Pillsbury Chadbourne Talks Highlight Industry Pressures

Editor’s Note: This post was written by the executive director of the Stanford Center on the Legal Profession.

By Lucy Buford Ricca, Executive Director of the Stanford Center on the Legal Profession

On its face, the potential Pillsbury Chadbourne merger illustrates yet another example of what we have already seen play out in the market of corporate legal services: increasing globalization; continuing disaggregation of demand, where business is pulled in-house, sent to alternative service providers or even automated; segmentation on the supply side; and continuing decline in the professional and institutional cohesion among big firm lawyers.

Yet this particular merger brings to the fore another notable challenge facing Big Law: a battle for differentiation among firms on the cusp of the elite.

Pillsbury and Chadbourne are both very good and well-respected firms and are known for valuing culture. Their profits per partner are relatively strong and they each have strong specialized practice groups. However, they are each in that difficult spot of not being in the tip top elite echelon among the Lathams, Skaddens and Wachtell’s of the world, or being a behemoth like Dentons and DLA Piper, or being a boutique. Firms in that position are the most likely to feel the squeeze of all the factors I noted above, but to feel the effects of disaggregation of demand particularly acutely.

Corporate legal demand is not flattening or decreasing but it is shifting to different providers. This shift hits firms like Pillsbury and Chadbourne (I repeat — very good firms) particularly hard and therefore growth through merger seems like a very good option. (See Altman Weil report on law firm merger activity in the first half of 2015).

A slight caveat to this: these mergers may expose the actual fragility of this tier of the corporate legal market in that the individual firms perform well until faced with an issue slightly beyond the norm. This happened with Patton Boggs litigation with Chevron , Pillsbury’s loss of a large number of partners earlier this year, and Chadbourne’s over-extension overseas .

Because of the underlying fragility of this sector, they simply cannot overcome the issue as they should be able to. Whether the underlying state of this tier of the corporate market is in fact so fragile across the board or whether these particular firms are just in a bad spot is difficult to say — but that really is the heart of the question about what this merger might indicate about the corporate legal market. It may be a bit of both.

One other point. Seeking to merge seems to be the default solution for firms in this space: survival by growth. This does make sense in light of the increasingly globalized practice of high end corporate law. But should this be the only way firms look to survive and prosper?

There are only a very few firms that are looking to reinvent internally, including embracing and leveraging technology and rethinking the business model (at least in part) and perhaps even the billable hour. This despite a growing chorus of in-house leaders demanding law firms reimagine the model, provide services efficiently and creatively, and think like a business. (See recent interview with Michael Dillon, Adobe GC in The Recorder as just the most recent example).

This should, I think, be seen as an opportunity for firms in a position like Pillsbury or Chadbourne not to grow and stay the same, but to reinvent themselves for this 21st century of legal practice. Now that would be interesting.