September, 2024 | Article
Law Firm Failures - The New Normal?
Many law firms are successful by accident.
Anyone who knows anything about traditional law firm structures knows they are perilously fragile. It doesn’t take much to bring them down.
Up until this latest debacle—the 2024 collapse of Minden Gross—Canada’s highest-profile law firm failures were Heenan Blaikie in 2014, Goodman and Carr in 2007, and Holden Day Wilson in 1996.
Canadian law firms are not alone in this plight. For example—and this is only a small sampling—lawyer exits and merger failure brought down U.S.-based Stroock & Stroock & Lavan at the end of 2023 after more than 30 of the firm's 46 partners jumped ship to join Hogan Lovells, and in 2003, Brobeck, Phleger & Harrison and its 500-plus lawyers lost talent and failed to find a merger partner. Global behemoth, Howrey, that at its height had more than 700 attorneys in 17 locations worldwide, met that same fate in 2011.
Failure Flash Points
Like those firms, Canada’s Minden Gross saw a series of lawyers exit the firm and failed to secure a merger.
Heenan Blaikie’s failure was a mismanagement mess that ranged from financial pressures, loss of trust, and misguided geographic reach to an apparent lack of formal management training and an absurd notion that the bottom line looks after itself.
In 2017, I wrote about Heenan Blaikie’s collapse and posited that had it been run as a business rather than a private club, collapse may not have happened. The link to that article is the last in this piece.
As for Goodman and Carr, its lawyer roster shrunk from 140 to 90 in the two years prior to dissolution. Again, depending on who you talk to, there were also problems with compensation and disparate practice groups.
Holden Day’s demise was in a class by itself. Shock and grief overwhelmed the firm in 1993 after one of its partners fell 24-storeys to his death due to crashing through a floor-to-ceiling window when throwing himself against it to demonstrate the window’s strength to a group of lawyers who were attending a reception.
Many of that firm’s members were traumatized, including a friend of mine who was in the room when it happened. She was among the nearly 30 lawyers who departed within three years after that ghastly event.
Thankfully, not all law firms crash and burn in such spectacular fashion.
During the pandemic years, a number of small personal injury firms folded like lawn chairs. Their mostly quiet failures were primarily the result of people and vehicles remaining safely parked at home. Many of these small firms were bought by larger personal injury boutiques, absorbed into corporate/commercial practices, or stayed bust.
Lawyers Land Fast
When word of its impending demise spread through Minden Gross, most of its lawyers packed their brief bags and successfully refugeed elsewhere. This was not surprising since it’s par for the course that lawyers land fast.
But what about staff many of whom in Heenan Blaikie, Goodman and Carr, and Minden Gross’s case, had provided decades of service? What happened to them and others who worked at, in, and with firms such as these?
In Goodman and Carr’s case, there was swift action to get staff members hired elsewhere before the firm closed. In most instances, it worked. I know because I was peripherally involved in helping some of those people secure new roles at other law firms.
In Heenan’s situation, staff who saw the writing on the wall and could react fast, raced the lawyers to the exits.
As for Minden Gross, the dust and all its people have yet to settle.
Elysian Days of a Halcyon Past
There are always individuals within almost every law firm who tend to cling like barnacles to the Elysian days of a halcyon past.
Still to this day, there are law firms that operate as a country club with some even having a Partner Lounge complete with a capital “P” and “L” in the name on the doorplate. But how many “country club” law firms will remain attractive to changing demographics and attitudes among both talent and clients when there are other law firms and legal service businesses operating in the market that are vibrant and modern, solvent and nimble, flat-structured and value-based, and built for flexibility and the long haul?
More to the point, how long will it be until business-oriented, whip-smart, self-preserving professionals of any age, expertise, or experience decline outright any invitations to throw in their lot and, perhaps, capital to join one?
The AI Collision
When Richard Susskind’s The End of Lawyers?: Rethinking the nature of legal services was released in 2010, it upset many lawyers’ apple carts.
