The Impact of the Novel Coronavirus on the Legal Profession

A Necessary Focus on Legal Operations for Law Departments

The most dramatic changes in the legal profession will result from the challenges that our clients are facing. (For a good discussion on this subject, see my partner Patrick Lamb’s piece Customers, Not Clients, In Search of Great Customer Experiences (May 31, 2019).) We have seen major retailers and rental car agencies file for bankruptcy as consumers turn more to online suppliers or stop traveling. Some have predicted that one in four restaurants will close permanently. That number could be a lot higher. As business travel declines, the travel industry is facing unprecedented losses. And colleges and universities are under incredible financial pressure, with some experts predicting that revenues will decline by 25 percent if not more and a number of schools will close.

After the 2007–2009 recession, the legal profession saw the advent of legal operations—broadly defined as nonlegal professionals focused on the “business of the law department.” That includes preparing and managing budgets, instituting technology, and ensuring that outside spend is reduced significantly. Law companies, including the one with which I am affiliated, emerged to assist law firms and law departments in this process—utilizing technology and alternative service providers (including contract professionals) to lower costs dramatically. If the focus on legal operations was a luxury before the pandemic, COVID-19 has turned that into an absolute necessity.

Using the example of higher education is helpful. In an article published online in the May 11, 2020, New York Magazine Intelligencer, a business school professor named Scott Galloway was asked how many universities will collapse by 2021. Galloway answered the question this way: “Everyone will recognize they’re going out of business, but it will take longer than people think. There will be a lot of zombie universities. Alumni will step in to help. They’ll cut costs to figure out how to say alive, but they’ll effectively be the walking dead.”

Without legally granted immunity, higher education is likely to see an avalanche of litigation arising out of the pandemic. I spent 25 years as a trustee for a major research university and three years as its general counsel. During that time, I saw plenty of evidence that legal departments in higher education often operated under the radar—immune from the cost-reduction pressures facing other campus units. To be clear, there often were good reasons for this, but the landscape has changed and the clock will not move back. Governing boards, seeing the incredible stress that universities are under because of steep declines in revenue, will demand sustainable cost reductions.

The pandemic has not been selective in terms of its impact. Legal departments—whether they serve for profit or nonprofit entities—now are firmly in the same boat. They both need to change their cost structure, and the law firms that do their work will have to accept that reality.

What is a sustainable cost reduction? It is easier to say what it is not. Many law firms have been offering their clients huge discounts on their standard hourly rates, believing that there will be enough volume to offset the lower realization that comes with large discounts. The problem is that these discounts are not strategic, are not sustainable, and are not the best way to lower legal costs. Indeed, law firms hope that rate reductions are a way of preserving business through a crisis with the hope that rates can be increased as the crisis subsides.

Sustainable cost reduction requires the deployment of experience, early matter resolution, and aggressive management to reduce legal costs. It requires aligning risk with cost and tackling the “business as usual” matters in the most cost-effective way possible.

One thing that clients seeking a return to balanced budgets want to avoid entirely is paying more money to law firms to defend claims. The fact that many if not all of the claims might be defensible is not a justification for failing to control costs. Many of the claims have no impact on the client’s core business or mission. They are nothing more than the cost of doing business. Thus, going forward, legal departments will need to employ strategies to resolve claims before the defense costs start to mount. This will particularly be true of repetitive and recurring claims that are of low value, but nonetheless impair the legal department’s ability to focus on more important matters.

Even in more complex litigation, the trend to deploy active practice management will accelerate dramatically. Customers will be more focused on ensuring that they have the technology necessary to manage outside spend more effectively. Among other things, that means utilizing alternative service providers on a contract basis when necessary. Indeed, the global market is full of talented service providers who can perform legal services at a much lower rate than firms will charge even on a heavily discounted basis.

In addition, the market will move more rapidly towards the use of technology to generate pleadings and briefs and to review contracts and other documents. To the extent that law firms become zombies by focusing predominantly on hourly discounts, legal departments will turn increasingly to law companies to implement processes that will lower costs not just during the next wave of litigation, but for years to come.

In our profession, many customers value their relationships with law firms and will be reluctant to make changes for one reason or another. However, decision makers will put themselves at risk if they pass on opportunities to lower costs dramatically.

