The real reason why Canadian law firms are in big trouble
They're just waiting for their market to be destroyed.
While there are a few firms that are trying new things — some are moving basic legal services to less expensive jurisdictions, others are experimenting with fixed-fee billing models — these are innovations that more progressive firms in more progressive countries brought to the market more than a decade ago (e.g. the legal process outsourcing boom in the early 2000s). Not only that, getting these basic changes through the management committees of those firms must have been a hard-fought battle.
Structurally, the “old model” still prevails at most national firms — one where “you fight to survive, and squeeze the lemon once you make it to the top.” What we heard multiple times was “Sure, it isn’t a great model for success, but it works for me, and it’s impossible to change.” The problem is that it needs change. Radically. While legal revenue in Canada increased by almost 10 per cent per cent from 2010-2014, revenue per lawyer decreased by almost the same percentage in that period. As anyone in a big firm will tell you: the squeeze is on, and law firms are suffering.
On the other side, what law firm clients are saying is that the big firms don’t listen to them, are unwilling to try new things, and are stuck in a model where they think box tickets to the hockey game have an effect on how outside counsel is chosen. As one senior in-house counsel at a bank said, “They’re still managing the relationship like it was 30 years ago — my internal clients demand value, not to know that I’m having a good time.” What clients want is a new model of service. Not the milking of cash cows with undefined fee arrangements. Not layering of untrained junior associates on conference calls or unwillingness to provide referrals to other lawyers (even within the same firm!) who might know a given subject better. What clients want is access to knowledge and to participate in its creation. They want working with a firm to be simple. They want to be more important than the firm’s compensation structure or its internal practice group divisions. Most of all, they want to be listened to.
What would change take? (i) A radical re-evaluation of the standard compensation model and how money is made and shared, (ii) a clear mandate and structural approach to understanding client needs and co-developing solutions, (iii) training for lawyers in the business realities that their clients are facing, and (iv) a willingness to take real risks and try things that may not work. These are hard changes, but not harder than the ones that other industries like retail and consumer packaged goods have managed to make and profit immensely from, and that industries like music and newspapers have ignored at their peril.
But really, all of this is moot. As long as Canadian firms don’t feel there is a need to change, they’ll continue on, like the taxi industry, waiting for their market to be destroyed.