Let’s start with the dominoes. Here’s an article from the Fulton County Daily Report about the impact of the credit crunch on law firms’ lines of credit, something I mused about last week. Lawyers who traditionally have not made accounts receivable a priority should read this:

Some banks are increasing their scrutiny of law firm loans, attaching more covenants and conditions and looking ahead to how well firms can collect their receivables in the coming year. According to some bankers and consultants who focus on law firm lending, a lag in collection time is pushing firms not just to borrow more money but also to increase holdbacks on partner compensation and, perhaps, decrease overall profit distributions.

Dan DiPietro, client head of the law firm group at Citi Private Bank, said his employer still views lawyers as a good credit risk — despite the crisis coursing through the markets and the collapse or merger of clients that supply billable hours to many of the nation’s law firms. … “What has changed is our focus and discipline on pricing and making sure that we’re pricing with the view that this is not a standalone credit facility but is generating other revenue. … In this market, there’s a huge focus on overall returns.”

Like many banks, Citi looks at firms’ cash flow, receivables and work in progress when assessing their creditworthiness and how much cash to advance on revolving or long-term lines of credit. … Citi is giving existing loans a higher level of scrutiny and is looking more closely at firms on an individual basis to assess how the economic turmoil might affect their receivables.

Then there’s law students, the vast majority of whom wouldn’t be able to meet tuition and living expenses without student loans — loans that are suddenly looking very dicey, according to an article in the National Law Journal:

[B]ecause banks are doling out less money to lenders, private loans are getting harder to come by, said New York Law School Dean Richard Matasar…. That means it will be more difficult for law school graduates to secure private loans, and graduates will, likely, pay higher interest rates if they do get a private loan to bridge the gap between graduation and the bar.

Recent law graduates also will be entering the work force during a slow economy, which means they may spend more time in the job search process. Consequently, they potentially could have a tougher time repaying money they borrowed to go to school, Matasar said. “It’s a time for caution. It’s a time for students to plan well for how much debt they are taking on and how they will pay for it,” he said.

Bleak tidings, potentially, and it’s not clear to me whether law firms or the bar admission system have the capacity to absorb the impact of a full-blown crisis in either area. But I’ve been pondering lately whether there’s another, far more dramatic potential result from the financial crisis: the underpinnings of many large corporate law firms.

Now, I’m far from a corporate finance expert — I’m a reasonably bright layman who reads The Economist whenever a spare moment presents itself. But it seems to me that a lot of the ballooning growth in the global financial sector over the past several years — the balloon that’s now rapidly decompressing — was driven by extraordinarily complex financial instruments that made derivatives look like child’s play. Consequently, over that same period, large law firms have transformed themselves from relatively balanced full-service legal shops to giant operations, powered by enormous corporate law engines and producing annual profits per partner to boggle the mind.

If, as I suspect, the modern mega-firm has grown so much and so quickly thanks largely to a ten-year injection of corporate law steroids, what will happen to all that bulk now? Most of the reports I’ve read indicate that once the crisis passes, the debris is cleaned up and things return to a new normal, corporate law will be facing a back-to-basics period of indeterminate length. The appetite for complex commercial instruments figures to be low — will demand for expensive corporate legal services decline accordingly?

Not only that, there’s a very good chance of an anti-corporate backlash at the legislative and regulatory level. Political parties with populist leanings are favoured to take power in the US within a few months and the UK within a couple of years, and there’ll be a lot of short-sighted “reforms” of the system designed to make sure this (again) never happens again. The Enron fiasco gave us the rushed and seriously flawed Sarbanes-Oxley Act — imagine what kind of laws will result from a crisis hundreds of times bigger than that one.

Sure, there’ll be work for lawyers — there always is. But it may require the transformation of an entire generation of aggressive corporate lawyers into painstaking compliance specialists. Compliance is less profitable now, and it’s going to be a lot less profitable down the road as software and systems take over more and more of the billable tasks and time. There’ll still be mergers and acquisitions, of course, and there’s always be a need for financing — but it’s more than possible that a golden age of securitization has just passed, and that it may take entire law firm departments with it.

If you’re in any way responsible for, or tied to the near future of, a law firm with a significant corporate practice, these are things you need to be thinking about. It is flatly not possible that the entire Western financial system will experience massive change, while the law firms that serve it sail through in peace and tranquility.

Published yesterday, the article posited a relative absence of women blawggers (rather ironically, considering the term “blawg” was coined by Denise Howell) and suggested various hypotheses to explain the shortage. Within 24 hours, the article had touched off responses across the blawgosphere, from Nicole Black, Ann Althouse, Mary Dudziak, Christine Hurt, Diane Levin, and Laurie Mapp, along with Scott Greenfield and Robert Ambrogi.

The upshot of most of these posts is that the writer failed to look deeply enough into the legal blogosphere, restricting her research to the most highly trafficked sites and those of large law firms. While that’s true, I also think there’s something to be said for male law bloggers’ tendency to link to other men disproportionately more than to women. I think it’s also worth noting that if there is a serious paucity of women bloggers, it’s mostly inside of law firms, especially the larger ones. I may be verging on cynicism here, but I think that’s largely because two things law firms don’t tend to take very seriously are the careers of their women lawyers and the utility of blogs.

Several bloggers also pointed out that until this article asked the question, it had never occurred to them to think about the gender of the other bloggers they read or linked to — it was of the sheerest irrelevance. My own blogroll includes bloggers like Carolyn Elefant, Susan Cartier Liebel, Connie Crosby, Merrilyn Astin Tarlton, and Penelope Trunk, but until I made that list, I had never thought about the male-female breakdown. Ditto for the people I follow on Twitter, including most of the above as well as Victoria Pynchon, Mina Sirkin, Donna Seale, Kelly Phillips Erb, and too many others to list. But just because I haven’t thought about blawggers’ gender before isn’t an excuse to not think about it now, and I’m glad for the opportunity to learn about more women law bloggers worth reading.