Impact on Law Office Finances

Many law offices are located in highly populated central business districts, near clients and near federal and state courthouses. Because of the pandemic—wherever they are located—law firms will be forced to utilize space differently. Some will opt out of leases to the extent that they can do so and move to less-expensive buildings. Some will move to less-expensive locations, away from crowded business districts—perhaps out of a belief that social distancing is easier away from congested areas. Some will stay in their current locations but unload as much space as possible. All are likely to look at ways to protect profitability by adopting numerous cost-savings initiatives. That will not be easy because of the need to create a safer work environment, which will increase costs. The collateral consequences of these changes for attorney and staff morale could be enormous.

Let’s start with physical space. I worked for small, mid-size, and large law firms in Iowa and Chicago from 1983 until 2016. During this period, much of our industry experienced significant growth and, as a result, law offices added to and upgraded their space. New hires necessitated additional offices, more attorneys meant more conference rooms, and considerable floor space was dedicated to functional and often attractive rooms for client meetings and depositions. Attorneys had their own offices, many with window views. Of course, partners got larger offices. At one firm, we determined the width of each office based on the number of ceiling tiles. Partner offices often became like second homes, adorned with nice furniture, artwork, and framed degrees and awards. When my firms moved to new buildings, committees were established to select artwork for common areas. Attorneys who were frustrated interior decorators were able to feed hidden talents. COVID-19 will change all of this. Even after the nation recovers from the pandemic, many attorneys will continue to work from home (WFH). And more conferences will take place via video, particularly as clients choose to cut travel expenses. Before the pandemic, it was not unusual for occupancy expenses to constitute as much as nine percent of a law firm’s total capital spend. Imagine the cost savings if that number can be eliminated or reduced by 50 percent.

Law offices have provided their attorneys and staff with Internet-enabled devices. (When I asked one law firm COO whether he had security concerns from employees using their own WiFi to connect, he said that so far the firm has not seen an uptick in problems.) In my case, when this first began, I doubted my ability to conduct business on a virtual basis. But I have been able to do it, and it is clear that others are able to do it as well. Meetings tend to start on time, there are no delays for coffee breaks, and meetings end on time. The opportunities for greater efficiency are enormous.

Some law firms might choose a more extreme change in the use of space. In this scenario, attorneys no longer would have a claim to a specific office. Instead, if they want to come to the office rather than WFH for a day, they will have to book a space in advance—in the same way that conference rooms have to be reserved ahead of time. This arrangement, sometimes referred to as “hoteling,” admittedly would be a drastic change for many law offices (and might actually mean that more money will be spent on reconfiguring space to accommodate this, and hiring staff to maintain scheduling and regular disinfecting). However, who would have predicted early this year that we would be meeting only by videoconference?

Of course, some attorneys and other personnel still will need to spend a substantial portion of their time in the office in order to be productive, but for others that will become passé. Law firms will have to right size so that the space going forward matches what is needed to accommodate the new normal. One bit of bad news: Attorneys might need to supply their own coffee, tea, snacks, pens, and legal pads.

Expense reduction will hardly be the only concern. Firms that maintain a physical footprint will need to adopt numerous health and safety measures. Office spaces will need to be cleaned and disinfected frequently, using state-of-the-art products. Social distancing will require barriers between cubicles in interior spaces. Those who come to the office may be asked to undergo testing and temperature checks, and to wear masks. Firms will even need to address the way that air is circulated in commercial buildings; it can be much more expensive to circulate fresh air rather than to recycle air. Equipment can be purchased that will remove bacteria and viruses from the air. If someone in the office tests positive for COVID-19, firms will need quickly to implement safety protocols that include contact tracing and quarantining.

If firms are able to reduce costs in a thoughtful way, it is possible that they can minimize or avoid layoffs, which nobody likes and are bad for morale.

Law offices demonstrated the ability to move quickly into the new WFH world. As clients choose to visit their attorneys’ offices less and communication is almost entirely by videoconferencing, many firms will have an opportunity to reduce capital and other expenditures dramatically. But there is another consideration: The implementation of WFH has been so sudden that there has not been time to evaluate its impact on firm culture and diversity. I now will take on that subject.

Impact on Culture and Diversity

Culture

If the effective deployment of technology enables a law office to go with a smaller physical footprint, why would the partners choose to pay for more space than is needed? One answer to that question likely is the fear that the culture of the firm will be harmed by being too virtual. The argument here is similar to what we have seen in higher education, where institutions that closed their campuses and implemented an online curriculum are being sued for allegedly failing to provide what they promised. What they promised, according to the attorneys who are filing these suits, is the experience of being present on campus and having personal interaction with other students, faculty, and staff.

