Only foolish firms take comfort from the past

Past performance is not a guarantee of future returns

The Idiot’s Guide to Investment

A recent article on made the rather disturbing claim that “the past is typically our best predictor of the future” and went on to predict that, by 2025:

  • Latham & Watkins will have revenues of almost $23 billion
  • Cadwalader, Wickersham & Taft partners will each be pocketing $20 million in profits
  • White & Case will have almost 14,000 lawyers

To be fair, there were a few disclaimers about the difficulty of making predictions, but this didn’t seem to dampen the author’s enthusiasm for making them anyway. Based simply on past performance. Which, as any investment document will tell you, is not a reliable guide to the future.

I’m sure the horse business looked great in the 20 years leading up to the arrival of the motor car. And the photographic film business probably grew very nicely in the 20 years prior to the arrival of digital cameras. Which is why law firm partners should think twice before buying that tropical island with the landing strip for the private jet.

Various external forces will play a part in reshaping the legal services industry of the next 20 years: access to external capital; deregulation and the arrival of new players; the spread of technology and process automation through both the back and front office; internationalization, unbundling and outsourcing; and client demands for more predictable, value-based pricing models.

Some in the Am Law 100 will consider themselves immune from these forces, which they argue have little impact on “high end” work. But what proportion of your work is truly high end? And what if high end work doesn’t continue to grow at historical rates? In these circumstances you will need to find ways to defend existing clients, and steal market share off your competitors. Someone is going to lose.

The future of some law firms will undoubtedly be bright. But the future of complacent law firms will not.

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