Why? Because Susskind had the brass to challenge the legal profession to think like a business and determine how to use alternative ways of working to increase speed, lower costs, and maximize efficiency while retaining high quality output.
He argued that a legal services overhaul would be needed due to the increasing intolerance of the market to pay big bucks for rote, task-based work that could be better executed by smart systems and processes. He further suggested that, as a result, the jobs of traditional lawyers would be eroded or eliminated.
So, what happened? Much talk ensued among many. Little action was taken by few.
Ten years later, in 2020, two enormous forces collided: the world and COVID-19. During that time, and accelerating at light speed ever since, the world finds itself grappling with the newest upheaval: Artificial Intelligence.
The Internet changed the world. AI will flatten it.
As the world’s tardiest industry bloomer, the global legal services market may get flattened, too. But if that’s what it takes to realize momentous evolutionary change within a change-resistant sector, bring it on.
Legal Service is a Business
That Minden Gross, Heenan Blaikie, Goodman and Carr, and the rest of their ilk failed and fell has precious little to do with tenure, comradery, or culture.
According to Minden Gross’s website, blame is placed on “recent intensification of the challenges facing mid-sized law firms in Canada” when, in large part, it appears not to have been well prepared to withstand or swiftly adapt to change due to the fragility of traditional structuring.
Candidly, an astute legal market observer could have seen this failure coming. I did. For me, it was obvious years before it happened that Minden Gross would seal its own fate and collapse was simply a matter of time.
Even so, when the crash came, my initial reaction was anger. However, a month later my attitude neutralized to what can only be described as “meh.” And that’s because law firms, like other endeavours, always have, can, and will continue to fail primarily due to an inability or resistance to meet or exceed the galloping rate of change and adaptation with which the expanding world of business and its expectations evolve.
Basic Business Pillars
Despite the gloom, doom, and despair, there are strategies and solutions for those who dare to face the future head-on and take decisive action.
Rather than being successful by accident, proactive and better-adaptable law firms succeed by design and on three basic business pillars:
1) A distinctive one of one market position that sharply cleaves a firm from its competitors to the point where competition is irrelevant.
2) A tightly focused, publicly stated, and strict strategy-to-objective business-based mandate with intentional, scheduled, and executed time-bound tactics, all of which are embraced by every member of the organization, each of whom is all-in and consistently walks the talk.
3) Professionally trained non-lawyer management running all C-suite and critical business areas of the enterprise enabling lawyers to do what they do best: lawyering.
If Minden, Heenan, Goodman, and most other failed law firms had followed this advice trifecta, it’s likely that their demise could have been avoided. That’s because they would have been corporately structured with a so-tight-it-squeaks market position, governed by ironclad directives, bright-line boundaries, and powerful infrastructure, kept shipshape and accountable with publicly shared growth and cull mechanisms, and run like a bottom-line-or-bust business with expert management at the helm.
Accepting Failure as Normal
It is entirely reasonable to expect that more failures will happen since most traditionally oriented legal industry players adapt to change at the same rate of shifting speed as the Earth’s tectonic plates.
Much of the blame for future failures will be assigned to the retirement of Baby Boomers who, in short order, will shift out of active practice – willingly or not – as well as to younger generations of professionals seeking new work styles and different environments. With lots of blame to go around, the rest is likely to be showered upon the ever-increasing and swift advancements in technology and tools – especially AI – that, if the Good Lord’s willing and the crik don’t rise, should eventually decimate the blight of the billable hour.
It’s also fair to expect that if the legal industry keeps reacting to law firm failures in the histrionic fashion that has been favoured in the past, much finger-pointing, hand-wringing, and pearl clutching will continue to ensue.
How tiresome.
Better to shove the fainting couches into storage, enter this century, and run law firms like modern-day entities of commerce.
“Legal service is a business; run it that way” has been my mantra forever. This is my hill and I've been dead up here for years. Still, it’s sensible advice and fair warning that if you’re not taking assertive, deliberate, and action-oriented care of your law firm’s business, you’ll soon find yourself out of it.
This article appeared on Slaw, May 2024.