In a recent Harvard Business Review blog post, Dina Wang and Firoz Dattu argue "that GCs are increasingly willing to move high-stakes work away from the most pedigreed law firms (think the Cravaths and Skaddens of the world)… if the value equation is right." The piece is provocative but flawed. Biglaw is changing. But Wang and Dattu's evidence does not support the end of pedigree.
Let's cover Wang and Dattu's argument before addressing its limitations. They begin by telling of a "recent survey of General Counsel at 88 major companies conducted by AdvanceLaw (an organization founded by Firoz)". Their survey finds that 74% of GCs prefer an equivalent lawyer at a less-pedigreed firm for "high stakes (though not necessarily bet-the-company) work" given a 30% cost difference. Their survey also finds that only 11% of GCs feel lawyers at the most pedigreed firms are more responsive than those at other firms. In Dattu's experience at AdvanceLaw, "firms of varying sizes and pedigree are successfully unseating AmLaw 20 and Magic Circle incumbents on high stakes work (e.g., a recent M&A deal valued at $500 million ...)." They state that one reason for less-pedigreed firms being more attractive "is that top talent is increasingly dispersed, not residing solely at the most pedigreed of firms." To determine if the most pedigreed firms are feeling the impact of this change, they examined "revenue per lawyer (a proxy for a law firm’s ability to command a price premium) across a sample of firms," finding
growth was highest among non-pedigreed firms. Our sample of 15 especially highly reputed firms (including the likes of Cravath, Skadden, and Sullivan) experienced an average increase of only 2.9% in revenue per lawyer over the 5-year period from 2007-12. In comparison, a sample of 15 smaller, comparatively less known firms posted average growth in revenue per lawyer of 12.7% in the same period.
There are a number of thoughtful comments to the post, including ex-Association of Corporate Counsel executive Susan Hackett's that:
the in-house reality that in this market, "no one ever gets HIRED (or promoted) for retaining [ BigLaw ]." General counsel who promote in-house lawyers, and executive management hiring general counsel are looking for those who have the experience and judgment to discern which law firms are best suited to what matters based on how they perform the work, predictably price their services, and deliver the right value and result.
I strongly agree there are major changes occurring in Biglaw and that savvy clients are increasingly looking to alternatives (more cost-effective firms, LPOs, technology) when appropriate. And our technology-enhanced contract review software is part of that story. Wang's recent Harvard Business Review article “Consulting on the Cusp of Disruption,” (written with Clayton Christensen and Derek van Bever) arguing
that despite the disruption in consulting and in law, there will always be complex, high-stakes problems for which a brand-name, solution shop firm will be required, but that as disruption marches up-market and more problems find commoditized solutions, there will be a thinning at the top of the pyramid
is very persuasive. And it sounds like Dattu's AdvanceLaw does useful work. We are on the "Future of Law" team! All that said, I question whether law firm pedigree is actually a thing of the past. And, if it is, I don't think Wang and Dattu prove it here. Here's why:
- Stellar Elite Performance. The most elite firms appear to be among the best performing in recent times.* If Cravath is in so much trouble, why were its profits per partner up 10.8% in 2013? Wachtell was up 11.5%, Sullivan & Cromwell 7.1%, Davis Polk 6.7%, Skadden 5.4%. Gibson Dunn managed a 13.8% increase.** This in a year when only 66 Am Law 100 firms had PPP increases at all. PPP may be an imperfect measure of success at nearly all firms, but is probably a decent measure at the most elite places—my guess is that Wachtell and Cravath are not de-equitizing partners to juice their Am Law 100 PPP numbers. Is PPP a better measure of price premium than revenue per lawyer? Hard to say. Both are imperfect measures, heavily dependent on their denominators (partners in PPP, lawyers in RPL). The RPL numbers Wang and Dattu cite for the proposition that less-pedigreed firms are thriving could just as easily be produced by these firms reducing their number of lawyers while maintaining their workload. The difference could also be a function of Wang and Dattu's sample ("15 smaller, comparatively less known firms"). Were these firms randomly selected? Why only 15 of them, as opposed to a larger pool of less-elite firms?*** Could they have specifically chosen 15 lesser-known firms that performed especially well on a statistic they chose over a time period they chose?
- Survey Says. Given the survey finding that GCs prefer a cheaper but otherwise equivalent (apart from pedigree) lawyer for some deals, the most useful data to support a "death of pedigree" argument would be if GCs did not give pedigreed firms a strong edge in expertise and quality. Responsiveness , though "a key element of client service", it is only an element. It's a helpful datapoint but misses the story. Peyton Manning is not a fast runner relative to some other NFL quarterbacks but he still manages to contribute.
- $500 million M&A deals. The most pedigreed firms are known for their work on the biggest deals. While most top firms cannot survive on bet-the-company deals alone, a few may be able to. And, even then, the most elite firms seem to be doing fine in the mid-market: Skadden and S&C led the US mid-market league tables for the first half of 2013.****
Wang and Dattu made a provocative claim here. Pedigree could be dying, and it would be very interesting if it was. I'm sympathetic to how blog posts can't cover everything, and how research can be an iterative process. It would be great to see future versions of this work address the limitations of this take. Ideally these comments will help.
Saying Cravath or Skadden are in trouble makes for good headlines, but these firms are in much less trouble than the vast majority of their less-pedigreed peers. Biglaw is changing, and clients are increasingly asking for more efficient work. Even Cravath and Skadden compete for business, and can compete better by providing more efficient work. Their clients evidently care that they do. But less-pedigreed firms must compete hardest and change most. As Wang and her consulting HBR article co-authors note, there will likely be a thinning out in Biglaw. Less elite firms cannot rely as heavily on long relationships and perceived quality. As this post discusses in more detail, less elite firms really have to offer something different. Are they? From what I've seen, less-pedigreed firms seem no more likely to embrace serious efficiency enhancements than their more elite peers. There are less-pedigreed firms highly focussed on improving their efficiency. But not many. In fact, in the UK, many pedigreed firms seem to be seriously working at becoming more efficient. I can understand how an elite firm would keep from changing. Less-pedigreed firms don't have the same excuses. Despite a future with more opportunities—if Wang and Dattu are right—they are at greater risk of losing to new entrants.
* Note that under Christensen's Innovator's Dilemma, incumbents threatened with disruption often experience increased profits (on decreased revenues) right before the bottom falls out from under them. There is no evidence that that is what is happening here.
** Note that 2012 was a down year for some of these firms, which should have helped their 2013 PPP growth.
*** There is no statistical reason the "pedigreed" and "less-pedigreed" firm pools need to be the same size.
**** Note that MergerMarket's mid-market is deals from $501 million–$2 billion. So a $500 million deal—while still significant—is on the low end of this area that is already not the focus of the most elite firms. I did not examine Skadden & S&C's historical mid-market performance. In considering Wang and Datta's Decline of Pedigree argument, it would be interesting to know whether these firms now lead in mid-market deals by a lesser margin than they did in the past.
- Why Law Firm Pedigree May Be a Thing of the Past (blogs.hbr.org)