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Where’s the Value Add in Big Firms?

by Carolyn Elefant on August 11, 2009 · 0 comments

in Big Law/Small Law, Biglaw Practice and Issues, Business Models

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Even if for the sake of argument, you accept the proposition that biglaw is better than small law, the question is: how much better.  Is an $850/hr partner at a mega firm really $500/hr better than his or her solo or small firm counterpart?  Naturally, we solo and small firm lawyers would say no, but you might argue that we’re just being subjective.

For that reason, I was gratified to see that a law professor – who doesn’t have a “dog in the fight” so to speak – also agrees that big firms (at least in their current structure) don’t bring that much more to the table.  University of Illinois professor and blogger Ideoblog has this to say in the Philadelphia Inquirer:

My theory is that big law firms don’t have a coherent business model,” says Ribstein, who studies the economics of the legal profession. “From a client standpoint, why would you pay so much per hour for a lawyer who works for a big firm vs. [a lower rate] for a lawyer who works for a smaller firm? What value does the big firm add?”  Big firms answer that they can assemble teams of lawyers from all over the globe, along with high-end technical expertise to focus on huge cases where the very fate of a company might hang in the balance.  But Ribstein says clients, many with huge in-house legal staffs, are having their own lawyers do the work or are parceling it out to lower-cost firms.  So cost-cutting will get you only so far and might eventually devolve into a race to the bottom.

What value indeed?

Ribstein suggests that the solution is to allow law firms to “go public,” i.e., to change bar rules to permit non-lawyer investors hold financial interests in firms so that they can raise capital more easily.  I’m not quite sure how that will improve firms’ financial situation if they continue to depend on a leveraged associate model, but I look forward to his forthcoming paper on the topic of new business models for biglaw.

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