ARE THE GIANT FIRMS GOOD FOR US OR BAD FOR US?

            My friend (I’m proud to say) Bruce MacEwen (known as Adam Smith Esq.) (http://www.bmacewen.com/blog/archives/2007/08/deweyleboeuf_welcome_to_t.html), has a marvelous and insightful discussion on the meaning of the LeBoeuf-Dewey merger, now in advanced stages of discussion. A lawyer himself, and an economist, Bruce fully understands the rationale behind the merger, and explains it beautifully.

            His article, and the merger itself, focused my thinking on several questions that have nagged me for a long time. How are they going to run these mammoth law firms? What new management and governance structures will emerge? Will the cumbersome partnership structure evolve into a new form of governance for the big firms, and then filter down to the smaller firms? Where do the management skills come from? What do the mega-mergers portend for the smaller firms, and the solo practitioners? And of course, what’s the role of marketing, for both the giants and the smaller firms?

            I have never believed in prognostication – too many random variables – and it has long been shown that the media talking heads who make such confidence-laden predictions have a lousy track record. But I do believe that asking the right questions, based on history, can tell us a lot about possibilities and likelihoods.

            For example, we know that the best corporate leaders acquire their leadership skills by touching a lot of bases – and learning something at each one – on their way up from intern to CEO. Lawyers and accountants, even those with MBAs, learn a lot about lawyering and accounting on their way up, but very little about management. Where, then, comes the skill to manage the giant, thousand-plus lawyer firm? True, some managing partners are born leaders, and have great instincts for management, but what about the managing partner who got the job because he or she is a great rainmaker? It could be argued that the major international accounting firms have long been mammoths, but accounting is very different from law, and even there, few of the giant accounting firms have been well managed.

In the past, poor management and inadequate internal controls allowed rogue lawyers (and accountants as well, such as Arthur Andersen) to run amok and even wreck firms. Do the giants need new structures to sustain quality and integrity?

Is the traditional partnership structure a hindrance or an aid to managing the larger firm? If so, what will replace it? Many years ago, in one of my earliest books, I suggested that the growth of professional firms was ultimately going to require more capital than could be raised by a partnership, and that a way would have to be found to take law and accounting firms public. And isn’t that exactly what’s happening now? First one firm, then two, then three – and so on.

            What happens to the firm with, say, 40 or 50 lawyers? Can they compete against the giants? Yes, if they understand what’s changing the legal profession and respond accordingly. No, if they feel that what was good enough for the founder 50 years ago is still going to work for them in the future. Why? Because, historically in America, the WalMarts and the Home Depots ultimately drive out the mom and pop stores. There will always be, it may be argued, room for the smaller firm and the boutique. But I was there when the then-big Eight firms realized that there were only two ways to grow -- capture a Fortune 500 client from another Big Eight firm – or learn to service the smaller clients effectively and profitably. Thus began the small business practice, for which I wrote and ran many a marketing program They took a lot of business away from smaller firms. Can that history repeat itself? .

            Obviously, these mega-firms are not only changing the nature of the profession, but what forces are propelling the change? And how are those forces affecting the smaller firms? We are dealing with a dynamic – an urgent drive for motion, and the constantly changing relationship between professional firms and the clients they serve. It’s this dynamic that must be understood if a firm is to succeed in today’s market. It’s this dynamic that precludes prognostication, which is why I don’t make predictions.

            What’s more significant, and what goes to the big vs. small question, is the role of marketing. The giant firms, for the most part, now have large and powerful marketing operations, which is one way they got big in the first place, and which they need to compete against other giants. Many years ago, in the early days of marketing, I was asked what now seems to be a naïve question. “Is it necessary for us to start marketing?” Yes, I replied, because your competitors are now doing it. That’s even more true today. And in the big-firm little firm competition,l smart marketing is more important than ever before for the smaller firm.

            I suggest (not a prediction) that for the smaller firm to compete, it must ask some questions of its own…

• What skills do we need to protect our territory?
• Does our firm need to redefine itself to better address the needs of our market?
• What are the big firms doing to streamline their services, and therefore their ability to get and keep clients? (For example, professional marketing, client service teams, practice groups that are marketing oriented, value billing, etc.) Which of those practices can we adapt to our size?
• How sustainable is the traditional partnership structure in a new competitive environment?
• Where do we get the capital to grow?
• How well trained in management skills are our leaders?
• Are our marketing professionals really professional, or are they just party planners?
• And then, the question asked by such leaders as Peter Drucker, “What business are we really in, anyway.”

And the question for all – large or small – what do we understand of this new environment, in which change is dictated, as never before, by clients -- and how do we best structure to better serve the new clientele?

Who knows where this is going? Is the growth of the mega-firms aproduct of such client-related situations as globalization? Obviously, yes, at least to some degree. But is globalization fostered by the mega-firm, or the other way around?

If the mega-mergers tell us anything, they tell us that the legal – and accounting – professions are no longer just professions. They are businesses, and businesses that must be managed, and that must compete. The professions, like it or not, are in the throes of change. To ignore that reality is to risk being swallowed by those who do understand this new world.