The American Lawyer reports on a mistaken and dangerous belief pervading the current U.S. legal market: that it is consolidating as larger firms grow more quickly than the market by taking share from their smaller rivals. However, an in-depth analysis of Am Law data over the last 20 years reveals that in fact consolidation is not happening. Rather, worldwide revenue growth from larger firms expanding overseas has been mistaken for consolidation of market share.
In Am Law’s latest article, Debunking the Consolidation Myth, the authors argue that the mistaken perception of consolidation has driven firms to bulk up—by merging, acquiring and hiring laterally—to avoid being at a competitive disadvantage. Such moves are high-risk, disruptive distractions for leaders whose attention is better focused elsewhere. Despite the intense effort involved, they create no strategic advantage. Wise partner groups and firm leaders will see past the prevailing dogma and focus instead on optimizing the performance of organically growing businesses, (as quoted in The American Lawyer).
In a tightly argued analysis, the authors conclude that “Consolidation is not happening. The imperative for law firms to grow is groundless. Smaller firms that don’t expand internationally are not losing share; in fact, they’ve gained share through the Great Recession. The data could not be clearer. And yet we know that this simple truth will be ignored. Facts are an ineffective counterweight to long-held belief. It’s too bad. Running a U.S.-centered, organically growing law firm well is a strategy with enormous validity and tremendous potential for strong profit growth.”
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Law firms continue to expand in lower-cost areas with large talent pools, while growth in dominant markets such as New Yor...