Some might make that argument here. Firms have distinct cultures that often are dependent upon physical presence within a space. If everyone is doing business in a virtual way, then it is more difficult to maintain any sense of distinctiveness. While some law offices have implemented practices such as virtual wine and cheese hours, my expectation is that many firms will struggle to maintain their cultural identity and become more focused on the raw bottom line.

Another consequence of the pandemic has been that many firms have pushed back their start dates for new associates—some moving those dates into early 2021. The reason for this presumably is that the summer bar exams were canceled and moved to the fall. After the 2007–2009 recession, many firms moved start dates from September to November for financial reasons. Starting later means that some new associates will have some catching up to do.

Many young attorneys will tell you that it is hard to get the best assignments and opportunities in a law firm if you never see the partners. Many firms will be aware of this and will take steps to ensure that the orientation and integration processes are not conducted entirely online.

A related consideration is the impact on associate morale. That can be a delicate subject in law offices. Young attorneys have access from websites to information about compensation, bonuses, training, and credit for pro bono hours at different firms. It is possible that morale will improve if attorneys conclude that WFH means a higher quality of life. But attorneys might also be more likely to conclude that the full-time virtual experience is not what they are seeking, particularly if there is a perception that the opportunities, training, and mentoring are not as good. In addition, not having assigned space in the office means there will be a lack of personal touches (pictures or other personal mementos that can give some humanity to an otherwise sterile world), and the spontaneous “poke-your-head-into your neighbor’s office” to bounce an idea or suggest lunch may be hampered if your neighbor changes each time you are in the office.

Diversity

Historically, retention and promotion rates for females and attorneys of color have lagged behind the rates for white males. As a result, many law offices have diversity committees that address the challenges that these attorneys face. Will the effectiveness of these committees be impacted by WFH?

In an unscientific study, I asked some friends whether they believe that the pandemic will have a negative impact on law firm diversity initiatives. Most told me that they don’t think that the legal profession will see less commitment to diversity. I am much more skeptical, and I know that I am not alone. Legal publications are voicing the demands of organizations that promote diversity in our profession that previous gains not be rolled back and forgotten. There is a reason for this concern: the 2007–2009 recession.

The Chicago Committee has been a leader in furthering racial and ethnic diversity in the legal profession. On April 28 of this year, the Chicago Committee published an open letter to its member law firms and corporate law departments, urging them to “take actions to preserve the hard-won gains that have been achieved in the area of racial and ethnic diversity.” The letter references the 2007–2009 recession, describing it as a “significant setback for racially and ethnically diverse attorneys, who were disproportionately impacted by layoffs.”

In July 2007, I wrote the lead article for the Chicago Lawyer about the challenges I faced as a black partner in large law firms. I focused on the importance of mentoring, observing that many young attorneys succeed because of the close guidance, role modeling, and emotional support provided by more senior attorneys. These mentors are the ones who make sure that young attorneys get the quality work experiences that they need to be happy and progress toward partnership. There is growing evidence that the discussions inside and outside of law firms are eerily similar to the ones that I recall during the last recession.

I suspect that most law firms will continue their diversity initiatives in recruiting, awarding diversity scholarships, offering opportunities for affinity groups to meet both virtually and in person, and using consultants to enhance diversity awareness and ensure the implementation of best practices. But I worry that the virtual law firm will exacerbate the sense of isolation that attorneys of color and women often feel in law offices. As Evelyn Carter, director of diversity and inclusion consulting with the firm Paradigm said in a Fortune interview earlier this year, “distance reinforces people’s tendency to favor people who are similar to them.” And diversity does not guarantee inclusion. I agree with the Chicago Committee: Law firms and corporate legal departments may have to redouble their efforts to ensure that the commitment to diversity is not a casualty of the pandemic.

Conclusion

The pandemic will produce both winners and losers in the legal profession. The losers are likely to be those who pass on the need and opportunity to change even as more clients allow employees to work from home permanently. The losers will include law firms and departments that avoid changes that seem cataclysmic to them, preferring instead to ride through the storm with discounts and layoffs and other old remedies. Their response will be shaped by a belief that when we get to the other side of this, we can return largely to business as usual. The winners will be firms and departments that accept that this crisis is different, look at their structure from top to bottom, and implement systems and processes that enable them to meet legal needs at a much lower cost—on a sustainable basis. And the winners will be those in our profession who demonstrate that culture and diversity need to be protected at all times, even during an unprecedented crisis.