Posted Jan 08, 2014 12:35 pm CST
Law firms are getting bigger but not necessarily better, according to a new report.
In recent years, law firms have aggressively pursued growth through lateral hires and mergers, according to the report (PDF) by Georgetown Law’s Center for the Study of the Legal Profession and Thomson Reuters Peer Monitor. But the report cautions that law firms should concentrate instead on issues that concern clients, such as being more responsive and efficient, according to coverage of the findings by the American Lawyer.
“Growth for growth’s sake is not a viable strategy in today’s legal market,” the report says. “The notion that clients will come if only a firm builds a large enough platform or that, despite obvious trends toward the disaggregation of legal services, clients will somehow be attracted to a ‘one-stop shopping solution’ is not likely a formula for success.”
Law-firm growth should instead be based on a strategic vision for a market segment that will be served, the report says.
Law firms justify growth by the need for economies of scale, to provide more opportunities for younger lawyers, to diversify to protect against downturns in certain practice areas, and to better serve clients. “While there is some validity to all these arguments,” the reports says, “they must be balanced against the potential problems created by growth—particularly rapid growth.”
Economies of scale don’t necessarily apply with the hiring of more lawyers who bill at an hourly rate, the report says. In fact, the report says, after a firm reaches a certain size, with multiple offices, “diseconomies of scale can actually set in” as more resources are needed for management. Rapidly growing firms “also face unique challenges in maintaining collegial and collaborative cultures,” the report says.
The report also points out a very low correlation between firm size and profitability.
The findings follow a report by legal search consultants Major, Lindsey & Africa that warned some mergers will produce few benefits. “In our view,” the Major Lindsey report said, “the combination of two firms, both of which are struggling to survive, will yield little synergy. Furthermore, while some of these combinations are being classified as mergers, the reality is that in many cases the firms being acquired stand little chance of surviving absent being acquired, so one has to wonder what the benefit will be to the acquiring firm.”