|  | | rodrigo gonzalez fernandez
director
consultajuridica
Dear rodrigo:
Welcome to the January 2009 edition of the "Adam Smith, Esq." monthly newsletter. Several changes are afoot.: - As we mentioned last month, we'll soon be rolling out a re-design of the "Adam Smith, Esq." site. The changes wil not be drastic, but will aim to make the look cleaner, simpler, and more up to date..
- In addition to the redesign of the newsletter, we intend to enhance its content, providing not only the familiar "core" recapping key articles on "Adam Smith, Esq.," but also:
- A profile of a notable individual in our industry;
- Periodically, a book review;
- A selective "photo from New York" displaying some interesting and/or obscure features of this astonishing City;
- And, of course, the "newsletter-only" content discussing a topic which hasn't appeared on the "Adam Smith, Esq." website and which will not appear there.
We hope you find these features make the newsletter more valuable, and we invite your feedback.
One other substantial change is in the works: You are reading one of the last free editions of the monthly "Adam Smith, Esq." newsletter.
In the very near future, we'll be moving to a paid subscription model.
As discussed last month, after years and years of distributing the newsletter entirely for free, we have decided to move to an annual subscription model. We did not make this decision lately, and you deserve to hear our thinking. What follows is a recap of the announcement we made last month for those of you who may have missed it. Those of you who were paying attention can skip to the next section.
What will the subscription rates be?
We're still determining that, but there will be an array of options from individual only to firm-wide (based on the size of your firm), which will entitle you to distribute the newsletter within your firm to your heart's content.
Will I be able to forward the newsletter to a friend who doesn't subscribe?
Absolutely. In fact, we love it when you want to share your enthusiasm for anything coming from "Adam Smith, Esq.," and the last thing we're worried about is "too much" sharing--there's no such thing.
What about the online publication "Adam Smith, Esq." itself?
The website itself will remain absolutely free and it's inconceivable to us that will ever change.
Remember that the site includes unlimited access to the archives of every article ever published--which now total nearly 1,000 pieces going back almost five years.
Why are you making this change?
Covering our fascinating, but far-flung, industry takes real resources. That's simply an economic fact of life. To continue to provide editorial content at the level we aspire to and you deserve requires funding. All things considered, we decided that moving the newsletter to a subscription model was the least onerous, least intrusive, and most fair way to provide support for "Adam Smith, Esq."
Most importantly, if you have thoughts, comments, or suggestions about this, please let me know. The editor & publisher is always in.
Sincerely Yours,  Bruce MacEwen
| Recap of Key Articles
What's Your Attrition Rate? looks at how to a largely unarticulated degree the law firm personnel model is dependent upon built-in attrition among associates, whether they wash out of their own accord, or aren't cutting it and are "excused." What's suddenly changed is that attrition is zero. In these circumstances, could it possibly be rational to lay off mid-level associates--who at least have proven their ability to perform at some satisfactory level--in order to make room for gambling the unknown quantity of summer and first-year associates? I suggest it is rational.
"Structural Breaks" and Other Timely Phenomena discusses whether people aren't reading too many newspapers and not enough history these days. It includes excerpts from an interview with McKinsey director Richard Foster, coauthor of Creative Destruction: Why Companies That Are Built to Last Underperform the Market--and How to Successfully Transform Them. The thesis of that book is that periodic upheavals create new generations of leaders, and that entrepreneurs find ways to avoid the pitfalls of the last economic crisis. (In the 20th Century, most economic crises were prompted or at least accompanied by financial hijinks, excesses, and even fraud.)
Rumors of Its Demise takes up the long-predicted sunset of the billable hour and asks whether we might really, truly, finally, be witnessing the beginning of the end of its reign. My secret belief has been--until very recently--that all the client bellyaching about the billable hour amounted to one grand bluff. They may be unhappy with what law firms charge overall, but I never believed the billable hour was the problem. Now, however, may be the time for law firms to ask themselves whether they want to tie the bulk of their revenue to a model intrinsically dependent on three variables each of which has intrinsic limits: Rates, hours, and leverage. An unspoken assumption has been abroad in the land that "alternative fees means less revenue." I don't believe it.
