Saturday, November 2, 2013

Dean Frank Wu: We're Never Coming Back

This essay is by Dean Frank H. Wu, who is Chancellor & Dean of University of California Hastings College of the Law. This blog entry appeared originally at Above The Law.

People ask me all the time, “Isn’t it all a cycle?” They want to know if the legal marketplace will come back, with legal education then following.

My answer is, “No.”

A better answer, like most law professor’s answers to simple questions, would be, “It depends on what you mean.”

Yes, law as a business will rebound. It has already done so by some measures. However, it won’t come back in the same form. Nothing ever does.

We all are the products of our backgrounds. For me, that means Detroit.

The American automakers, which gave the Motor City its nickname, once enjoyed 99% market share. You can look it up or ask your grandfather, who likely was a “Ford man” or a “Chevy man,” identifying with a brand as marketing gurus wish for. That was transformed by the oil shocks of the 1970s.

Despite the challenge from overseas, “Big Four” car companies always believed that the domestic consumer would be patriotic and prefer their products. It is true, as gas prices dropped intermittently, shoppers demanded land yachts again. But the recovery was always to a point lower than before; there also was realignment underway that cannot be reversed.

There is an even more pertinent example for legal education. It is so-called “BigLaw.” I should insert the caveat that the giant law firms, whether they are high-end or mid-market, have always constituted a minority of the bar, even in economic boom times. They serve as an excellent example, however, of how these two phenomena should not be confused.

Alongside the normal business cycle on the one hand is profound market restructuring on the other hand. The cycle should not obscure the trend.

While many law firms, those that remain, are enjoying profits per partner at levels that exceed the bullish figures before the Great Recession, they are doing it by different means than before. Assuming business picks up, which it has in some specialties and a few regions (but ought not be counted on more generally), law firms that have come to terms with this environment are not likely to revert to their former selves. They altered their cultures permanently, even if they were motivated by circumstances that were temporary. Unlike an automobile factory, a law firm does not recall laid off employees.

The structure of successful law firms is different now. They have bounced but to a different place.

The guaranteed means of ensuring increased profitability with flat revenue, not to mention decreasing demand, is to share the money with fewer people. This is hardly a sustainable model of growth. It does highlight the point that there are different configurations of the business model that may be more efficient, and those are increasingly the norm. Firms have revised the length of the partnership track, the amount of leverage, the requirements of equity, stratification of compensation, calculations of realization rates, and roles within the organization.

All enterprises must confront global competition (for law firms, including especially from accounting firms), technological advances, and outsourcing. They will continue to use every available technique to raise the premiums they can charge and lower the cost of doing business.

Client expectations control, and they are not the same as before. In-house counsel have a sophistication they did not a generation ago, enabled by big data. They can analyze even significant levels of risk, turning complex problems into commodity work.

Thus prospective entrants into legal practice have adjusted. They are free agents who care about work-life balance. They give no more loyalty than they believe they will receive.

Yet I remain an optimist about the rule of law. The reason is legal services are still needed. The very economic factors that are disruptive necessitate new legal responses.

Our economy is about constant change. The tech sector depends on innovation. But everywhere else too that has become the norm. Ford, GM, and Chrysler are even offering exciting products.

As the head of a law school, I am not waiting to see whether applications come back as a natural progression. Even if they eventually do, I have to adapt before then — and ceaselessly. I believe we have to reinvent more than the law school curriculum. We have to restructure our institutions.

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