But what really struck me among all the posts on this topic, and what I’m really interested in writing about today, came from Ann Althouse. Responding to the suggestion in the original article that women avoid blogging because they’re more prone to professional or personal attack, she wrote: “The internet is not going to coddle and comfort you. In fact, the internet wants you out of here.” [Emphasis in original] While the delivery is a little harsh, I think this is a powerful and profound statement, and every lawyer who intends to build her or her profile and brand online needs to be aware of it and accept it.

The blogosphere is intensely, almost fanatically competitive. There are millions upon millions of blogs out there, and each of them needs readers’ attention to survive the way you and I need air. There’s only so much of that attention to go around, producing what Davenport and Beck called the attention economy — the decision to view or listen to something has become a significant economic choice. You could also analogize the blogosphere to the Cambrian explosion, an unprecedented and unexplained flourishing of life on Earth on a massive scale about 500 million years ago. Either way, there are only so many resources to go around, and if you really want to make a go of it in this environment, you’re in for a tremendous fight.

Some of the sadder (to me) comments in all the posts about women law bloggers came from lawyers who started blogs and gamely maintained them for as long as they could, but eventually gave up after generating very little traffic and attention. I’m a writer at heart, and that heart goes out to anyone with a manuscript unfinished or a blog abandoned because they grew discouraged by the lack of audience interest. But while some of these projects could have been saved with better marketing or friendlier circumstance, many failed on the merits — either their subject or their style, or both, just wasn’t compelling enough to earn attention credits from an increasingly busy, demanding and fickle readership.

I’m not suggesting it should be any other way, mind you — if all the 900,000 blog posts in the last 24 hours actually got read, the global economy (such as it is these days) would lurch to a sudden halt. And every environment throws up obstacles to ensure that only the truly talented and committed reach anything like a rarefied atmosphere: Seth Godin’s The Dip talks about how medical schools create the buzzsaw barrier of Organic Chemistry in undergrad to weed as many people as possible out of the pre-med stream. These are realities of every competitive environment, and they apply to the blawgosphere too.

Law blogging proponents can be a little cavalier in their standard recommendation that you “start a blog” — I’ve certainly been guilty of that sometimes. But lawyers who want to use blogs to build their brands and promote their profiles need to understand just how challenging a path they’re choosing. Even assuming you’re a really good writer and you know your subject area really well, you need to be realistic about these cold facts:

* Other lawyers are blogging about this too. Unless you’ve chosen an extreme niche, your chosen field is very likely already occupied or soon will be. Check out all the blogs tracked at the ABA Blawg Directory or LexMonitor for a sober assessment of your playing field.

* The noise level on the Internet is staggering. Everyone on the Net is yammering at everyone else to pay attention to them, and users are always on the edge of being overwhelmed. Legitimate SEO strategies are indisputably important, but appreciate that your ideal readership is always a little deafened.

* Your readers read more than just blogs. This is the single biggest mistake in every publishing medium: magazines assume that their readers only read other magazines, newspapers think they only compete with newspapers, bloggers compare themselves only to other bloggers. Everything that is printed, broadcast, sung, illustrated or otherwise meant for a sensory target is part of the attention economy. You’re up against YouTube and Extreme Home Makeover whether you like it or not.

* The Internet demands commitment. Millions of blogs are abandoned every day, and the Net brushes them aside like litter. What the Net wants from you is a sign that you’re willing to stick it out through the bad times (and there’ll be bad times, believe me). Blog readers don’t just check out the post Google has led them to — they check out how long you’ve been posting and how frequently you post. If you’re in for the long and steady haul, readers are likelier to trust you and return to you.

Look, I’m a strong believer in the Chuck Jones school of creative motivation. Jones was once asked whether his Warner Brothers cartoons were meant for children or adults. “I don’t draw them for children and I don’t draw them for adults,” he replied. “I draw them for me.” At the end of the day, the number of people in your Delighted Audience has to be at least one: you. And nobody has ever said a blog is only as worthwhile as the number of readers it has: Rees Morrison, for one, has said he blogs as much for his own records and to facilitate his own thinking, and doesn’t blog to attract clients or generate work.

But if you want to blog as a way to promote yourself — and I really think every lawyer should at least seriously consider doing so — also seriously consider that it’s not as easy as falling off a log. You’ll find yourself, as we all tend to do, checking your daily visits log and counting the number of RSS subscribers, and wondering how to raise them. You’ll find yourself (or a partner, colleague or spouse) inevitably asking about the ROI on this project. You’ll wonder why, even with good content and steady visitors, you (or even your whole gender) can seem invisible to people writing about the legal blogosphere.

If you’re not prepared for this beforehand, then blogging can be a deeply dispiriting experience. But if you are prepared, and you’re both realistic about the challenge and committed to the goal, then the rewards can be extraordinary. The Internet doesn’t want you here –but you can want to be here more.

But the article, which details how UK firms have vaulted past their US rivals into the Global 100′s upper echelons, is instructive for at least one reason, illustrated in this excerpt: “The irony is that the English firms have succeeded by following the lesson of their American peers: They’ve hedged their bets. For U.S. firms, in the past that has meant a healthy dose of litigation and bankruptcy work to balance a corporate shortfall. For the British, the strategy has been geographic: spreading their risk across several continents.”

With respect, referring to the Magic Circle firms’ international expansion as “hedging their bets” is to misconstrue offence for defence. It certainly makes sense to diversify a firm’s practice areas, a lesson Cadwalader learned a little too late. But that’s not a growth strategy, it’s a risk management tactic — a way of minimizing the damage inevitably associated with any practice area that’s prone (as most are) to waxing and waning.

Striking out into developing markets and placing a stake in foreign ground is the opposite of risk aversion — it’s an assertive approach that will certainly hurt overall profits for a number of years and could potentially blow up altogether. But in a global economy, it’s a risk that’s rapidly becoming a reality of doing business. Any firm that does or wants to count major entities among its clients can’t be content with a heavily fortified home base and a few outposts on the perimeter.

