Technology is a huge part of all of our lives. One common feature of almost every technological gadget we own is that when it hiccups, the first thing we have to do is hit the reset button. Whether it’s an iPhone, Windows Vista, or your TV cable box, it seems the answer to every problem involves doing some form of reset to put it back to where it was before the problem started. We have come to depend on the ability to reset as being the way we make everything return to normal. It is this dependence, together with lawyers’ natural resistance to change that causes many of us to look at the impact of the economic downturn on the legal market and wonder how long it will take for the business and profession to return to normal. Isn’t there some kind of reset button we can hit?
Afraid not. The problem is defining what “normal” means. If we stand back a couple of paces it becomes clear that what we have experienced over the past five years is pretty hard to call normal. It felt great at the time and we hoped it would go on forever. But only in some parallel universe could hedge funds that viewed legal fees as “deal dust,” lawyers’ hourly rates going up $100 at a crack, and starting associate compensation bumping $200K a year, be considered as anything approaching normal. A lot of smart people said it couldn’t last — and they were right.
So if normal is not the previous high, where is it? How far back down the mountain do we slide before the fall stops? We can speculate that it depends on where you were on the mountain and how far you’ve fallen. For Wall Street firms who saw profit declines approaching Cadwalader’s 30 percent and Magic Circle firms that took massive layoffs including Allen & Overy’s unprecedented termination of 10 percent of their partnership, the fall has been fast and steep — and it may not yet be over. For middle-sized firms in non-capital market cities, the departure from normal has been surprisingly small, perhaps obscured by firms participating in the layoff of associates and staff, not because it was necessary, but to take advantage of a political opportunity to clean house.
We can’t push the reset button because we are part of the constant evolution that affects the legal marketplace and all other industries and businesses. We can’t return to normal because there is a new normal evolving although no one really knows what it will be. We don’t know how much deeper the recession has to go or whether there are still some other shoes yet to drop. When it happens, will there be a dramatic recovery or are we looking at a long flat ten year process like the Japanese? What are the industries and companies that will drive the recovery — a number of the driving forces of the old normal aren’t around anymore and some are heavily government controlled. The one thing for sure is that the normal we return to will be substantially different from the normal we left.
We can, however, develop some insights into the new normal that will help us understand where the private practice of law is going. First, we know it is not going to suddenly appear from nowhere. There are no dark horses in the evolutionary process — every change is based on what went before it. So we can test various scenarios of the new normal by whether it is a logical evolution from what we have been through.
Second, legal services has kept itself isolated from many of the maturation forces that have affected virtually all other professional service industries because we have been able to limit the client’s knowledge of the competitive marketplace for legal fees. The pricing of legal services has traditionally been a bit of a black science to which few outsiders are privy. With the empowerment of many general counsel during the recession and the new level of government involvement in the management details of the private sector, will we be able to put the toothpaste back into the pricing tube?
Beyond that, what about the world stage? For many firms, globalization only recently went from being an obscure seminar topic to a reality of legal practice. To what degree will the new nationalism created by the G8′s dueling stimulus packages slow international opportunities for law firms still on the sidelines? And there are literally dozens of other scenarios from which we can look back and develop expectations, all of which will in retrospect be recognized as being predictive of whatever the new normal turns out to be.
So here’s the deal. While there may not be a handy reset button to make everything right, we need not wander around without a tie to the past. We can use what we know and trust from our old normal to make some valuable plans for prospering in the new normal. And those who take the time and effort to understand where we are going don’t have to get it perfectly right. They will be miles ahead of the rest of the legal world who will still be pounding on their reset button.