If You're So Smart, Why Aren't You Rich uses the hook of a Barron's interview with a hedge fund manager who dodged the Madoff bullet ask where all the critical thinkers were among all the supposedly "sophisticated" investors pulled into his scam. More importantly, how critical a thinker are you? Do you ask what the unspoken assumptions are? If what so-and-so is saying is true, what happens next? What questions does it raise? What new ideas does it spur? Most galling and potentially dangerous of all, to what extent are you relying on feeling chummy with the insiders to put your brain in neutral? Finally, Perspective suggests it's time for some. If you're a prisoner to the daily financial headlines, you are being assaulted on almost a daily basis with a regular drumbeat of headline, almost any one of which would have been incomprehensible a year ago. ("Citigroup Taking Steps Towards Breakup" has headlined The Wall Street Journal's website all weekend.) This is no way to live, and it certainly is no way to lead. Above all, to move your firm forward once we emerge from this downturn, you will need to have vision, clarity, and agility. Panicky fast-twitch responses to almost daily insults to hope will not get you there.
| Special Newsletter Article: Will Profits be the New Growth? Over the first years of our new century, we have seen remarkable growth in law firms. Consider the AmLaw 200 (a readily available data universe, but presumably typical of UK and Global firms as well):
• From 78,894 lawyers in 2000, they expanded to 106,742 lawyers in 2008, or 35.3% growth.
• But revenue gains were even more impressive: From total revenue of $40,763-billion in 2000 to $81,487-billion in 2008, or an almost exact doubling (+99.9%).
This has been understandable. It's safe to say the "default" strategy of many firms over this period has been to embark on the professional equivalent of a land grab, opening offices opportunistically, merging and acquiring other firms at an unprecedented pace, and constantly being on the prowl for laterals who could bring both additional capability and additional revenue. The rationale? "Our cli-ents are going global and we have to match their footprint." "If you're not big, you'll become ir-relevant." And, perhaps the most popular, albeit unspoken: "Because we can."
I'm here to suggest the strategy of growth for growth's sake may be in at least temporary eclipse. My nominee for the new "default" strategy? Higher profits. Profits are the new growth.
In part, as all these things must, this shift reflects the times. Rapid-paced growth is not just sud-denly unseemly (never underestimate the potency of intellectual fashion), but relatively impractical compared to the immediate past:
• If growth requires financing, through bank debt or partner capital contributions, austerity is the hallmark and prudence is the watchword of the day.
• The pell-mell worldwide expansion of the great US and UK investment banks and financial institutions has hit a brick wall and it would be charitable to characterize predictions of when it might resume in future as being compromised by an extreme "lack of visibility."
• For firms themselves, no one knows what the hot new practice areas may be. How does one decide where or how to grow when one has no map and no compass?
• Finally, we have seen cautionary and even scarring examples of firms failing or succumbing to "emergency acquisitions," because they had gotten in too deep in particular undiversified practice areas or because they had achieved mergers in name only—mergers which may have been closed, but which were never truly consummated.
Quote of the month
"The opening up of new markets, foreign or domestic, and the organizational development from the craft shop and factory to such concerns as U.S. Steel illustrate the same process of industrial mutation–if I may use that biological term–that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism. It is what capitalism consists in and what every capitalist concern has got to live in. . . ."
--Joseph Schumpeter
"Capitalism, Socialism, and Democracy" 1942
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| But it's not all about the sudden breakout of blemishes all over the complexion of our erstwhile fair-haired child, growth. Rather, there's a strong and positive reason why profits should be your new lodestar: If, in hard times, you need the best defense, then profits are that and your best offense as well.
Robust and growing profits—particularly with static or slowly eroding headcount—guarantee your firm will be ever more attractive to your critical audiences of interest, including potential clients, laterals, and student recruits. It's more true than ever, in times like these, that "nothing succeeds like success."
The structure of our industry may well look materially different when we emerge from this tunnel of uncertainty and gloom. Challenges such as those we face now tend to disrupt, not cement, the status quo.
If you want your firm to be able to deal with this interregnum from a position of strength, prepared to capitalize upon opportunities that others may be too weakened to seize, turn your eyes to profit. There'll be ample time for growth to again follow.
Comments or thoughts on this article?
The editor is always in.
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