Bingham Greenebaum Doll was a traditional midsize Midwestern law firm. It had healthy litigation, transactional and tax practices, and offices in cities like Indianapolis, Louisville, Kentucky, and Cincinnati, places that many lawyers believed to be insulated from broader legal market forces.

But those forces were starting to take their toll. Bingham's managing partner, Tobin McClamroch, says his firm was experiencing the same trends affecting many across the industry: the need to offer specialized services that clients can't handle in-house; the need to scale up in order to expand the firm's footprint; and the need to pay more and more for technology.

So when Dentons approached the 180-lawyer Bingham about combining with it as part of Dentons' so-called "Golden Spike" strategy to form what it calls the country's first truly national firm, the decision was easy.

"There's going to be change in the industry," McClamroch says. "It's not only about specialization. It's also about global footprint and technology and other drivers that are changing the industry. … Larger law firms and middle-market law firms around the country are going to have to change in the next few years in order to respond to those market forces."

Bingham is far from alone in feeling the weight of industry trends. On the same day that it announced the combination with Bingham, Dentons also said it would be combining with Pittsburgh-based Cohen & Grigsby, adding more than 300 lawyers in one swift move that reflected the mounting pressures forcing firms to think differently about scale.

As companies consolidate, they're looking to reduce the roster of law firms they go to for legal help, driving firms to scale up by expanding head count, particularly in the form of lawyers who can offer the types of specialized services that companies themselves cannot handle in-house. Add to that the incessant march of technology and growing concerns over cybersecurity, both of which are easier to address financially, firm leaders say, when costs can be spread across a larger footprint. Factor in the looming presence of alternative service providers that are starting to flex their muscles by offering more legal services, and scale becomes a sensible response.

"Law firms are feeling pressure in a way they have not for decades, maybe ever—certainly not within the career lifetime of anyone practicing today," says Bruce MacEwen, founder of management consultancy Adam Smith Esq.

Striving for Specialization

Philip Inglima could get by as a white-collar generalist lawyer when he first began practicing 30 years ago. Today, the managing partner of Crowell & Moring has branded himself as a specialist with experience in sophisticated financial and regulatory fraud, as well as environmental fraud and public corruption.

Crowell has been scaling up by padding its ranks with specialists like Michelle Ann Gitlitz, who left Blank Rome to lead Crowell's global blockchain and digital assets practice from its New York office in October.

"We've got to have those regulatory experts and those folks who understand the overlap between regulation and contentious matters," Inglima says. "To cover that waterfront, you've got to have the right talent."

Clients are looking to law firms to offer specialized legal services because they've built up their own in-house legal departments, Jami Wintz McKeon, the chair of Morgan, Lewis & Bockius, says. When she first began practicing, the companies she worked with didn't have sophisticated departments, but they're now so developed that companies don't want to use outside counsel unless it's for work too complex to handle in-house. Morgan Lewis' clients turn to the firm when they need help with cross-border or cross-discipline issues, McKeon says.

The same issue has been driving change at Akerman and Baker Botts. Within the past five years, Akerman has opened seven offices, in Atlanta; Austin, Texas; Chicago; Houston; New Orleans; San Antonio; and Winston-Salem, North Carolina. A few of those offices are home to specialized practice groups—the New York office is doing real estate financing; the Winston-Salem office handles investment fund work; and multiple offices are in what the firm calls a "national cross-practice group" on cannabis.

"All three of these are really based on our clients telling us they really needed and wanted these particular practices," says Scott Meyers, Akerman's managing partner.

Baker Botts, meanwhile, opened its last office in San Francisco in January 2016. Since January 2018, the firm has hired 39 partners and promoted 12 from within in an effort to "sharpen our differentiation across multiple practice areas," says managing partner John Martin. That includes a group of nine partners who joined in October to focus on environmental litigation.

"It's not a focus on getting bigger," Martin says. "It's a focus on getting more depth, a deeper bench."

Client Consolidation

Clients aren't just looking for specialized legal services. They want to save money and cut down on the number of law firms they're going to for help.