Check out the math in the article: Allen & Overy for the first time brought in more revenue from its overseas offices than it did from London. … At Clifford Chance, about $1.56 billion of the firm’s $2.66 billion in revenue came from international offices, with a growing proportion from emerging markets. An office in Abu Dhabi is expensive to open and incredibly difficult to keep populated  — but by 2018, if not well before, it will seem like the height of recklessness for a major law firm not to have established a solid base there.

Or for that matter, look at India. A long-running Indian court case (is there any other kind?) concerning the country’s ban on foreign law firms is moving towards resolution (HT to the FP Legal Post). No matter which way the court rules, that policy is coming to an end: Tony McDaid, the practice director at No5 Chambers, is confident that practice rights in the country will be liberalised and that law firms, both domestic lawyers and their global counterparts, need to start preparing now. “There will be major developments in this area in the next two years,” he predicts. “It is essential that relationships are formed now so an understanding of the market is met.”

It’s one thing for huge law firms with vast resources to be aggressive in this field (whether they choose to be or not). What can the rest of us do? Start by recognizing that although the giant firms start out with great advantages in money and name recognition, globalization levels the playing field for everyone, including you. You might not be able to patiently sustain a money-losing administrative office in Mumbai or Bengalru for years, but you can do what the big firms are doing: promote your profile and build relationships.

If you want a piece of the globalized action, blog about it, and link to the best bloggers or legal writers in your target jurisdiction. Identify local firms with a profile and vibe similar to yours, maybe through an international network, and strike up a correspondence (everyone from small towns to kindergarten classes chooses a “sister” town or school in another part of the world — your firm could do something similar). Find and connect with local professionals through LinkedIn, Plaxo, Twitter, Legal OnRamp or even Facebook — these tools exist specifically to give individual professionals the means to build networks without having to fly 12 times a year to Qatar or Beijing.

Whatever you end up doing, start by reorienting your thinking around what constitutes a “risky venture” in the law these days. Being conservative is now the risky approach; clinging to the status quo has the greater downside. This is not a good thing for most lawyers and the way they think. But that’s precisely why it can be a competitive weapon for you.

And as always, I’ll post it here, too.

A couple of weeks ago, I wrote about the ascendance of individual lawyer brands. Today, I want to write about the corresponding decline of law firm brands. And there’s no better place to start that discussion than with the fate of Heller Ehrman.

Heller Ehrman, if you’re not familiar with it, is a century-old California law firm that dissolved last week. You can find detailed coverage here, here and here. The lasting impression you take away from these reports is that Heller was neither evil nor incompetent. Its rivals were sad to see it fall, and many of its employees were devastated and in tears, referring to the firm as a “family.” There’s no schadenfreude or sense of just desserts here.

Heller is not the first firm to go down in the relative blink of an eye. Here in Canada, the profession was shocked last year by the sudden collapse of respected Toronto firm Goodman and Carr. Other names like Brobeck and Coudert come to mind as well. In most of these cases, what really stands out is the astonishing speed and seeming lack of warning with which everything gave way. The only tremor emanating from Heller was a pair of failed merger talks, but as soon as that word began circulating, the breakdown was underway.

Sound familiar? It should, unless you’ve ignored newspapers and television for the last two weeks, and the collapsing house of cards on Wall Street that they’ve been chronicling. Because when you get right down to it, the same affliction really took out both Heller Ehrman and the likes of Lehman Brothers: the marketplace suddenly stopped believing in them.

The consistent theme of the analyses emerging from Wall Street’s rubble is that the industry’s level of trust in each of these entities fell away, first gradually and then suddenly. And when that happened, what became apparent — with frightening speed and clarity — was that trust was really the only thing keeping these institutions afloat. Here’s Derek DeCloet of the Globe & Mail:

Mistrust – or lack of confidence, if you prefer – is the most corrosive thing you can ever have coursing through the world’s banks and credit markets. Mistrust maims and destroys. In the end, a financial institution’s only asset is trust. Brand names, history, branches on the prime corner of small towns – they don’t mean a thing unless there’s confidence. Ask anyone who worked for Northern Rock, IndyMac, Washington Mutual, Wachovia, Bear Stearns, Lehman Brothers ….

And here’s James Surowiecki in the New Yorker:

[T]he entire edifice of Wall Street is built on confidence. Investment banks rely on short-term debt to run their businesses, and their businesses consist of activities — trading, deal-making, money management — that depend on people’s faith in their ability to honor their obligations. As soon as the customers and creditors of a company like Lehman start to wonder whether it might collapse, they become less willing to lend or to trade, and more likely to demand their money back. The perception of weakness exacerbates the reality of weakness. And although there are myriad measures of a company’s health, nothing looks scarier than a stock price that’s heading toward zero. …

The downward spiral can be stunningly fast and near-impossible to escape. Lehman’s assets were not significantly more toxic last Monday, when the company filed for bankruptcy protection, than they had been a week earlier. And, technically speaking, the bank may not even have run out of money, since it had access to an emergency liquidity line from the Federal Reserve. What Lehman did run out of was credibility. It couldn’t remain a going concern because creditors and customers no longer trusted it.

Try reading those entries again, substituting law firms for investment banks. What Heller Ehrman demonstrates, and what should seriously worry managing partners everywhere right now, is that law firms really are no different. Bruce MacEwen at Adam Smith Esq. is exactly right:

[T]he stark, glaring reality is that law firms are fragile institutions. … There doesn’t need to be anything wrong with Heller, or Morgan Stanley, Goldman Sachs, or Merrill Lynch, for people and the market at large to perceive there’s something wrong with any of those firms. It’s the run on the bank mentality. … The curtains come down and the lights go out when the abrupt exodus of partners, clients, and erosion of the revenue base, occasion breaches of bank lending covenants and a shut-off of credit.

A law firm’s most important asset is not its work in progress, and it’s not even the people who walk out the door every night. It’s the confidence that the market places in the firm — the extent to which the firm inspires the continuing untroubled assumption that this collection of talent and commitment is safe to believe in. Everything else is details. And that’s why law firm brand is so critical.

