Lawyers are not taught to be business oriented. Sure, we can pierce or protect the corporate veil, and litigate on behalf of or against businesses, but when it comes to running a law firm, the ordinary business principles of growth and scale don't seem to benefit legal consumers.
A big law expat made legal news headlines for calling out the backwards business nature of law firms. William Glasgow, a former big law chief level executive, explained that, unlike other businesses that charge less for their products and services as they grow, law firms do the opposite. When a company that makes a product grows, usually, the cost of their product goes down. But, as a law firm grows, the rates it charges clients increase.
Big Is Better, and Better Costs More
As Glasgow explained, firms are constantly monitoring their profitability. The problem, according to Glasgow, is that law firms really only sell one thing: billable hours. This leads to the natural conclusion that the only way to increase profitability is to increase rates as overhead costs tend to be fixed per attorney per hour. He succinctly explains that "firms never make more money by charging clients less."
However, Glasgow does not seem to see much hope for the future. On the subject of change, he said the following about law firms: "They're very poorly run businesses when you compare [them] to anything else," but that nothing will change until firms are forced to change because simply "they're making a lot of money."
It's pretty difficult to argue with his logic.
How Not to Run a Law Firm Very Poorly
If you want to run your law firm better, Glasgow appears to suggest being on the cutting edge of innovation over focusing on profitability and other metrics. He seems to suggest that exploring new ventures and setting up economical solutions for clients is the way to improve.
He provided an example of an idea that he never implemented. At one time he wanted to outsource millions of dollars worth of work from a single client, with only a couple U.S. attorneys monitoring the outsourced work. Though the idea would have provided the client an economical solution, it was never implemented (though he didn't say why, we can imagine it's likely due to the fact that outsourcing work does not increase profitability for a law firm).
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Related Resources:
- Why Law Firms Don't Keep Up With a Changing Marketplace (FindLaw's Strategist Blog)
- Tips for Drafting Equity Partner Agreements (FindLaw's Strategist Blog)
- 5 Tips: How Not to Make a Bad Lawyer Commercial (FindLaw's Strategist Blog)
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