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The Business of Law Firms: Evolution Driven by Pressure

Law firms are evolving. This evolution is in response to market pressure demanding that firms do more with less.1 To meet this demand, law firms are striving to reduce costs, improve efficiencies, and differentiate from rival firms.2 This blog is the first in a two part series, examining the evolution of law firms. This first blog discusses the origins and demands of this market pressure, while the second blog explores steps that law firms have already taken and proposals for further action.

The origins of this market pressure—asking firms to do more with less—have been understood from multiple perspectives. Some authors attribute this pressure to the economic downturn beginning in 2008.3 It is argued that the downturn forced businesses to reduce costs, and this was in-turn borne onto law firms, forcing them to evolve.4

However, other authors date the origins of this market pressure back much further. One author argues the origins of this pressure began in 1987, when General Electric Co. (“GE”) charged Ben Heineman Jr. to remake GE’s legal department to rival the best law firms at that time.5 Mr. Heineman expanded GE’s legal department in size and hired premiere lawyers from the best law firms.6 Since then, legal departments have become more centralized and larger over the years, using their increased power to pressure law firms and force them into evolving.7

These two perspectives can also be understood together—i.e., legal departments are driving the market pressure on law firms while the economic downturn increased and accelerated the pace of that pressure. It appears, however, that legal departments are a significant driver.8 Legal departments control a “significant portion” of total legal spending in the US and their decisions are vastly shaping the legal industry.9 Legal departments are reengineering what work goes to law firms and the way in which law firms provide their services.10 For example, legal departments are: (1) expanding, and consequently keeping more work in-house; (2) sending work to non-law firm service providers; (3) using technology to reduce or gain efficiencies on the amount of work that needs human attention; and (4) unbundling work into various segments and completing each segment in the most efficient manner.11

Chief legal officers (“CLOs”) across the country have captured these sentiments, and it is expressed in the Altman Weil 2014 CLO Survey of 186 CLOs used to gauge the pulse of the legal industry.12 In that survey, 40% of CLOs shifted work in-house, 45% of CLOs took measures to optimize internal non-lawyer work, and 67% of CLOs increased their departments’ use of technology.13 Even with all of this reduction in work flowing to law firms, CLOs are expecting more from firms: 42% of CLOs desire to work with law firms that offer innovative legal services delivery models, with 9% of CLOs actively seeking out law firms with these innovative approaches.14 Moreover, only 4% of CLOs are satisfied with the traditional legal service delivery model.15

All of this amounts to increased market pressure on law firms—demanding that firms do more with less. The second blog will explore steps that law firms have already taken and proposals for further action.

  1. Michael Callier & Achim Reeb, The Industrial Age of Law: Operationalizing Legal Practice Through Process Improvement, 93 Or. L. Rev. 853, 855 (2015). 

  2. Id. 

  3. Id. at 855. 

  4. Id. 

  5. Craig B. Glidden, The Evolution and Influence of Corporate Legal Departments, 12 Fla. St. U. Bus. Rev. 131, 135 (2013). 

  6. Id. 

  7. Id. at 137. 

  8. See generally Id. 

  9. Id. at 137. 

  10. Id. at 139. 

  11. Id. 

  12. Callier & Reeb, supra note 1, at 855. 

  13. Id. 

  14. Id. at 858. 

  15. Id.