Very few law firms possess what marketers would strictly refer to as a “brand” — a differentiating reputation for or identification with some distinguishable trait that constitutes a competitive advantage. But every law firm of even minimal presence has a “brand” in the sense of a recognizable profile in the marketplace based on acceptable levels of competence and reliability.

If a firm is known to sufficient numbers of clients, carries out its tasks, and keeps its promises, it earns confidence. Its name — be it Skadden, Linklater, or McCarthy, or something less gilt-edged — is shorthand for a repository of client trust. Its brand is essentially its marketplace ID, its industry access pass, its credit line of credibility. Lose that, and it loses everything.

And here we come to the crux of the issue for law firms: a brand needs to be controlled. If you’re not in charge of your own brand, if you can’t make it be and do what you want, you’ve got a problem. Because that means someone or something else is in charge of your brand, and you’re at their mercy. Law firms are running out of ways and means by which to control their brands.

Look at it this way: a brand is a promise to the marketplace that your product or service will consistently feature the characteristics X, Y and Z. An individual lawyer can say, “I will provide these sorts of legal services, I will deliver them in this fashion, and I will deliver them to these types of clients.” That’s the heart and soul of a professional brand right there. The lawyer who chooses to makes those promises and carries through on them controls his brand.

A pair of lawyers can make and keep those promises about as well as one can. Five can manage it, though it gets harder to ensure everyone meets and maintains the same standards and criteria. It’s harder again with a dozen lawyers. And when you get past 20 — and especially when you get to 200, or 2,000 — it becomes well nigh impossible. Law firms of any substantial size really have little control over the clients they take on, the ways in which they deliver legal services to those clients, and who is delivering those services. Think about it.

Law firms don’t have much control over the clients individual lawyers take on. Conflicts of interest are the only obstacle that a firm can realistically place in the way of a partner who wants to being in a new client. Unless the new client would interfere unduly with an existing (and more profitable) client, a lawyer is generally free to take it on — regardless of how poorly or even contemptuously his or her partners might regard that client. The lifeblood of a law firm is billable business, and as long as the lawyer brings that business in, the firm won’t much mind who or what the business is attached to.

Law firms don’t control how lawyers deal with their clients. Lawyers are notorious for the unique and even idiosyncratic ways in which they deal with their clients. They call clients as often or as infrequently as they like, deliver written opinions in whatever format they prefer, offer as much or as little detail and explanation as suits them and their individual clients, and so forth. Consultants urge firms to institute differentiating practices like 24-hour client callback. But the reality is that enforcing practices like that is pragmatically difficult and culturally all but impossible. A client who switches lawyers within the same firm might reasonably think he has actually switched firms altogether, for all the consistency in service delivery between the two.

Law firms are losing control over who delivers their services. This is, in many ways, the most critical one, because clients hire the lawyer first, the firm second. Unprecedented lateral movement of partners, combined with firms’ proven inability to retain associates at will, means the people delivering a firm’s services change with mind-spinning frequency. Many clients associate a firm’s brand with that of the lawyers with whom they deal. But if the names and faces of those lawyers keep changing, that reputation becomes equally transient and unreliable. Are you a great M&A firm? Okay, your best two M&A lawyers have just joined your biggest competitor, and a third has gone in-house. What are you now? Your brand has changed, and you had no say in the matter. If that lack of control doesn’t scare you, it should.

What it comes down to is this: a firm’s marketplace currency — its lifeblood — is the degree with which its brand is regarded with confidence by the marketplace (and that includes its clients, its competitors, and its own talent). Managing that brand and maintaining that confidence is therefore of the utmost important. But the means by which a firm’s leadership can do that are slipping away.

The newest, most affordable and most intriguing branding tactics — blogging, Twittering, micro-marketing, pinpointing — trend towards the individual lawyer, not the collective firm. Firm branding tactics — advertising, sponsoring, partnering — are traditional, resource-intensive and mass-market-oriented: blunt instruments in an age of precision targeting. It’s easy for an individual lawyer to build a trusted brand through her character and accomplishments, and to amplify that brand by blogging or podcasting; it’s very difficult for a firm of 100 lawyers to build trust the same way.

If many law firms were to stop and take stock of their most important asset, they would likely realize that their brand owes far more to historical momentum than it does to consistent deliverables. Now, momentum is a powerful force, nowhere more so than in the law; but you simply don’t know when it’s going to run out and Coyote Gravity will kick in. Dig beneath the surface of many law firm brands, and you’ll strike hollow space a lot sooner than you might think. In a lot of cases, there’s not much there there.

What can law firms do about this? Honestly, I’m not really sure there’s much they can do. If your brand is your lifeblood and you don’t have control over it, then you need to take steps to gain that control, even if only a measure of it. You need much stronger oversight of client intake and service delivery methods. You need to outdo all your rivals in terms of your ability to keep partners on board and retain the associates you most want to retain. You need sufficient consensus to enforce at least a modicum of the standards you say you stand for. And frankly, you need to be of a sufficiently compact size that you can realistically manage to accomplish some of these goals.

But really, I’m not sure all of these put together would make enough of a difference. I still believe the long-term future of the legal profession belongs to client-driven alignments of solo and small practices. The world’s largest firms — the 10,000-lawyer behemoths on the distant horizon — are going to be those that specialize in commodity-type work, the kind of things that can be automated, templated, algorithmed and standardized — the kind of work for which ISO 2001 ratings will be meaningful measures of quality assurance. The bigger you are, the more your work needs to be susceptible to the consistency and predictability of the assembly line. That’s just about the only way you can develop and control a brand on a scale of that size, and the law will prove no exception.

If you don’t control the content of your brand, then your brand becomes little more than leftover reputation, general opinion, holdover name recognition. Active brands are powered by trust and confidence, and at the end of the day, these attributes are earned by individuals, not collectives. Gather and nurture these individuals and their brands, and you have a chance. Fail to do so, and you’ll be left sitting around wondering when the inertia will run out.

