A newly released joint report from the Center on Ethics and the Legal Profession at Georgetown University Law School and Thomson Reuters Legal Executive Institute (LEI) could cause some soul searching among law firms. The 2019 Report on the State of the Legal Market reveals that the traditional law firm business model is crumbling due to new market realities, including the expanding availability of alternative legal service providers (ALSPs).

A CHANGING LEGAL LANDSCAPE

The report reinforces what many law firm leaders already suspect: They need to take a longer-range, more strategic view of their capabilities and competitive positions in the marketplace. For example, while the demand for law firm services has been essentially stagnant, corporate legal spending has risen steadily, suggesting that firms are losing market share. While part of such losses can be attributed to growing in-house staffs, it also reflects the shift of legal work to ALSPs, including accounting and consulting firms.

According to the report's lead author, it was long assumed by both law firms and clients that legal work could only be performed by lawyers. But new competition, technology and innovative legal service delivery models are rapidly transforming how services are provided and delivered to clients.

The report's findings are consistent with those of a 2018 global survey of ALSPs conducted by the Georgetown school, LEI and Oxford University Business School. According to that survey, the ALSP market had grown significantly to about $10.7 billion in annual revenues, or a compound annual growth rate of 12.9%.

Even more striking, the 2018 survey confirmed that ALSPs' services were moving into territory generally thought of as too sophisticated for nonattorneys. This includes regulatory risk and compliance, project management, legal research and corporate due diligence work.

A NEW LEGAL SERVICE MODEL

Some things never seem to change, though. The 2019 report cites a common hurdle facing many law firms trying to adapt to new market realities — partner resistance. Too many partners are mired in their beliefs of "legal exceptionalism," which prevents them from recognizing the threat from ALSPs, such as accounting firms.

The authors of the report propose a dynamic model that categorizes law firm services on a continuum. It runs from "unique legal expertise" (i.e., private equity practices) at the top to "comprehensive legal services" (day-to-day services that clients require to run their business) and down to "ancillary support services" (services that nonattorneys can cover, including document review and coding). The report concludes by urging law firms to make honest assessments of where their key practices fall along the continuum. Only then can they begin to make the necessary strategic decisions to optimize competitive advantages.

THE FUTURE IS NOW

The report emphasizes that each law firm's strategy will differ, depending on factors such as its client and practice mix, market positioning, competitive advantage, reputation and culture. Law firms should take the time to understand where they may be on the continuum and how changes can affect their business.

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