Carrying Too Many Lawyers - Or Clients - Is Fiscal Suicide
by Ed Poll
Bruce MacEwen, whose long-running blog, www.adamsmithesq.com, is subtitled "an inquiry into the economics of law firms," recently made provocative comments about where the profession's economics are heading.
As quoted in the American Bar Association Journal, MacEwen declared that more Wall Street and middle-market firms are quoting "suicidal prices" for legal fees simply to get enough work to keep lawyers occupied and cover their fixed costs, and attributed it to firms paying too much money to too many attorneys.
"A law firm cannot really lose money for even one year and remain viable," MacEwen said, "because that's what they pay their partners with."
High compensation for many lawyers is definitely a Big Law phenomenon at large firms with hundreds or even thousands of attorneys. The problem of "too many lawyers" is really an imbalance of supply (jobs) and demand (many former clients have been hit by the poor economy and disappeared).
Demand for BigLaw attorneys among Main Street folks is low because they can't pay anywhere near $1,000-an-hour legal fees. Certainly, this other 99 percent of the population, which includes individuals, families and smaller companies, needs their skills, but just cannot afford to pay high prices for legal services. They're still contending with tough economic conditions and are more inclined to either put off using a lawyer or turning to the many do-it-yourself legal services available on the Internet.
For law firms of any size, the old advertising cliché "we lose a little money on each sale but make it up in the volume" can be a suicidal course. While the law of supply and demand is important, the cliché ignores the fundamental lessons that every firm should have learned since the financial crisis broke nearly five years ago:
These lessons do not constitute an exhaustive list, but they do carry a comprehensive message. Like every other profession and trade, the practice of law is a business. That means firms are governed by the same formula that defines all business success: Profit equals revenue collected less expenses.
Ignoring that message, no matter how innovative the methodology or trying the times, is suicidal for any firm.© 2012 Edward Poll & Associates, Inc. All rights reserved.
Ed Poll principal of LawBiz Management Company, is a nationally recognized coach, law firm management consultant, and author who has coached and consulted with lawyers and law firms in strategic planning, profitability analysis, and practice development. Mr. Poll has practiced law on all sides of the table for 25 years-- as a corporate general counsel, government prosecutor, sole practitioner, partner, and law firm chief operating officer and been a consultant to small and large law firms for 20 years.
The opinions expressed in this article do not necessarily reflect the opinion of ILW.COM.