May 22, 2007
Law Firms and Capitalism
Two of the wisest minds on the business of legal services, David Maister and Bruce MacEwen, recently posted items dealing with the ambiguities and paradoxes of capitalism.
Maister posted “Who or What is the Firm For?”, noting that the standard capitalist answer that a business is run for the shareholders doesn’t appear to be that cut-and-dry when one is talking about a law firm. In fact, I think Maister would say the question is unsettled or, as he put it, “confusing and ambiguous."
What sets a law firm apart from big corporations is that ownership and employment are commingled, but that is also true of small, closely held organizations that make up most of the business world. Here is the difference: law firm owners are not stakeholders in the “value” of the business. At the end of the day, partners are expected to walk away leaving the firm to the next generation. As firms take on a life of their own (beyond the productive life of their founder), firm leaders acquire an obligation to preserve the firm for the next generation. Doing so means “business as usual” on a continuing uninterrupted tract for the clients of the law firm. The preservation mission in this “walk away” ownership model pits generations against each other or leads to the kind of situation Maister observed:
“…….an immensely successful firm which has dramatically improved its profitability (among other accomplishments) in the past 5 years. The "moves" made by the firm did indeed impress this reader. But here's the kicker: the article pointed out that, since 2001, 37 percent of the partners (i.e. shareholders) had left the firm. Now how is one supposed to process that?”
MacEwen’s post on Adam Smith Esq., “The Paradox of Capitalism”, should make all law firm leaders sit up and take notice. You are at risk from the Darwinian creative destruction driven by entrepreneurship. We are talking about the competitive threat that goes beyond other law firms nibbling around your edges. It is the threat that entrepreneurs tapping new “means” will reinvent legal services or the segment of legal services in which you are engaged. Or to turn that threat around, it is the opportunity out of entrepreneurial drive, or desperation, that capitalism affords you. The paradox referenced by MacEwen is one described by the economist Joseph Schumpeter, who warned that societies benefiting from wealth accumulations through capitalism might begin to erect barriers to protect the entrenched from the next generation of capitalist destroyers.
As for the business or profession of legal services, the smell of change is all around us. The pressures of reforms abroad cannot be ignored. Law firms cannot forever ignore traditional concepts of ownership investment and value. New “means” of solving the wants and needs of legal service customers cannot go untapped. The Societies and Bars afford only limited and temporary protection. Some time, some day, some entrepreneur will accumulate massive wealth by eliminating the wealth and livelihood of entrenched players. The threat only grows for law firms as a whole as elements of change are ignored or resisted and more and more “new means” go untapped.
Law firm leaders must accept that change is constant. Resist at your peril. You either change up or the natural forces push you down. Like other businesses, you must look outside of your natural competitors for the risk that will replace you. You have to look outside of your natural competitors for the innovations through which you can reinvent your enterprise.
Morepartnerincome.com is sponsored by Juris, Inc. For information about Juris® products and services for increasing law firm performance and partner income contact Juris National Sales Center: 877/377-3740, e-mail info@juris.com or go to www.Juris.com.
Related posts
Filed under Blog by Tom Collins
Leave a Comment