There will come a day, sooner than many people think, when vast numbers of law firms disappear almost overnight. The shock to the profession will be profound and lasting. But the reason will be simple: the glue that held these entities together — the confidence of the marketplace, the trust in the name, the power of the brand — dried up and wore off, little by little, until the bonds of collectivity simply fell away. That’s what happened to Heller Ehrman.

Who is your firm? Why should we believe you? Why should we believe in you?

I provide the link partly because I think it’s a pretty good article — but mostly because it’s turned out to be awfully timely as well, in two respects. For one thing, the UK reform process is accelerating. The Solicitors Regulation Authority is fast-tracking plans to allow up to 25% non-lawyer partnership in UK law firms. “The timetable,” LegalWeek reports, “would put the SRA ahead of schedule, allowing it to fast-track applications when the regulations come into force, which is anticipated in March 2009.”

(The article is a little unclear on an important point. It refers to the SRA accepting applications for new Legal Disciplinary Partnerships (LDPs) — these are operations that comprise solicitors, barristers, licensed conveyancers and other legal professionals who up till now have not been permitted to form partnerships in the UK. But the proposal to allow non-lawyers to practise law in partnership with lawyers, a far more radical notion, envisions something called Alternative Business Structures (ABS). This article in Managing Partner magazine explains the difference very well.)

So the UK reform process is gathering speed. But the other reason why National‘s cover story is timely lies in the front pages of your newspaper over the past week — the financial crisis besetting the US (and increasingly, the world) economy. I won’t recap what’s going on — you already know about it, and the news is changing by the minute. Suffice to say it’s serious and it will directly affect lawyers (consider these comments by veteran Canadian corporate lawyers in today’s Globe & Mail).

Why should lawyers and law firms care about the financial crisis? The reason has little to do with the Dow Jones, the TSX, or any other stock market index that’s fluctuating wildly right now. The reason lies in the  more important indices in the credit markets. Credit is freezing up around the  world — the cost of borrowing is climbing higher by the hour, as banks grow far less trusting of other banks and of borrowers generally. Financial analysts are paying a lot more attention to the credit markets than the stock markets. Lawyers should, too.

Credit markets matter to Main Street, as opposed to Wall Street, because a lot of modern businesses rely on the liquidity of credit to keep their operations going. More than a few companies need access to credit just in order to meet their payrolls. And I would submit that few modern enterprises are as heavily dependent on credit as law firms.

Law firms have always been odd business structures. They pay out all their profits at the end of every fiscal year, and rarely commit any serious funds to long-term investments or anything more than the most essential capital or infrastructure needs. They’re also notoriously bad at cash flow — many lawyers don’t bill quickly or frequently enough, and they let outstanding receivables gather dust without forcing the collections issue. When your coffers empty every December and it takes you three months to get paid for a service rendered, you’re living an unnecessarily precarious financial life. Law firms are walking a very thin tightrope, and right now, the financial crisis is producing gusting winds.

In that context, the concept of stable outside funding is going to seem a lot more attractive in the years, and maybe even the months, to come. Many law firm leaders have so far shrugged off the idea of floating shares in the firm or taking on outside investment, on the grounds that what do firms need with deep capital reserves? That’s an attitude borne of an era of cheap and easy credit, an era that’s gone and might not be back for quite a while. The premise, and the promise, of outside investment in law firms could become a priority consideration a lot sooner than anyone expected.

Axiom has been a hit with clients, but an even bigger hit with individual lawyers, who have responded to the promise of interesting work on location with major clients at good (but not stratospheric) salaries and reasonably flexible hours.  Bruce MacEwen featured Axiom in a couple of recent posts, and the firm’s website offers plenty of articles in the business and legal press detailing its rise.

Axiom’s foray into Chicago is occurring around the same time that The Practical Law Company is establishing its first North American beachhead in New York.  PLC needs no introduction for readers in the British Isles, who will already be familiar with the legal know-how company that provides knowledge, transactional analysis and market intelligence for business lawyers and clients. Doug Cornelius at KM Space published an account of PLC in a post earlier this month, identifying the company as embodying the future of knowledge management.

I had the good fortune earlier this summer to speak with Ian Nelson, PLC’s vice-president of business development and marketing, who provided me with an online tour of the company’s offerings. PLC’s value proposition is that its own crack staff of lawyers collects and stays on top of critical information in business law, so that its customers don’t have to continuously duplicate that effort. It’s not far off the idea of private KM teams that I suggested in a post earlier this year.

These companies are among the most innovative entrants in a legal marketplace undergoing a great deal of upheaval, and they’re both worth your attention and consideration on their merits. But while they provide two different types of service, it seems to me they have one particular thing in common: they pose a disintermediation threat to law firms.

Neither would put it that way, I’m sure — PLC in particular counts both law firm and law departments among its clients. But both Axiom and PLC make available to corporate clients two things they really want — excellent lawyers and top-notch knowledge/analysis — for much less than what many law firms charge for essentially the same services.

Axiom provides AmLaw100-level lawyers without the overhead, on-the-job training, bonuses and partner draws factored into law firm associate rates. PLC provides a trustworthy, constantly updated source of knowledge for less than firms charge for associates to go research the same kinds of issues and produce the same kind of memos the firm has billed out hundreds of times before. Both companies offer the really valuable stuff clients like about lawyers without the extra built-in costs that law firms normally charge in order to access that valuable stuff.

There’s a degree of risk to clients, of course — the safety and security of buying legal services the traditional way from traditional providers gives some clients the kind of reputational and procedural safety nets they like to have beneath them. But as Axiom and PLC continue to prove themselves just as safe and secure as the name firms — and maybe more so? — the less that reputational advantage matters, and the more law firms look like expensive middlemen or gatekeepers creating costly obstacles to valuable legal services. In this economy especially, you do not want to be perceived as an extra layer of cost.

Axiom, PLC, and other innovative legal service providers promise valuable legal work without the traditional law firm encumbrance. If clients catch on to that en masse, look out.

Judging from these articles, it seems there are two main concerns about law school e-books. The first is that students can’t scribble on and highlight a Kindle the way they can a textbook. Not to be too blasé about it, but I tend to think that’s only a matter of time and technology. Adobe already allows you to make highlights and place notes on PDF documents, and del.icio.us lets you copy-and-paste sections of relevant text when tagging an article for future reference; either of these approaches could point the way forward.

