A holistic perspective on the transformation of work culture in the legal profession by the establishment of virtual or distributed law firms. It provides a comprehensive account of the gradual shift in mode of legal operations and the ensuing consequences.
The Traditional Law Firm and its Problems
Law firms are notoriously conservative outfits. Law is a profession that focuses on precedent and caution. A lawyer’s job is to take a step back and view all the possible risks to which clients are exposed. In other words, a lawyer needs to see everything that can go wrong; this is what they train for. This mentality is good for legal practice, but not for law firm business innovation. Since law firms are usually managed by practicing lawyers, partly because they must be owned by lawyers, this conservatism has prevented law firms from making necessary moves that other industries quickly jumped into.
This conservatism is why law firms are still structured on the “Cravath model” which was invented over a hundred years ago. This model is based on recruiting graduates from top schools, providing them with rigorous training which is partly paid for by clients, surrounding them with high priced support staff and located in expensive offices. Over the years, only a few of the graduates will rise all the way to the top. The rest will leave the firm. This familiar model worked well for Cravath and others, but it was designed when people stayed in one company their entire careers, and when law firms were very small. Over the decades, the law firms got bigger, built more hierarchy, took more real estate but kept the same up-or-out model in place. This in turn led to greater bureaucracy, politics, and overhead. The model started breaking down as partners realized their own value existed independent of the individual law firm itself. What the law firm world witnessed was partners jumping ship, as firms began recruiting lateral hires who brought their own massive book of business from place to place. None of this was great for clients or for most lawyers. It was certainly clear that law firms were overdue for disruption.
Technological changes – specifically the great reduction in the cost and ease of communication brought on by the digital revolution – were the necessary spark. The birth and explosive growth of so-called “alternative” or “distributed” law firms sprung from this moment. Until the widespread adoption of the internet, multi-city – not to mention international – law firms had a frighteningly high-cost barrier to entrance. Lawyers need to be available on a moment’s notice and frequently operate on very short deadlines. Deals and litigation strategy can’t always wait for FedEx. The way around this problem was putting “boots on the ground” in each new city, backed up with an expensive real estate investment and support staff. The average partner in the year 2000 had limited knowledge of computers and was trained to rely on this staff, which helped to boost the bottom line, albeit at the expense of clients.
The Emergence of Distributed Firms
Alternative firms upended this model. me and my Rimon co-founder did not start out as lawyers – we came from the tech and startup worlds. When we began working at an AMLaw100 firm, we were initially impressed with its traditional style. Firms had created a structure that benefited the leaders at the top of the pyramid while at the same time paying high salaries to lower level income producers. Law students graduating from top tier schools flooded in to these firms, helping to provide an army of untrained but talented soldiers to mold and profit off of. But it didn’t take long before we saw inefficiencies that made the law firm world ripe for a revolution.
Newer attorneys, including junior partners, were very conversant with technology. Typing up documents, contacting opposing counsel, handling computer research came naturally to them – no surprise, as practically everyone born after the 1970s had a lifetime of computer training. The result was that they did not need the same level of staff support. As technology evolved, their lack of dependency began to go even further, impacting their need for junior attorneys. Associates, who form the bottom of the law firm model pyramid, and who are trained at client expense in the hope of future firm profit, were no longer needed in as much volume by the best trained attorneys.
Furthermore, while every junior attorney and client may be awed when they first walk into the powerful halls of a law firm, that feeling wears off quickly. Thanks to advances in technology,, great partners could work anywhere and still be in touch with their clients at a moment’s notice. This could help save heavily on real estate costs – one of the single biggest expenses for law firms.
Under a streamlined model, partners could keep more of the money they earned, and clients would not have to pay the cost of unnecessary overhead and staffing.
Traditional Firms Confront the Distributed Model
Law firms have generally opposed any alternative model, and most continue to approach their clients’ 21st century needs – to have seamless, cross-border legal representation – with 20th century tools. It’s a costly strategy. Cumbersome overhead, hierarchy, and bureaucracy don’t come cheap, and expenses are passed on both to equity partners and clients. Partners work more hours and contribute large portions of what they bill to support enormous infrastructures, and nonetheless, firms often struggle to support their weight. They seek profitability by driving billable hours ever higher, with new records set in 2020. Attorneys are overworked and clients – which are increasingly forming in-house legal operations departments to manage spend – are often overcharged.
Distributed Firms Today
COVID has shown the degree to which cloud computing and video conferencing can – when thoughtfully deployed – support efficient, seamless collaboration across time zones. Distributed firms that were designed to leverage technology to support their clients and partners adjusted to the COVID environment without disruption, and indeed have thrived.
The pandemic proved the point the so-called “alternative” firms have been making all along – that technology can – and must – enable experienced, widely dispersed teams with varied, multijurisdictional expertise to support clients when and where they need it, all at profoundly reduced overhead cost. It has thrown into stark relief the dangers of law firms looking too exclusively to the past to guide the future. This era has betrayed the inefficiencies of failing to leverage modern technology, leaning too heavily on entrenched and ever-expanding bureaucracies, maintaining expensive commercial leases, and other long-standing firm practices. Increasingly, partners from AmLaw100 firms are attracted to the seamless, forward-looking, truly globalized model of distributed firms.
Under a distributed model, attorneys are treated not as cost centers or hired guns, but as what they are: successful professionals capable of and entitled to managing their own practices. Rimon and other alternative model firms lean in to letting the best attorneys make their own way. Rather than constraining them, alternative firms have focused on providing a platform from which attorneys can manage their own practices, and keep most of what they bill.
Having incubated, refined, and proven the value and feasibility of a distributed law firm model, leading alternative firms are taking the next logical step – expanding overseas. Distributed firms are especially well-suited to this: they inherently transcend physical location. Without the major capital and logistical barriers to entry faced by traditional firms, distributed firms can quickly offer the legal services their expanding client bases need –wherever their business takes them. This offers particular opportunities for distributed firms offering, and clients in need of, legal services in emerging jurisdictions. Now, clients anywhere in the world can access elite and customized teams of experienced attorneys whenever needed. This timing is fortunate for clients, since – hobbled by their overhead costs – many traditional firms are closing international offices, finding that they are insufficiently profitable, or even that they are losing money. Luckily, distributed firms have identified a truly globalized, 21st century way of practicing law that works for clients, attorneys, and firms alike. Firms no longer have to choose between remaining jurisdictionally limited and carrying enormous overhead costs that place undue demands on attorneys and clients.
In the last 13 years, Rimon PC, designed as a distributed model, has undergone major international expansion, opening offices in London, Paris, Berlin, Shenzhen, Moscow, Warsaw, Sydney, Bogota, and Abu Dhabi, with more to come in 2021. Not only has this expansion not inhibited our profitability, it has coincided with 56 percent growth in revenue, and 17 percent growth in revenue per partner. With a 49 percent cross-servicing rate, collaboration is higher than at traditional firms, because the firm culture is built on collaboration across the firm regardless of location. We are charting a course to the future. We have seen that from an improved business platform, elite lawyers can offer their clients the sophisticated legal advice to which they’re accustomed under value-driven, flexible pricing structures – all the while keeping more of what they make and enjoying an empowered, flexible way of practicing law. COVID has made impossible to ignore what many of us already knew: that in a rapidly changing world, new tools and opportunities ultimately demand innovation. For forward-looking distributed law firms, the professional landscape has never been more exciting.