The days of mid-sized law firms may be numbered.
A rash of mergers locally and nationally has resulted in what some industry experts call a growing gap between small boutiques and large superpower firms. What’s being lost is the middleman – or the firm with around 100 lawyers.
The trend is something industry leaders have been watching for a decade. But in the last five years some say the pace has becoming dizzying.
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“What people feared is playing out before our very eyes,” said David L. Yas, editor of Rhode Island Lawyers Weekly. “The mid-sized firms are losing their clout in the marketplace. They don’t have the clout that these national firms do, so they join forces.”
According to Yas, people used to have three choices when it came to legal services – the boutique, which is considered small with just a handful of lawyers, familiar and sometimes less expensive; the mid-sized firm, which was still considered somewhat small with about 100 lawyers and reasonably priced; and the powerhouse, which with 500 lawyers offers few personal touches, and comes at a higher price tag.
“Choice B is literally disappearing,” he said. “Some people say it’s a bad thing because now businesses aren’t going to be able to afford the high cost of powerhouses, and they won’t have the alternative to the bigger firms.”
And while the merging trend may not be a new one, the current economic climate coupled with a firm’s increased operational costs is adding fuel to the fire.
“In the last few years there has been a fair amount of activity like this,” said Richards Gordon, co-founder of Bickerton & Gordon, a Boston-based legal search firm, which helps facilitate law firm mergers. “Firms are looking to make themselves as efficient as possible. At the same time they are creating a platform from which to grow a regional or national presence by merging or joining.”
Yas said for mid-sized firms it’s about survival.
“These mid-sized firms wanted it both ways,” he said. “They wanted to be able to compete on the national level and they wanted the familiarity of being smaller. And while the economy was good in the 1990s and merging was about how we make money, now it’s how do we survive.”
Bruce I. Kogan, dean of the Roger Williams University Ralph R. Papitto School of Law, said the trend has been driven largely by the changing needs of law practices. First operated by hanging a shingle outside the door, then ruled by partnership principles, today, he said, firms need a good business model to be successful.
“This is an industry being driven by economics, by the cost of doing business,” he said. “The cost of technology is substantial. Then you have to factor in health care and other benefits. You used to go to law school because you were interested in serving clients, today you have to have a business plan that makes sense.”
Still, some worry that constant merging will result in a legal version of what the accounting industry calls “The Big Five,” or a few firms dominating the industry.
“It’s growth, growth, growth for these firms, so that can only be where this leads,” Yas said of the “Big Five” theory. “There are some firms that are looking to become legal superpowers.”
What does that do for newcomers to the professions. According to Kogan, the true impact remains to be seen.
“Yes, it’s a changing economic climate for firms and students are always concerned when they get out of school,” he said. “I think that the best thing we can do, that maybe we haven’t done, is focus on the business aspect of firm management. I think the important thing is for kids who come out of school today to understand the economics of practice and the realities that go along with it.”
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