December 17, 2014

Legal Trends: The Big Squeeze

John D. McKinnon | 2/1/1996
When 75-year-old Mershon, Sawyer, Johnston, Dunwody & Cole voted to close in November, it marked just the latest in a string of shutdowns by well-known Miami law firms. Others have claimed Blackwell & Walker; Fine Jacobson Schwartz Nash & Block; Paul, Landy, Beiley & Harper; and the local office of Chicago-based Jenner & Block.

Don't blame Miami, though. It's happening everywhere. New York giants Shea & Gould (as in Shea Stadium) and Mudge Rose Guthrie Alexander & Ferdon (where the late President Nixon practiced in the mid-1960s) also have called it quits in recent months. Even the American Bar Association's current president, Roberta Ramo of Albuquerque, saw her 22-lawyer firm close a couple of years ago.

"This isn't just a Miami phenomenon or a Florida phenomenon," says Chuck Santangelo, a director with Hildebrandt Inc., a national law firm consultant based in Naples. "It's a national trend, and it's very disturbing."

In the contentious, ego-filled environs of big-city law practice, a certain amount of change is a given. But the latest upheavals are unheard-of. In most cases, observers say, the breakups can be traced to firms' inability - or unwillingness - to recognize the savage new realities of legal economics.

Perhaps the biggest change has come in client attitudes. Because of newfound value-consciousness, business clients have become much tighter with their legal-fee dollars. "Clearly there's a very strong demand that you give strong client service, that you be efficient and cost-effective," says Larry Hoffman, managing partner at Miami's Greenberg Traurig.

Businesses are hiring more in-house counsel to do work that previously would have gone to outside firms. What's more, in-house counsel is used to vet firms' billings for excesses, something that would have been almost unthinkable a decade ago. "Clients figure, 'Why pay retail when you can pay wholesale?'" explains the Florida Bar's J.R. Phelps.

Thanks to mergers and contractions in the business world, big clients also are becoming scarcer. Firms that relied too much on a single big client have proved to be especially susceptible to failure, notes Jordan Camenker of Maitland, a past chairman of the Florida Bar's Practice Management and Technology Section. Even law offices that focus too much on one type of practice can run into problems, as evidenced by the recent bankruptcy filing of famed "King of Torts" Melvin Belli's firm. The firm ran up costs it couldn't collect in breast implant litigation.

Because of the current glut of lawyers, firms also face more competition to keep the clients they have. "There are simply too many lawyers in the country, and in Florida, for the available work," Santangelo explains. As a result, he says, "the practice has transitioned from a pure profession to a business. And too many firms have not made that transition."

Traditional firms aren't just fighting each other. Increasingly, they also compete with small so-called "boutique" firms that use desktop technology to cut overhead and provide specialized legal services more cheaply. Orlando landlord-tenant attorney James I. Barron, for example, has automated his small practice so intensively for filing eviction notices that he's become preeminent in the area in just a few years.

Meanwhile, at the margin where legal advice shades into business planning, firms increasingly contend with consulting and accounting firms.

Adding to the pressures for firms is a me-first attitude among younger lawyers that reduces loyalty to their partners. "Personal economics is playing a much more dramatic role in the lives of lawyers than used to be the case," says former state Supreme Court Justice Arthur England, who's now at Greenberg Traurig. "It's displacing what used to be loyalty to the institution." That's especially troublesome for established Florida firms, which face brutal competition for their best lawyers from out-of-state firms looking to open regional offices.

Traditional management also is a factor in the current shakeout. Often, firms that fail have clung to old-fashioned partnership-style governance, which tends to scatter power among lots of people. "There's too much democracy in a lot of these firms," Santangelo complains. Incredibly, many firms still operate on a handshake - without even a formal partnership agreement - because members can't come to grips with tough management questions.

Change since the end of the 1980s has been so sweeping that some question whether it's mere belt-tightening. According to these observers, medium-sized firms could be facing problems regardless of how well organized they are. Those experts predict a continued consolidation in the legal industry, in which a relatively few mega-firms become regional or national brand names. Meanwhile, more and more lawyers could fly solo or form boutique-sized groups of their own. These attorneys, in turn, might become parts of large, loosely organized networks on a national or even international scale. The losers: once-proud firms like Mershon Sawyer and Blackwell & Walker that failed to figure out how to convert their big names into big businesses.

"For lawyers who want to be head-down, pure practitioners, times are going to be difficult," explains David McIntosh, chief executive officer of fast-growing Gunster, Yoakley, Valdes-Fauli & Stewart of West Palm Beach. "These firms that have failed didn't fail for lack of extraordinary lawyers. They had those. And I think that's instructive."

Legal Briefs

Current Florida Bar President John A. DeVault III of Jacksonville has shaken up a lot of leading lawyers with his proposal to weaken the state's toughest-in-the-nation pro bono rule. The rule grew from years of effort by dedicated do-gooders, including Talbot "Sandy" D'Alemberte, the former American Bar Association president and current Florida State University president. As finally adopted by the state Supreme Court, it strongly recommends that lawyers contribute either 20 hours annually of pro bono work or $350. It also requires annual reporting.

But based on DeVault's accounts of conversations he's had around the state, a lot of lawyers don't like the new rule. "I think that while the bar strongly supports the idea that lawyers are obligated to give of their time, there's resentment about the mandatory nature of the reporting," DeVault says. "There's a feeling that we don't want someone looking over our shoulder saying that we have to report it and have it on file the rest of our lives." Some conservative lawyers also worry about more money going toward liberal causes that the state's legal establishment has supported in the past, such as death penalty appeals.

Supporters say that DeVault's proposal could hardly come at a worse time. Cutbacks in government support for legal services are the biggest reason, but not the only one. Lawyers also have their image problem to consider. "From a p.r. standpoint, they've got to know what's going to happen,"warns D'Alemberte.


Florida businesses pay some of the highest average tort awards in the country. So the latest installment of a long-running study of U.S. liability cost trends contains especially welcome news: U.S. tort costs have declined in relative terms, to the point where they represent the same share of GDP as in 1985, and a smaller share than in any year since then. U.S. tort costs as a percentage of GDP peaked in the late 1980s at 2.5%, after climbing almost every year since the late 1940s, according to the study by consultant Tillinghast Towers Perrin. The study cites a change in public attitudes as the principal factor. Even Americans' vaunted litigiousness might be waning slightly, it suggests.

Still, the study shows that for 1994, the U.S. tort system remained by far the world's most expensive, costing two and a half times more than the average for industrialized countries.

Tags: Florida Small Business, Politics & Law, Business Florida

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