Oct 31, 2013

Law firms’ pyramid scheme model coming undone

Why are law firms no longer raking in their rivers of gold? And is there anything to be done to save the industry?

Adam Schwab — Business director and commentator

Adam Schwab

Business director and commentator


Mega law firms have a big problem: their business model is largely broken. Law firms have taken the same approach as the music and newspaper sectors — they either don’t realise there’s an issue, or they are happy to ignore the risk so long as the money is still flowing.

The problem for Australian major law firms (which include Allens, Herbert Smith Freehills, Ashurst, Minter Ellison and King & Wood Mallesons) is that growth rates for legal services has reduced significantly and the “rivers of gold” are starting to dry up. For major law firms, those rivers of gold comprised largely low-level work done by junior and mid-tier lawyers — stuff like due diligence and discovery. When I worked at a major law firm back in the early 2000s, menial jobs that could have been done by someone with minimal knowledge were often being charged out at rates in excess of $300 an hour.

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17 thoughts on “Law firms’ pyramid scheme model coming undone

  1. Gavin Moodie

    Are income relativities more equitable in other businesses? They don’t seem to be.

  2. bluepoppy

    The legal industry needs a clean-up anyway and am glad to see the work is drying up if it was falsely obtained ie. relying on overcharging and client ignorance.

    As a related aside, one way the legal industry is hoping to increase business is arguing for a piece of the pie in FTAs (the current TPPA) by pushing governments to allow investor-state dispute settlements, as was put forward eagerly by one legal practitioner in the Brandis vs Dreyfus debate prior to the election. Selling the country down the river along with taxpayers so the 1% can live off the largesse of the people.

    These ISDSs have the potential to see corporations, to some extent, setting national agendas on policies ranging from health to environment to tax. Will the legal profession put self-interest ahead of national interest.

  3. Scott Grant

    My heart bleeds. Actually have to work for 15 years (at a very good to wealthy salary) before becoming obscenely rich? Gosh! Maybe they should join a union to address this iniquity.

  4. Chrispy

    $150,000-250,000 not highly paid?

  5. puddleduck

    What Adam neglects to mention is that we all know the deal as we go thru’ law school. Do a few clerkships and see how the underlings work like slaves and the partners drive Rollers. If you enter that factory system, you know what you are in for. People go to firms like that for the prestige, the resources, and the money. Because even that graduate salary is probably as much as what a lawyer at a community legal service is paid, with 20 years of experience.

    No tears here.

  6. Flat tyre

    I heard of a senior partner waiving his arm around the firms boardroom and stating to a salaried partner “some day son all of this will still be mine”

  7. Townsend Ruth

    My salary was $39000 per year as a graduate in a regional law firm. Ten years later my salary is still under $100000. I agree with puddleduck. For the sake of those lawyers who aren’t in the big firms we should remember that not all lawyers are earning big bucks or in it for the cash.

  8. Richard

    nice piece, it’s definitely a pyramid scheme. but as others have pointed out, it’s hard to feel sympathy for the 250k brigade – in other words, i agree that the disparity should be lower, but the total pie should also a lot smaller.

  9. Robert

    In addition to sending the work “off Shore”, I read somewhere that computer-driven “expert systems” will soon be able to do much of the hack work in minutes – work that would’ve taken an army of juniors weeks to do

  10. Karen

    Interesting piece, Adam. I’m interested to know where these impatient senior associates go? Are they all absorbed elsewehere such as banking, finance, industry? And, critically, is there a ready supply of replacements who are prepared to put up with their $250k/year for a period of time? If so, the music doesn’t stop.

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