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By: Robert E. Brown

Boylan, Brown, Code, Vigdor & Wilson, LLP

Rochester, NY

We have been witnessing a meltdown of the global economy unprecedented since the Great Depression. The very ideals that shape the American vision of a capitalist economy have been shaken to the core, as several of the companies that form the backbone of our financial system have been effectually nationalized in order to avert the utter collapse of the global financial markets. As stories of multi-million dollar bonuses for the CEOs of bailed-out corporations, private jets flown to Congressional hearings, and million-dollar company retreats began to proliferate at the height of the meltdown, accountability became the buzzword of both the media and the newly-minted Obama administration. Business, not-for-profits, and governments have been forced to take a hard look at the books and trim spending wherever necessary in order to ensure their solvency and maintain credibility with shareholders, employees, and the public. For many organizations, one of the largest line items in their annual budgets is the legal department.

For many years, the legal industry has operated under the it aint broke philosophy. The traditional partnership model of law firm structure, the reactionary delivery of services, charging by way of the billable hour, and many other old-school methods have survived largely unchanged for decades. Why? Because CLIENTS are the driving force for change in any service industry and, until now, they have accepted the status quo. The call for accountability in America has become the impetus for change among service providers and law firms are now finding their industry in a state of revolutionary change.

One of the biggest complaints that clients have voiced is the reactionary nature of the legal industry. Attorneys often wait to be called on by their clients when a problem or opportunity arises. Case in point: note the recent proliferation of the financial crisis task force or the troubled business practice group. Clients want their counsel to be proactive in their representation, rather than reactionary. They want their attorneys to obtain and maintain an in-depth knowledge of their particular businesses and industries so as to not only protect them from potentially disastrous situations (i.e. the past 18 months), but also to support their growth. The if Im thinking about your business, Im billing you for it mindset of the traditional law firm will not survive under these client pressures. It is a cost that will readily be absorbed by firms who realize that their success is directly tied to the success of their clients, and therefore accept and embrace this new philosophy as the fundamental nature of reality and the cost of doing business in the 21st century.

Although many clients still prefer to be charged by the hour, we have certainly seen an increase in requests for alternative billing arrangements in order to stem the rising cost of legal services. This begs the question, Does alternative billing simply mean lower the hourly rate? Cost is, of course, the bottom line, but predictability and budgeting are really the key drivers here. Clients are not asking firms to simply reduce hourly rates in order to cut costs, but rather for firms to manage themselves better in order to produce quality in a more efficient manner.

These pressures will inevitably hit at the very structure of the traditional partnership model of a law firm. If clients are driving change in the legal industry, doesnt it make sense that the law firm should actually operate like a business itself? As clients streamline their operations in order to remain profitable, so too will law firms who wish to remain competitive while maintaining their profit margins. Clients will no longer tolerate the cost of inflated associate salaries or those of unprofitable partners being passed down to them through increased billing rates.

As in any industry, market pressures and changes in the business environment will force law firms to adapt to a new reality. In order to keep pace with those changes and maintain viability, continuous innovation will serve as the key driver for growth. Forward-thinking firms will thrive in an ever-evolving economic reality. Market flux drives innovation, and innovation drives organizational change. Only through that deeper organizational change will law firms be equipped to meet the demand for a new, client-centric business model.

So, are traditional law firms dead? Of course not but they will undoubtedly look much different in the coming years. The mega-firms will still be able to charge $1,000/hour for bet-the-farm litigation work and command tens of millions of dollars for a single large transaction. However, the onus has been placed on law firms to rethink their business models and practices in order to address the call for accountability from their clients.

Because of their size and flexibility, small and midsized firms have a tremendous opportunity to influence the future of the legal industry. As a founding partner and CEO of a mid-sized law firm, I have certainly felt the unease and uncertainty that has infiltrated our everyday lives during these challenging economic times. However, I am also excited for the opportunity to shape the future of the industry that has been so challenging and rewarding for me, and to improve it to the advantage of those who are truly responsible for my success my clients.

Robert E. Brown is a founding partner and CEO of Boylan, Brown, Code, Vigdor & Wilson, LLP. He practices tax law and business succession planning, with a particular emphasis on Employee Stock Ownership Plans. For more information, please email rbrown@boylanbrown.com for visit http://www.boylanbrown.com/.