Is the traditional law firm model on the wane? Is the market ripe for disruption? More particularly, are we about to see the emergence of more ‘boutique’ law firms outside the dispute resolution space?
US boutique success
In the past 20 years we have seen the rise of the US law firm in London. It has reached the point where very few areas of law truly remain the sole preserve of UK firms. Magic Circle firms, once so dominant, are scrambling to counteract the threat the US firms pose. In a sense, the US firms in London were, and many still are, boutiques. In the noughties the Magic Circle model remained supreme and ‘full-service’ and ‘global’ was what the clients, and the banks in particular, demanded. The Silver Circle emulated the Magic Circle model, and it was felt that for the US firms to play catch-up was an overwhelming challenge. Building scale and having multiple overseas offices were deliberately intended to create barriers to entry. However, while some US firms desired to replicate the UK’s offering, others were heading down a different track and picking their spots—not trying to be all things to all people. It seemed a trend had started. These firms directed their efforts at the funds community and built practices such as PE, leveraged finance, fund formation and restructuring— practices which do not demand the same cost heavy infrastructure and have ultimately proven to be more profitable.
So, the successful US law firm model is essentially a boutique law firm model, and increasingly we are seeing it as a template for others to use.
Why disputes but not transactional?
The most obvious examples have been in the disputes arena. In the past 15 years we have seen the birth or the emergence of specialist outfits demonstrating the standalone
litigation model can work and be incredibly profitable. These prove litigation can be more than—as the Magic Circle and Silver Circle appeared to view—just a service function supporting a firm’s transactional clients, Of course, a big driver for the emergence of some of these boutiques has been the ability to source third-party funding from specialist litigation funders. That is funding not only for claims they may bring, but also to support the establishment and build-out of those firms. This simply was not on offer until the past 10 years. We must still wait to see if private equity will throw their hat into the law firm ring, but there are some examples emerging. Which begs the question, why have we not seen more boutiques in the transactional space? Litigation funders are open to funding other types of practices, and we are starting
to see consultancy firms and others enter the market as potential disruptors (not only as investors in law firms but in the operational infrastructure supporting them). The talent pool is certainly there, as the various outsourcing and interim operations at both law and legal recruitment firms have demonstrated. What works in the disputes market should also work in areas such as private equity, restructuring and finance, not to mention tax, funds, and financial regulation.
Centring the client
West Coast firms and other mid-market US firms are starting to come to London to target niche, but profitable, clients—like the big tech companies. Settling in London and selling their US strengths can prove an effective strategy for these firms. More platform firms are coming into being which, while not styling themselves as such, share many of the same
characteristics as boutiques. At the end of the day, all of this change is client driven. Clients want law firms to focus on them and to place them at the core of their businesses. For many years, law firms were built around the banks, as we have mentioned, and the banks did not favour the boutique model. The rise of the funds and big tech companies will push law
firms in a different direction, more towards the boutique approach. The funding and the infrastructure to support such firms, and the economics of big law, is now crying out for the disruption that boutique firms can, and will, provide.
But why stop there? Does the rise of the boutique firm simply point to the need for a fundamental change in the law firm
model, or at least an alternative model? The ultimate boutique may be full or fuller service law firms which combine quality with cost effectiveness, and surely this is what clients want? With the advent of artificial intelligence (AI), unsustainable hourly rate rises, and the existence of a relatively cheap or cheaper talent pool, plus the ability to import high quality operational support, is the time now right for real disruption in the market?
