Howrey: The King is Dead, Long Live the King

The recent dissolution of the major US law firm Howrey has many law firm partners scratching their heads. What happened? Despite the warning signs, how could this unwind so quickly? And most importantly, how can we keep this from happening to [insert law firm name here]?

In an interview with a Wall Street Journal reporter, Howrey, (now former) CEO Robert Ruyak, provided limited insights into what eventually became the demise of the prestigious DC-based firm. He specifically outlined the firm’s challenge to generate consistent revenue due to its precarious reliance on litigation work – particularly litigious matters based on alternative billing and contingency fees.

The final, and most interesting remark made by Ruyak, involved the growing significance of third-party specialists.

“Another challenge was the rise of third-party document-discovery specialists that could provide litigation support services at substantially lower rates, he said. Howrey, a law firm with many offices in big cities, and thus, higher costs and couldn’t compete, he added.”

Without jumping to too many conclusions, domestic and international legal outsourcing (LPO) seems to fit comfortably into this bucket of ‘third-party document-discovery specialists.’ So, how does this impact other similar law firms and what are they doing in response to the growing third-party vendor adoption?

The typical law firm response usually falls into a blend of the following responses:

1) Ignoring and distancing themselves from the matters carried out by outside vendors.

2) Embracing LPO in varying degrees (despite the fact that we haven’t heard any major LPO pronouncements by any major US law firms.)

3) Establishing “value options” through captive delivery centers in low cost jurisdictions domestically.

While LPO vendors based internationally typically bear the brunt of similar frustration expressed by Ruyak, the growing number of domestically-based shops such as Axiom Law seem to be gaining adoption to unprecedented degree.

Often, many law firms attempt to position themselves out of the lower-level “commodity” work performed by third-party vendors. For example, a recent article in Bar & Bench featured comments from, Glenn Gerstel, Managing Partner of the Washington DC office of Milbank, Tweed, Hadley & McCloy.

In the very same city where Howrey failed less than week before in part due to growing pressure from “third-party document-discovery specialists,” Gerstel said,

“I think LPO is certainly very efficient for certain kinds of legal practices. For Milbank, we have not engaged in it mostly because the kind of work we do tends to be very customized and specific, which is highly negotiated projects or cross border litigations where there are relatively few opportunities to cut cost efficiencies associated with outsourcing. There are other practices where it makes sense but for Milbank we have not found the opportunity.”

Granted, for a very high-end law practice such as Milbanks, perhaps this is true. But, the end-all test is whether clients continue buy this line of thinking – and the fee structure behind it. Based on the comments made by Howrey CEO Robert Ruyak, apparently clients weren’t buying this for Howrey. It’s doubtful that we’ve seen the last of major law firms attributing (publically or privately) lost revenues to third-party vendors.

***Disclaimer: There are certainly ways around this dilemma of all or none. We at Fronterion don’t subscribe to the belief that the relationship between law firms and outside vendors as a zero-sum relationship. In fact, from our experiences working with similar firms we see quite the opposite is the case. Firms should not dismiss the impact of new players in the ‘legal supply chain’ to the significant detriment of their practice (as seen by Howrey).

For more information on the growing onshore movement, email forefront@fronterion.com for the most recent copy of our monthly newsletter covering issues related to domestic legal outsourcing trends. A number of these trends are also included in our annual legal outsourcing trending report available here.