The second concern is that authors’ copyrights will be violated if their words can be copied and circulated by anyone with an e-book version of their works. I’m pretty sure this ship has already sailed: if you make your living off anything that can be copied and e-mailed, you need to find another business model or another line of work. This isn’t a technology or copyright enforcement issue so much as it is the ongoing challenge to publishers to find another way to monetize good content.

But I think there’s a third concern that doesn’t appear to be getting a lot of attention yet: that e-books might lead us towards a siloized approach to legal education and scholarship.

What’s noteworthy about the push towards e-casebooks is that it’s coming not from publishers or from students, but from professors, who want more control over the content of the casebooks they use. This makes sense: courses that nominally teach the same subject matter can differ wildly among and even within law schools, because every prof has a different idea about what’s really important for students to know. There’s undoubtedly consensus on the core cases and statutes, but beyond that — well, we all remember law school profs who told the class, “We’ll skip Chapter 16 – it’s not that important.” Profs want the option of removing Chapter 16 from the casebook altogether.

But let’s say the day of the customized e-casebook arrives, and every prof designs her own version, mixing and matching from available sources. Students won’t care that much, because all they really want to do is score a vowel in this course, and if the prof’s casebook focuses solely on what she thinks is important and will eventually grade exams on, all the better.

But can graduates take that casebook into practice? Will it hold up to a court’s scrutiny if it misses something potentially relevant? Is it responsible for schools to certify law graduates and send them out to serve clients with just their profs’ specific ideas about what’s important? And what if the students further customize the book with their own sources and impressions? Do we end up with a unique mash-up law book on every lawyer’s desktop?

The rise of customizable e-books could unintentionally usher in the decline of the authoritative source — the general reference work that everyone agrees can be reliably consulted for guidance or resolution in a specific area of the law. One of the goals of knowledge management is to knock down information silos and get people talking to each other. Customizable e-books in law school could go against that trend, by creating and legitimizing individual islands of legal knowledge.

I don’t think customized casebooks are or ought to be the way of the future — they’re at best transitional. There’s a shift taking place in how legal knowledge is disseminated, and we have to make sure it ends up not at customization, but at collaboration.

Ronald Collins of the First Amendment Center refers to future e-law books as “databases in cyberspace where materials are downloaded onto electronic readers.” Taking this approach, we could make comprehensive legal information available “in the cloud,” accessible to anyone with a wireless laptop and a browser (which, within ten years, will be everyone in the law anyway). Then we’d start to invest that database with the richness of lawyers’ and law professors’ knowledge and analysis.

Profs would direct their students to all the cases they’re required to know, each of which links to other decisions it cites and by which it’s been cited. Each case is assigned a grade of significance by experts or users, to ensure no one misses out on relevant rulings — and the simple act of reading a case could increase that case’s relevance score for others. Each case would be annotated — either through subscription services offered by legal publishers of individual professors, or through a free wiki produced by the broader legal community. Students could download PDF versions of any caselaw document and mark up that document to their hearts’ content. Everyone would effectively have an e-book that meets their needs, but one that draws upon the collective legal community’s authority and consensus, rather than any one individual worldview.

For a prime example of a collaborative approach to legal knowledge in law school, check out Twistlaw. It’s a Montreal-based wiki where students are encouraged to post caselaw summaries (and, more recently, statute summaries) for anyone else to access free. The idea is to do away with the massive duplication of effort by which every student laboriously produces summaries that differ in hardly any material respect from anyone else’s. It’s a lot like law school study groups, except it uses the web as the distribution mechanism. Download these summaries to a laptop, take them to class — are we really that far away from an e-book?

At its heart, the e-book conversation isn’t really about technology, or legal publishers, or even law school pedagogy. It’s about how lawyers interact with legal knowledge — drawing upon it, adding to it, and changing it every day.

Media: I’ve been disappointed with how the MLM (mainstream legal media) has been covering the financial turmoil. Most of the focus at the legal media giants has been on which law firms have bagged the corporate work on the breakup, merger or bankruptcy of which financial behemoth. I’m not reading a lot about the human toll of these institutions’ collapse, or about the implications for the corporate legal sector as a whole. And I’ve yet to hear anyone ask the question that people were asking in the wake of the Enron scandal: where were the lawyers? Many global law firms grew very rich off the same hideously complex financial instruments that everyone is now denouncing as having been clearly unstable and unsustainable. Did lawyers not see the disaster coming, or did they prefer not to look that deeply or that far ahead? It’d be nice if the periodicals that lionized these lawyers in the good times asked these questions in the bad.

Clients: Very few lawyers (especially among readers of this blog, I’m guessing) count among their clients the world’s largest banking and financial institutions. But every lawyer has clients who read newspapers and watch television news, and these latter two vehicles have been brimful lately with dire comparisons (do a Google News search for “worst crisis since the Depression” and marvel at the results) and grim forecasts. Ratcheting up their audience’s anxiety levels is great for business, but the end result is a population-wide injection of stress. Bottom line: your clients are probably worried about the handbasket they’re in and where it’s heading. Now might be a good time to drop them a line with some reassuring words and making yourself available to talk (not on billable time, obviously). You don’t need to provide them with expert financial analysis; but you might provide them with an attentive ear, a sympathetic outlet for their anxiety, and a simple reminder of what lawyers are supposed to do: care sufficiently about their clients to be available in difficult times.

Community: A lot of people have lost and will yet lose their jobs in this crisis, and the burden of cleaning up this mess will be borne around the world and well into the future. Harder times than many of us are used to could lie ahead. So this seems like an appropriate time to think about those members of our community who couldn’t dodge these bullets, or who already suffer from misfortune on a greater scale. We’re about to launch our annual United Way drive here at the office, and as the campaign chair, I see and hear a lot about people in our community who never had a chance to get where we did, or who suffer daily from poverty, abuse and mental illness. Lawyers talk a good game about giving back to the community, and many walk that talk — but we need more to step up. They say lawyers thrive in both good and bad times; if so, then it’s even more incumbent on us to help out where and when we’re needed.

