Adam Smith – The Wealth of Lawyers

Adam Smith may have written the Wealth of Nations and been a seminal economist underpinning our capitalist thinking, but evidently his name-saked website about law firms doesn’t understand crap about law firm economics. 

Yesterday, The Wall Street Journal printed an Op-Ed about The End of Big Law.  In short, the author argues that we’ve seen the end of the big law firm as we know it.  It’s a must read for anyone interested in the subject.  Any reader of this blog knows that I’ve been predicting this for quite some time as part of my Law Firm 2.0 series

Today, however, I read one of the worst rebuttals I’ve ever read.  Adam Smith, Esq. is a website that purports to be experts on the economics of Law Firms.  According to their site, they provide consulting services to Big Law firms, so clearly there is no bias there, right? (sarcasm intended).  You can probably guess that they argue the the End of Big Law is a myth

The "rebuttal" (in quotes, because it really doesn’t deserve the description) is that Big Law is just like any other industry hit by the recession.  What they are missing are the massive changes that have taken place in the past decade in the Big Law ecosystem.  I won’t go into detail (if you want detail, read my Law Firm 2.0 series), but how can supposed experts on law firm economics not see that these changes are only being hastened by the recession, not caused by it?  The changes started a long, long time ago.  The recession is just putting the nails in the coffin. 

Secondly, any credibility the author may have is completely destroyed in my mind by two ridiculous assertions:

1. "I have yet to meet a managing partner not exquisitely attuned to the sentiments of their partners and the perceptions of their clients.” You clearly don’t get out much then.  This is absurd.  If this statement was true, one would not see the massive amount of partner transfers between firms and pissed off clients.  I am confident when I say that the majority of clients think exactly the opposite and disagree that law firms are "managing their firms as smartly as they are" (quoted from a previous Adam Smith blog); and

2. "Last time I checked, we were not capital-intensive nor do we have but the most trivial base of fixed assets." This is also laughable.  First, I find it enlightening that the author uses the word "we" when referring to Big Law.  Clearly this is another tip of the cap to bias.  Secondly, law firms are notorious for getting in over their heads with fixed assets.  See: Brobeck and / or my prior posting on this.  And this doesn’t include the multiple of dozens of conversations I’ve had with AmLaw 50 partners agreeing with me that fixed costs are out of control. 

This blog is simply reinforcing what’s broken and wrong in the legal environment.   Me, I’m happy to see articles like this, as it emboldens me as a venture capitalist to exploit and profit from the inefficiencies of the market. 

Lastly, the Adam Smith post accuses the WSJ article of being  "a truly impressive exercise in the abject failure of critical thinking" and likens it to a "tabloid."  I’d call this a case of the pot calling the kettle black, but in this case there is no kettle.