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Doing Business: Beware hollowing of the middle

|Written By Lisa Adamson

You may have tripped across him in your online travels. If you haven''t, you probably want to look him up. Why? Because Bruce MacEwen is a well-read guy in more ways than one.

A graduate of Princeton University in economics and Stanford University in law, the marathon runner has practised securities law on Wall Street, worked as a corporate counsel at Morgan Stanley Dean Witter, and dipped his toe in the Internet waters as a CEO during the dot-com boom.

Now, he's a blogger to the legal profession, pontificating on everything from law firm management to marketing, partnership structures, IT, knowledge management, and leadership, to name a few topics.

And his blog - Adam Smith, Esq., named after the famous 17th Century Scottish philosopher and economist who was one of the first to study the development of industry and commerce in early Europe and provided economic rationales for free trade and capitalism - is being well received.

MacEwen, who uses the blog to help build his legal consulting practice, says his site gets 250,000 page views a month (www.bmacewen.com/blog).

His readers aren't just distracted associates or sole practitioners seeking advice on how to keep abreast of a fast-changing legal profession. They're the crème de la crème of the legal community.

A recent readership survey found that 60 per cent of the readers of MacEwen's blog come from AmLaw 200 firms and 30 per cent are from the AmLaw top 50. While 30 per cent comprise associates, 21 per cent are partners.

And five per cent of those are managing partners and another four per cent sit on their firms' executive committees. (I was referred to the site by a partner in management at a major Canadian law firm.)

What's capturing their attention? It's the way he writes, scanning the legal press for interesting current stories and then putting his own business spin on what they mean for the profession.

MacEwen, who was an associate at Shea Gould before its ultimate demise due to lack of "succession planning," says he is bitten by the business side of law firms.

"It's what I am passionate about," he told me during breakfast in a busy Manhattan cafe, where I sat down with him to find out his thoughts on current issues facing law firms.

"I think partners are hungry for intellectual discourse about what's going on. That's really the hunger I am trying to satisfy."

He readily admits, "I steal from corporate managerial literature," noting that consulting firms such as McKinsey & Company have "spilled barrels of ink writing about how to manage large, global, sophisticated, complex organizations. There's a lot to be learned from it."

MacEwen thinks "we're seeing a transformation in the structure of the legal industry that will reshape it in a way that will endure essentially for the rest of our career."

Part of that transition, MacEwen says, will include a move to "truly professional management of large law firms à la the corporate model. You can no longer manage a $500-million-a-year enterprise over the kitchen table."

He notes that the medium revenue for a typical AmLaw 100 firm is "just north of US$500 million."

The largest U.S. firm, Skadden Arps Slate Meagher & Flom LLP, earns $1.5 billion, which compares with companies such as JetBlue Airways Corp. and Harley Davidson Inc. "Nobody would propose that pilots run JetBlue. I think it's the same for law firms."

He admits that the "pure, corporate, hierarchal, command-and-control model is never going to work." But neither does the "Athenian democracy model," where 300 people all over the globe vote on everything. "You need to find something in between."

We're already seeing some of that in Canada, where partners at McCarthy Tétrault LLP have introduced a form of corporate leadership that cedes certain traditional decision-making powers to its executive management team, led by CEO Iain Scott, who appoints some of his key lieutenants. But firms like that are in a minority.

Yet our firms are as large as many of those in the AmLaw 100. Even assuming Canadian law firms bill 20 per cent less than their American counterparts, it's likely a number of the biggest firms have revenues upwards of $400 million. Those figures would put them in the 300th position in terms of the largest companies trading on the TSX, just behind Tim Hortons and ahead of Torstar Corp., JDS Uniphase Corp., and most income trusts. Or it places them as the 184th largest private company, ahead of Citibank Canada, but behind Rockwell Automation.

With operations like that, I agree with MacEwen that professional management is only a stone's throw away. We're already seeing it in the way law firms have built out their support structures like IT, marketing, and human resources. Better management practices are essential to manage such growing operations.

As firms continue to grow in size, geography, and time zones, the pressures will mount for partners to cede power to the benevolent dictator, who will withdraw from practice and run the firm with handpicked talent.

But managing isn't the only challenge going forward. Consolidation is, too. MacEwen says the big question for Canadian firms is their position in a consolidating global legal market. Will Canadian firms be shut out of joining with U.S. firms to form a North American legal giant? The better question, he says, is "would a Canadian firm's clients be attractive to an American firm, and I think the answer to that depends on the growth prospects of their clients' industries."

He's thinking oil sands.

"I think having that would be big attraction in the U.S. Some firms originally from Texas that cut their chops on the petroleum industry are now serious, big, national firms."

Another issue he is fascinated with is the byproduct of consolidation. He cites a McKinsey study that looked at the growth of 25 industries in the 1990s to mid-2000s and coined the phrase, "the hollow middle." While the big and small companies grew revenues, the middle tier of companies shrunk by double digits.

MacEwen says looking at most industries, you see the effect of the hollow middle. He rattles off banking, beer, auto, and retail as examples where there are giants at the top end and the middle has been gutted.

"I think the legal industry may be evolving towards that model. I really question the value proposition of a full-service, 400-lawyer, national law firm in the U.S."

Those words could be prescient. The question is, are Canadian law firms listening?

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