Go global or bust: Chief executive issues dire warning to legal industry

by Mackenzie McCarty10 Feb 2014
The global legal industry is unsustainable as it currently stands, says DLA Piper co-chief executive, Sir Nigel Knowles, who argues that while economic recovery and sustainable growth are now regular features in commentary pieces and political rhetoric, the story for legal services in 2014 is likely to be “markedly different”.

In an article published in the London Evening Standard, Knowles says looking forward into 2014 and beyond, it’s difficult to see the status quo remaining.

“Commercial law is a $300bn global industry - no one firm has more than 1% of the market share and this has to change.  The sector is still remarkably fragmented; there are simply too many firms (and too many lawyers) in the market offering the same services without any clear differentiation. Consolidation is an imminent certainty and, furthermore, I expect to see consolidation on a scale not previously witnessed.”

Knowles says it’s all too easy to be fooled by the recent wave of positive economic data, but that law firms are still clinging to the hope that recovering economic conditions and increased corporate activity will come to their rescue.

“Analysing the changes that have taken place, one starts and ends with a shift in client expectations and requirements. Clients are more demanding buyers of legal services – this can be ascribed to a number of factors, including the consolidation of legal panels, a greater scrutiny on fees and the desire for global solutions (and corresponding global discounts).”

This trend is not going to abate, he claims and will render many firms’ business models obsolete.

“And let's not forget the rise and rise of alternative business structures (ABS) and their holistic approach to commodity work - this one-stop shop offering will drive business from the plates of other firms.”

And, while New Zealand is often seen as one of the far corners of the corporate world, DLA Phillips Fox partner, Martin Wiseman, says local firms must be careful not to become complacent.

“When you think about it, there are many multinationals doing business in New Zealand. A multinational in the US or Europe is likely to have an office in Australia; if it’s got an office in Australia, it’s likely to have an office in New Zealand – and the general counsel somewhere in the world is going to have a panel and on that panel there will be some local elite firms…They’ll be firms that are capable of providing business-as-usual solutions around the world, wherever needed. And so, for New Zealand firms the challenge, I think, is [that] the legal work allocation decision is made before the work even crosses the border. It’s made by some general counsel in New York or wherever that has DLA Piper or Baker & McKenzie on their panel.

Knowles believes the firms that will prove successful in the long run will either be “truly global” – in that they can offer a holistic suite of services across all regions - or “super niche”.

“However, there are many firms that purport to be operating globally but are in fact thin on the ground in many regions and as such will soon be sniffed out by discerning clients. Firms will have to be creative in how they structure themselves and how they motivate and retain their key assets – the human capital generating fees.”

This, he believes, will mean that successful law firms are run increasingly like any other major corporate and that those wishing for a place at the top will need to streamline their management structures and employ managing partners specialising in running business, rather than dispensing legal counsel.

“For the law firms that survive the impending period of consolidation there will be rich pickings to be had and it may be that by the end of 2014 some of the larger law firms will have finally secured at least 1% of market share.”

*Do you agree with Knowles' comments? Let us know what you think in the comment box below.