Stock market analysts are talking detachedly these days about all the investing opportunities this crisis affords. You might want to give some thought to the personal, client and community opportunities that are opening up as well.

But the most essential thing law firms do for their lawyers is to share their brand — to give their lawyers the boost in personal prestige and profile that comes with being associated with a respected name and identity. Set aside all the recruitment and retention pitches — the overriding reason why lawyers stay with a firm for the medium-term or beyond is that the firm’s brand evokes confidence, lends legitimacy, and enhances the lawyer’s personal brand. (For an example of what happens when a firm’s brand collapses, watch the unhappy tale unfolding at Heller Ehrman).

That, at least, has been the traditional way things have gone. More recently, though, in the age of the lateral hire, we’ve seen firms acquire lawyers in the hopes that the lawyer’s personal brand and reputation will reinforce or even enhance the firm’s brand. We’ve also seen the rise of lawyer free agency — rapid lateral movement among firms by lawyers at all career stages, such that it gets harder for firms to base their brands on individual lawyers or practice groups. Most importantly, the combination of associate fungibility, hard economic times and partners’ determination to protect PEP at all costs has resulted in recurring waves of lawyer layoffs, making an indelible impression on lawyers that loyalty to employees is not a law firm characteristic.

These and other phenomena mark the rising importance and influence over the last decade of the lawyer’s personal brand, something that was once foreign to all but a very few outstanding practitioners. Individual lawyers have less need to be associated with a law firm’s brand, at least beyond the first couple of years of practice, because they have become more adept at fashioning their own reputations and taking charge of their own careers.

Now, add two more recent phenomena to that mix: the arrival of millennial lawyers, who don’t stay in any one place very long and place high importance of personal definition and fulfillment; and the growth of the Web a personal brand platform through the use of blogs, podcasts, LinkedIn, Twitter and other forms of self-promotion and brand definition. The result, I think, is a fundamental power shift away from the collective firm brand and towards the individual lawyer brand.

Firms are going to have to cope with this, and in a longer essay later this month, I’ll go into some detail on that point. But for you, the individual lawyer, this means that starting now, you have both the responsibility and the requirement to take full control of your career and your personal brand. You need to assume that no other entity will make a long-term investment in your own success, and that you have to forge an identity and skill set independent of any firm or other legal employer.

If you need a model for that task, look at sole practitioners: this is the life they lead. From day one of their practice, they couldn’t content themselves with simply knowing the law and waiting for the cases to come up the elevator shaft. They had to learn everything about attracting clients, which meant marketing themselves, defining their niches, building their reputation, writing and speaking where clients could see them, and making client service the #1 priority. It also meant understanding the finances of a legal business: overhead costs, lease payments, cost identification, profitability calculations, accounts receivable, bill collection, tax and pension liabilities, and much more.

As all but a few law firm brands decline in importance, and as clients increasingly buy legal services based on the lawyer, not the firm, you’re going to have to add “full-time brand management” to your list of duties and skills. You have to be prominent and persuasive when showing up on Google searches, fully capable of running a small business, and able to keep one strategic eye on the short- and long-term evolution of your markets. Because you won’t be able to rely on law firms to do that kind of thing or share some of their brand power with you.

From now on, we all need to take charge of our brands and our careers. From now on, we are all solos.

Rather than try to summarize everything we talked about, I thought I’d reproduce for you my page of “I hadn’t thought of that before” notes. These are ideas or insights that occurred to me or were delivered by speakers during the conference, and that might be of equal interest to you.

- “If you’re happy with your choices, you’re balanced.” This observation came from Carol Phillips, director of administration with Sidley Austin LLP, who was speaking about one of my least favourite terms, work-life balance. Carol expressed much of the frustration that many partners feel about the demands of the newest generation of lawyers, and while I don’t share it or agree that it’s all the Millennials’ fault, I do appreciate that the frustration is genuine. But in looking for a new way to define balance for lawyers, she offered the observation above, which I think contains a lot of truth and should be employed by more lawyers of all generations who are assessing their careers and lives.

- “Imagine Google buying Clifford Chance.” This truly startling scenario was one of those painted by Ward Bower of Altman Weil, in a presentation on the Legal Transformation Study: Your 2020 Vision of the Future, a major strategic research project released earlier this year by a wide range of law firms, legal organizations and consultancies. Ward talked about future possibilities such as 10,000-lawyer global firms, widespread automation of legal services, a Big Six worldwide hegemony of firms, and massive deregulation of the profession. It’s an important and thought-provoking project whose free executive summary deserves a read.

- “A rising area of claims is something I sometimes call ‘Blackberry errors.’” said Dan Pinnington, Director of PracticePRO, who mentioned this revealing fact while introducing a session on Web 2.0. The upshot is that more and more clients are filing complaints about inaccurate or  inadequate advice from their lawyers. At least part of the cause of these claims is a culture where the client asks for and expects a quick answer to a problem, to which the lawyer duly responds without full consideration or information. BlackBerry users, Dan said, have helped create a “BB Culture” in which lawyers feel pressure to respond instantly and fire back an equally quick, and possibly wrong, answer.

- “Things that interest my boss fascinate me.” This terrific line came not from the COLPM conference, but during my lunch with Valorem Law Group founder and blogger Patrick J. Lamb, whose offices were literally across the street from the conference hotel. The line in question was spoken dryly to Pat by an in-house counsel in the financial sector, in the context of corporate bosses’ strong and growing interest in seeing their legal services delivered differently, which Valorem does and more firms will very soon have to do. Pat also introduced me to another great one-liner, this one from the U.S. Army: “If you don’t like change, you’re going to like irrelevance even less.”

And here are a few of my own observations from the weekend.

- It’s just about time for us to start referring to “Web 2.0″ as simply “the Web.” The transformation from the read-only web to the more interactive version is almost complete.

