The New Normal
Last week a law firm dismissed scores of lawyers and support staff as well as slashing the earnings of several partners.
One cannot point the finger at Lord Justice Jackson since the firm is based 3,500 miles away on 5th Avenue, New York. Weil, Gotshal & Manges is not any old firm. It has acted for Apple, General Electric and General Motors. For the last eight years it has been listed as one of the top 20 practices in the USA.
No Turning Back
In a fabulous phrase the firm, in announcing the cuts, referred to “a new normal” in law where the market for premium (for which read “mighty expensive”) services is shrinking. Clients increasingly want a fixed fee set for large cases or the completion of significant transactions. The trickle-down effect is clear to see. If the leviathans are under the cosh, and how wise of them to concede the point, then everyone else will follow. There will be no turning back so better to acknowledge where we are and move on.
Intriguingly, our senior judges see this and indeed are keen to encourage change. Lord Neuberger has said we should move away from the sacred cow of the hourly rate. There is trepidation right now about what will become of the hourly rate model. I think it is already, inexorably, heading for the exit.
Damages based agreements which arrived in April, albeit delivered in inept regulations which are likely to be amended, represent a funding method which emphatically bear no relation to work done. It is a mechanism paying a reward for achieving a result.
Outsourcing tasks conventionally performed by lawyers is another part of this demolition process. Electronic disclosure can, in certain cases where proportionate, achieve drastic savings. The revered commentator Chris Dale recently made the point that barristers could be used on an ad hoc basis to dive in and out in a consultancy role, which indeed is what barristers are, to assist with chunks of work. They do not add to the fixed overheads of the law firm and are the ultimate hire/fire staff.
Around the corner in certain cases are fixed costs. Intellectual property claims in the Patents County Court are with us and capped costs in environmental judicial review cases arrived via CPR 45 three months ago. Let there be no doubt; Lord Justice Jackson and those around him want to see fixed costs eventually enter the multi-track arena. Many wrongly labour under the delusion that top end work could never be costs constrained in this way. Sir Rupert is passionate about the viability of ever wider costs capping and management.
On 29th June, 2013, the Lex Column in the Financial Times carried a splendid note reflecting upon this topic. The positive news was that the Australian firm Slater & Gordon has in the last six years since listing on the stock market seen income treble while the share price has doubled. The old school partnership model might well, it was suggested, be superseded by giving lawyers a cut of the action with share equity.
In a sentence I wish I had written, the FT concluded: “With the good times seemingly over for good, law firms must resort to running their businesses like, well, businesses.” Exactly.
Budgeting multi-track work is a fine example of making parties, with the court, plan their spend for the future course of a claim. I understand that the current exemptions to the regime are likely to be abolished soon so it will become the norm and that I believe will be healthy. This realism is to be admired and encouraged.
Paradoxically, the Jackson reforms may yet prove to be the saving of our legal profession. A drive towards efficiency could just deliver what clients want anyway.
Those who are pessimistic might well mull over this point. Why is the demonstrably successful Slater & Gordon buying into our legal market post Jackson? They are no fools. I met their advisers last summer in London. Trust me, their buying spree will continue. They see opportunity and, above all else, profit. If they can do it, and they can, then so should you.
Society needs lawyers. There will always be problems which is why God invented lawyers. The new art is securing that work and performing it in a cost-effective and, yes, proportionate manner.
Professor Dominic Regan, of City Law School & NLJ columnist, has assisted Lord Justice Jackson & HH Judge Simon Brown QC with costs reform.
This article was first reproduced in the New Law Journal, reproduced by the author's consent.