwin that they’ve hired Mary O’Carroll, former Head of Legal Operations at Google and former co-founder of CLOC (Corporate Legal Operations Consortium), as their COO (congrats Mary!).

There’s no denying that, taken together, this is strong evidence that some firm managing partners are reading the tea leaves and doing things about it. Those firms will enjoy the sling-shot ride because they’ve successfully built or partnered with an innovative law company leader, arm or tech provider (or all) to protect the firm and deliver results. Alas, many others, representing a majority of the market, are in for a rough ride and are likely to scream, ‘Oh Lord!  Bring me down Roger!’ when the sling shot happens.

https://www.youtube.com/watch?v=b555bMm76BM

Don’t let the rubber band snap and sling shot you unprepared.  Find your proper innovation team or law company partner (your “Roger”) and ride the sling shot more enjoyably.

You can find me and my team online or at LVNx (if you’d like to chat in person).  Let’s chat, let’s collaborate and make sure your law firm experiences are much better than this sweet lady’s!

To those paying attention, the tea leaves indicate that law firms could soon face an industry-disrupting ‘sling-shot’ moment. Many firms are not ready, but a select few firms have begun to prepare, with initiatives, investments, partnerships, and prominent personnel.

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