Law Firms need to REINVENT THEMSELVES!

Before we begin to talk about the crisis, recession or the market, let us make a reflection on the recent history of the corporate law firms and their organization and management model.

For almost 30 years I have been doing and dedicating myself to the study of the management of the law firms and I can certainly state that the modus operandi of the so-called “full service” corporate offices has been the same so far. Those firms were incorporated in Brazil by following the image and similarity of the North-American model, referred to as the “big law”, which has a mode of behavior that is practically standard, that is, they annually kept and updated their hourly fees per type of attorney (basically how long the attorney was graduated); they made their proposals based on the estimates of hours and transmitted to the clients all expenses incurred for the execution of the works and did not worry much with productivity, efficiency or efficacy… until 2008, when the crisis caught them!

My experience shows that in this market we have a “gap” of around 5 to 10 years as compared to what happens in the USA and ends up occurring here in Brazil. I specifically refer to the technological, management changes as well as the clients’ behaviors and not to the economic crisis, which have different causes, timing and periods (here and there) but their consequences are similar.

In this respect, we should take advantage of this “gap” and learn from the experience occurred in the North-American offices in their crisis and use the positive acts made by those who overcome the crisis, obviously adapting to the Brazilian reality.

And going back to the management model of our “full service” corporate offices, I mention, just out of curiosity that, when I began to work in offices (in the 80’s), there was practically no competitiveness and there were practically two “big” offices in this model and they were privileged because they could choose the clients and they divided them due to some conflict of interests.

From that time until today, the things (the market and the world) have changed a lot, but the “little model” remains the same!

This reminds me of the crisis experienced by the civil construction in the 80’s, when most of the residential real estate ventures were launched in the model “at cost price” in which, the construction companies were remunerated by a percentage of the construction costs. In the beginning, it was interesting, as it was made clear what the amount of the remuneration was in a period of economic uncertainties, restricted real estate credit, a little or no regulation of the real estate market and no consumer’s protection laws. Along that period, this model showed to be inappropriate and, what is worse, it ended up generating, along the time, companies that were not worried with efficiency.

As it always ends up occurring, the market can self adjust and some construction companies, in a smart way, began to offer a new form of commercialization with the sale of apartments with fixed prices and delivery strict terms and undertaking several risks. Result: the consumers simply migrated to that model, and no longer bought their apartments at cost price.

We all know that the Law business is not Construction and that the degree of uncertainty when making a price estimate for a work and generate the proposal is much bigger in one engineering work, but the accommodation and the lack of concern with efficient is basically the same between those two scenarios, separated for three decades.

The recession that is being installed forces all “players” of the market to reinvent themselves, to be more creative in terms of charging modes and optimize, to the maximum, the use of their scarce resources and the law firms are not immune to this process.

So, what should the law firms do?

This is a question that may generate (and already generated) books about the topic, but I mention some points (that seem to be obvious) to be thought about and adapted to the specificity of each office:

• To strengthen the relationship with clients. And always having in mind that the law office is the services provider and that the differential aspect should be the due support.
• To adopt an innovative behavior and risk taking.
• To invest (heavily) in technology and back-office structure.
• To have clear policies for talent attraction and retention.
• To create a systematic and professional structure of pricing.
• To study and present alternative forms to charge fees.
• To study the remuneration forms of their stakeholders that will stimulate productivity.
• To adopt its know-how philosophy/ management concept in the organization (here a book about the topic is welcome, too).
• To rethink about the structure of the partners’ remuneration (to adjust the expectations in relation to the reality and in relation to other markets).
• To adopt a professional management of its organization.
• To reassess its cost structure (not with the simple objective to cut costs but to do more with less!).

The support by an outsourced and experienced consultancy firm, which is also exempt from internal political interactions, may indeed speed up the adaptation process to the new reality !

José Paulo Graciotti, is consultant and founding Partner of GRACIOTTI ASSESSORIA EMPRESARIAL, engeneer by Escola Politécnica Universidade de São Paulo, with Financial MBA at FGV and specialized in Knowledge Mnagement by FGV. ILTA Member since 1998 (International Legal Technology Association) with more than 27 years managing Law Firms in Brazil – www.graciotti.com.br