Law firms were facing an urgent need to change even before COVID-19 arrived at their collective doorsteps, says Ralph Baxter, and the pandemic and ensuing economic hardship will only increase the pressure on law firms to innovate their delivery methods, alter their business models, and improve their efficiency and cost-effectiveness.
Baxter, former chairman and CEO of Orrick Herrington & Sutcliffe and one of the original voices of the Legal Executive Institute blog, spoke to us about the state of the legal industry now, the pressures it will continue to face, and what a post-pandemic law firm might look like.
Legal Executive Institute: You long advocated for systemic change in the legal industry, especially in how law firms operated. Do you see the current crisis forcing that change more dramatically?
Ralph Baxter: First, you have to understand that law is essential to commerce and justice — so it is not going away. Then, the question becomes, how will it be delivered? And that’s a question many of us, myself included, have been asking of law firms for quite a while.
In the end, I think this pandemic is going to accelerate the modernization of legal service. We’re in a totally unprecedented time — there’s never been anything like this. I’ve already seen that the clever firms are learning from this experience, and they’re going to leverage it to make the changes they already wanted to make — changes in where people work, the schedules they work, the space they use, as well as how you communicate among people, and how you meet with people. These are the obvious things.
But all this does raise a more interesting question: How you choose the right lawyer?
Legal Executive Institute: How will that question come into play?
Ralph Baxter: Recently, a law firm partner told me, “At my firm, we’re now better at choosing the optimal lawyer to work on something than we were in the past, because historically we would choose the person we knew best, the person who was in our building, in our office, in our country. Now we can choose anybody — and we’re not sitting next to that person anymore, so we choose from among the entire firm.”
I think that’s one of the ways law firms are going to be better. They’re going to understand clients better. They’re going to have better information about our clients and use it more thoughtfully. And I think the business of law will have high levels of demand — it will just get higher and higher. Clients are going to come back, and they’ll really have to dig themselves out of an economic hole, so they’re going to be way more demanding and expect to pay less.
So, the firms that have been most thoughtful about how they deliver legal service in a modern way will be better off.
Legal Executive Institute: Just seeing what you’ve seen so far, how do you feel law firms are managing this crisis?
Ralph Baxter: Maybe I’m engaging in a bit of wishful thinking, but so far, I think firms have been faithful to the idea that they’re all in this together. Before this, law firms (especially the Am Law 200) were making tons of money. They’re going to make tons of money again, so it’s not terrible if they make less money this year.
As we see how some people manage through this crisis, I think one of the best things they can do is reduce firms’ bottom line, because that’s how they’re going to save their people. Even if that means less money for the partners.
Law is a very unusual business. It’s not like a small business, or a restaurant or something. Those depend on cashflow and can’t go very long without revenue. A law firm can go longer. They have revenue in the billions of dollars, they have banking facilities, and they have partner capital. Firms have a number of ways they can navigate what we know is going to be a limited duration event. I mean, we don’t know how long it will endure, but we know it’s limited.
Besides, things just didn’t go to zero. Law firms are still working; and in many cases, they’re doing a lot of work. So, they’re not going from lots of revenue to no revenue; they’re going from lots of revenue to less revenue.
Legal Executive Institute: What is the best way for law firms to operate during these economically challenging times, so they’re the best firm they can be when things get better?
Ralph Baxter: Simply, they should incorporate the initiatives they were already thinking about, in as thoughtful and careful way as they can. They should also consider what’s valuable and what’s not, as they make their choices on how to manage expenses.
The last thing they should do — the last thing — is layoff your professionals who were good for you, great performers, and great contributors. That would be a double mistake, an exponentially double mistake. First, it’s going to cost you to replace them, because eventually you will need somebody to do what they did. Second, worse than that, it’s going to hit your morale as an organization.
To lead your organization through this, you need to appeal to everyone. They need to know that we are in this together, and we’re going to find a solution because we know that our firm, our industry, and our clients are coming back.
We’re not in the buggy whip business when buggy whips went out of fashion. We are in the law business, and law is never going out of fashion.