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Size matters but profitability matters more

|Written By Christopher Moore

Does history have to be, you know, old? I''d say that in the last 100 years or so, the most significant changes in the way most lawyers work have occurred in about the last 20 years. 

Speakers Corner by Christopher Moore

The historic change, bluntly, is the rise to dominance of the big firm. In Canada in the last 15 odd years, we saw Blakes, Faskens, Gowlings, McCarthys, Ogilvy Renault, Oslers, and the rest merge or expand to become big, branded, national or trans-national legal service enterprises, often boasting more than 500 lawyers.

It's not a Canadian thing. The same thing happened in Britain, Europe, the U.S., and Australia. Each jurisdiction now has a cluster of around half a dozen firms that are notably bigger than everyone else.

Internationally, the news is in: the big firms are winning. According to the latest AmLaw 100 listing of top-grossing American law firms (online at www.americanlawyer.com), the top 100 firms are steadily increasing their share of America's lawyers and of America's legal work. There's still work for others ? the AmLaw 100 employ less than seven per cent of American lawyers. But the big guys are expanding their share, particularly at the expense of mid-size firms.

But if big is good, that doesn't necessarily mean even bigger is even better. In fact, the new AmLaw 100 data show the big firms have been getting big much faster than they have been getting rich. Their numbers of lawyers have been outstripping their income growth. Sure, average revenue per lawyer at these firms is immense, but it's slowing down.

See, the market has been changing too. Big law firms have an advantage in getting the lucrative leading-edge work from the biggest corporate clients. But those are savvy clients. They shop their work around, and they won't pay top-level fees for mid-level work by mid-level lawyers. So if law firms become too big, either their lawyers are not busy or they are billing less than those big overheads require.

Shed no tears for the big-firm lawyers, but it actually is a competitive marketplace they are in.

Today among the AmLaw 100 the really profitable firms are big ? but getting smaller. More than a quarter of them reduced total lawyer numbers recently and these were the ones most likely to increase their profitability.

It's pretty clear something similar is the case in Canada too. Now that the top tier of large firms is mostly in place, the decade of mergers and expansions is winding down. The big guys don't want to grow bigger; they want to be more profitable.

Nervous gossip among big-firm associates and students lately has focussed on the possibility of an "implosion." Could one of the biggest firms suddenly vanish from the scene one of these days?

Well, it can happen. Throughout legal history, there have been leading firms that have lost their standing, their big earnings, sometimes even their continued existence.

On the other hand, don't be too sure there are too many big firms for the volume of big-firm work Canada provides.

Look at the recent Stelco insolvency proceedings. With the firm, the board, the pensioners, the unions, the shareholders, the lenders, and the buyers all needing substantial legal teams, Justice John Farley's court was too small to hold all the litigators involved. The old story about small-town lawyers seems to hold for the megafirms too: there may be no work for one, but there's likely to be work for two. A big firm needs other big firms to go up against.

What's more certain than implosions is the emergence of tiers within the top tier. A handful of big firms that most skillfully match themselves to their markets may well be starting to pull away in profitability.

But the historic moment that built a new Canadian top tier of big firms is nearly over. Among the big firms, it's not who will be biggest that is going to be vital from here on. It's who will be most profitable.

Christopher Moore is the author of McCarthy T?trault (2005) and other works in legal history. His web site is www.christophermoore.ca

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