Law Firm 2.0 – Re-architecting the Law Firm – Cost Structures

If you’ve been following along my series on Law Firm 2.0, you’ve probably noticed that I advocate decreased billings to clients, more efficiencies in some types of transactions as well as finally addressing the associate retention issue. One reaction could be that I advocate a transfer of wealth from law firm partners to their associates and clients. This isn’t the case.

What I advocate is that law firms start running their businesses more efficiently. Partners can retain and / or increase their compensation and clients can pay less. One area to focus on is the legacy cost structures that have been put in place.

Probably the biggest area for improvement is in real estate holdings (see: Brobeck). Why do law firms have large, expensive, fancy offices? Who are they for? They certainly aren’t for the clients, although I can only speak for the corporate side of the legal house.

I took a straw poll of 20 corporate lawyers or so (yes I realize that this is a biased sample, but it is still informative) and asked them “how many times a month do you see you clients face-to-face in your own office?” The vast majority of the answers were “uh, none.” I then asked how many times they “saw clients face-to-face in a conference room at their law firm” and the answers ranged from 0-3 times a month.

Times have changed. This isn’t a face-to-face business anymore. And the very few clients who ever step into their lawyers’ offices – are they more impressed with a fancy building or controlled costs? Lawyers who represent start ups are frequently at the company’s offices for board meetings and the like, so why do firms have to have these massive offices?

And what’s worse is location. Think of how many lawyers are commuting hours a day to get to offices in locations where they don’t want to live. The firms are paying for office space for people who don’t want to be there. What?

Why not go to a more distributed work force with cheaper satellite offices in locations where folks want to work? Why not let folks work from home? Concentrate on having conference rooms in smaller, cheaper offices and go to cubes and or small private offices. Not only would the firms save a ton on real estate costs, but improve morale and help some of the associate retention problem, as folks would not be commuting so much. This is especially true in the Silicon Valley. I realize that each lawyer would need some time at the main office for training purposes, but why is a competent mid-level or senior associate being dragged down to Palo Alto every day to work in an office that they’d rather forget? And we all know that firms have partners and other counsel working out of their homes with local phone numbers, so let’s just be open about it and let everyone do it.

This model works well for investment bankers and consultants, why not lawyers?

Moving away from the real estate considerations, let’s look to perhaps the most inefficiently used resource at law firms today: the legal secretary. Once upon a time, these professionals were used for nearly everything. These weren’t menial tasks, rather things like document production and other high value items. Today, everyone types and many lawyers simply use their assistants to answer phones and calendar items. As email has become pervasive, phone calls have dramatically decreased and calendaring can be done by the lawyer. What about bringing them back into the high value fold and have them perform the closing mechanics of financing deals? Several comments to this series have said if VCs want to save on costs, than VCs should act as closing agent on their deals. (FYI, not going to happen, but nice try). Instead let’s have the secretaries trained to do something they are more than qualified to do. While they are at it, they can also create the transaction binders (or pdfs) of the deal documents. Why are billable folks performing these tasks at all?

There are also other expenses that I believe outweigh their returns to the law firms. Summer associate programs, firm retreats, etc. all are expensive propositions. I believe that some firms have tailored these back to rational levels, but some are still pretending like it is the late 1990’s all over again.

This is just a short list of things an outsider sees. I’m sure there are other areas that are ripe for improvement, but this would be a good start.