- Transparency in the legal process is a direct enabler of quality. As the Innovaction-winning PeopleFinder program at Mallesons makes clear, lawyers do better work when others have access to their process.

- Inaccurate expectations of the legal profession damage two important groups: law students and clients. Students enter the law with no clear ideas what to expect in terms of pressures, demands and success factors, and most struggle greatly as a result. Clients suffer from lawyers’ tendency to overpromise and underdeliver, and from a misapprehension of the time and skills it takes to render good legal service. Lawyers need to take immediate steps to realign both these sets of expectations.

- Law firms’ business culture, as a general rule, suffers from lawyers’ inability to understand exactly what is the value of what they sell. New graduates assume, usually incorrectly, that when the firm assigns them a billable rate of $180/hr or whatever when they first arrive, that rate has been calculated on something more substantial than what the partners want to earn, what other firms charge and what the market will bear. Most of the flaws in lawyers’ business culture –  billing methods, compensation schemes, knowledge sharing, etc. — flow from this inability to accurately assess value.

I have one more substantial insight that struck me during the College’s annual meeting, but that’ll be the subject of a standalone post later this week. The foregoing should provide you with some serious food for thought till then.

Law firms know very well that the associates they hire fresh out of law school (or even after a year of articling) are sufficiently unskilled that they don’t merit the salaries they make or the rates they bill. Equally, firms traditionally haven’t cared about this, because (a) the tasks churned out by most new lawyers in firms require more stamina than skill, (b) most partners learned their craft by osmosis rather than training and are quite content to continue that approach, and (c) firms could always afford to throw money at associates because the cost could always be passed on to clients.

These days, of course, the current that keeps (c) lit up is flickering, as clients balk at associates’ bills and some order firms not to assign first- or second-years to their files. So firms are squeezed between incoming associates’ expectations of high and rising salaries and clients’ refusals to foot the bill therefor. That means the cost of associates is showing up not in bigger client bills but in partners’ smaller profits — and hey, suddenly, firms are decrying the cost-value imbalance of their newest lawyers. Funny how that works.

In this respect, the best thing that ever happened to these firms is the recession, as suggested by this article in The Recorder about the latest news from the associate salary front. The recession is the new Red Menace — the all-purpose justification to lay off scads of low-level employees and thereby put the fear of God in the survivors, who are suddenly thinking less about bonuses and more about keeping their jobs. (The ABA’s recent blessing of offshore legal work has also been another effective way to keep those uppity youngsters focused on survival, not salary.)

These are real market forces at work, of course — but rather than use them as a catalyst for change, most firms exploit them to keep doing what they’ve always done, but spend less doing it.

The crazy thing is that firms feel they need these excuses and fear tactics — they know they’re acting irrationally, but the force of traditional practice and the pressure to imitate rivals is so strong that they can’t or won’t act against it. It’s like that now-famous quote by Citigroup’s Chuck Prince when the liquidity crisis was starting to break: “[A]s long as the music is playing, you’ve got to get up and dance. We’re still dancing.” Many firms just don’t have it in them to be honest with themselves that their associate compensation systems (and related billing structures) are broken, so they look for someone or something else to take them off the hook — a tourniquet instead of surgery, intimidation rather than straight talk.

Anyway, I’m not really here to lecture these firms — I’m here to talk about how you can take advantage of this irrational and hidebound behaviour by your rivals in the talent wars. This is a market vulnerability — exploit it. Large firms continue to believe, despite their public words to the contrary, that enough money makes every associate complaint go away eventually. Prove them wrong, by actually listening to what today’s new lawyers are looking for, and chart a course accordingly.

Here are three things lawyers care about, and that I’ll bet they’d be willing to trade high salaries in order to satisfy.

1. Family does matter. It’s instructive that the two most recent rankings of law firms’ openness to lawyers with family priorities have come from Working Mother magazine and, yesterday, Yale Law School, not from the bar or the legal press. Growing numbers of lawyers are genuinely concerned with family issues. Right now, the buzz is about moms and dads who want to spend more than breakfast and bedtime with their kids; the next buzz is going to be about lawyers (of all ages) with parents who need home or institutional care. Either way, adopt a mantra that your employees are people first, professionals second.

2. Pay them what they’re worth. As The Recorder article notes, and as other analysts have pointed out, lockstep compensation makes sense only in intensely focused law firms. Abandon lockstep, as Howrey LLP did last year, and instead institute a system whereby associates are regularly assessed on their progress and achievements and can earn more than their “year” would normally entail. This requires a lot of work, especially by partners, who’d be held accountable for setting and assessing associates’ goals. But you would be shining a beam of rationality into the murky dark of compensation systems and showing your associates that they can be masters of their own destiny.

3. Training is not negotiable. As I noted a little while ago, associates’ biggest fear is being turned out on the street with no marketable skills. They know they need experience, but they’re too expensive for large firms to provide it. Here’s one way to do it: strike a deal with a local legal clinic that’s understaffed (they won’t be hard to find) and arrange secondments for your newest lawyers to work there. Law firm gets battle-tested lawyers and positive PR; associates get priceless experience; clinic gets desperately needed help; community gets better. What’s not to like? (Edward Wiest tells me via Twitter that some Boston firms, Foley Hoag among them, “loan” three or four associates to prosecutors’ offices, and that the best of the bunch jump at the opportunity.)

Let your competitors frighten their associates into submission. You can do better, and succeed, by treating them as adults, as professionals, and as colleagues equally interested and invested in the success of your enterprise.

If you feel like following my own twitter stream, please do. I’m not the busiest Twitterer out there — as I suspected back in May would be the case — but I do use Twitter to post links to law-related articles or developments that wouldn’t merit a full-scale blog post, as well as to ask questions and post neat or unusual stuff that comes my way.

And if you want to get into Twittering in a larger way, I can’t do any better than refer you to a great post today by Adrian Lurssen of JD Scoop, who lists 145 lawyers and legal professionals on Twitter worth following. Many of the names there are already on my Follow list, and many more soon will be. Check it out, and find out where your own Twitter value lies.