As MacEwen puts it, clients have "found religion" when it comes to cutting down on legal expenses, and they're never going back. Law firms need to be on the so-called "short list" companies look to when they encounter a legal issue they can't handle in-house. Getting on the short list, even if a firm isn't hired, is a victory all on its own, MacEwen says.

"You don't have to win every beauty contest," he says, "but you have to be on the short list."

That kind of mind-set appears to be driving the scaling decisions of firms like Dentons and Gordon Rees Scully Mansukhani. Managing partners at both firms say they're growing in response to clients that want a small list of firms on demand, rather than partnerships with multiple law firms in multiple regions. Mike McNamara, Dentons' U.S. CEO, says clients are under their own pressure to consolidate and are more focused than ever on limiting legal spend.

"This trend has long been underway globally," McNamara says. "The pressure is only becoming more widespread at a time when there are more competitors in the legal space."

Gordon Rees might give Dentons a run for its money in its attempt to crown itself the country's first national law firm. The firm already has offices open in all 50 states, a level of scale aimed at reminding clients that no matter where they have legal issues, they can always turn to Gordon Rees, managing partner Dion Cominos says.

"It's a continuing and accelerating pressure," Cominos says. "More than ever, what we're seeing is businesses abandoning multiple smaller, regional relationships in favor of larger, singular relationships."

The Cost of Keeping Up

As law firms try to decide the best method to scale up, they're facing constant pressure to improve the technology they use to streamline their operations and safeguard the sensitive data they collect from clients.

Email and document-management systems have to be available firmwide and protected from intruders. Video-conferencing technology has to be wired and set up in each of a firm's growing number of outposts. Artificial intelligence is taking a prominent role inside many firms.

And then there are the multiple data privacy regimes law firms have to comply with, including California's Consumer Privacy Act, the European Union's general data protection regulation, and similar laws in Brazil and China, none of which overlap, Laura Jehl, the global head of McDermott Will & Emery's privacy and cybersecurity practice, says.

And it all costs money.

Funding technological upgrades can be a tricky proposition for some firms, says Nicholas Bruch, a global tax analyst team lead at Ernst & Young, because they have to appeal to partners to dip into their own pockets to pay for upgrades. By comparison, alternative service providers like the Big Four accounting firms have an easier time investing in process and technology upgrades, he says.

But tech is one area in which scale can make life easier for law firms. One of the reasons Bingham chose to combine with Dentons was to access the larger firm's tech platform, McClamroch says. He predicts that technology will be a larger expense for firms in the coming years, calling it "a very significant driver for all law firms."

Because of Dentons' size, McClamroch says, it can spread technology costs across a greater number of lawyers than other firms can. Its recent merger spree will only make tech easier to afford, he adds.

"With a small firm," says Philip Ross, the chief operating officer of Clark Hill, which in 2018 merged with Strasburger & Price to form a 650-lawyer firm, "it's much harder to support those kinds of costs."

An 'Underestimated Threat'

Law firms are trying to solve the same process and technology issues that alternative legal service providers like the Big Four accounting firms—Deloitte, EY, KPMG and PwC—solved years ago, says Bruch.

Nearly half of legal departments are using alternative providers in 2019, according to U.K. consultancy Acritas' survey of more than 1,100 general counsel or their equivalents in billion-dollar organizations. Just five years ago, that figure was below one-third.

Outside of the U.S., Zeughauser Group consultant Kent Zimmermann says, the Big Four are "the single biggest underestimated threat to law firms." They've already achieved scale and the benefits that go along with it, he says. Each of the Big Four has more U.S. offices than any law firm.

The Big Four served as an apparent inspiration for Dentons' quest to dramatically increase its presence in the U.S. legal market. PwC, for instance, has the group's smallest footprint in the United States, with offices in 79 cities.

Meanwhile, none of the 10 largest U.S. firms operate in cities like Kansas City, Missouri; Milwaukee; and Nashville, Tennessee, despite the fact that they each spend more money on legal services than all of Sweden, according to Dentons.

"We're not the first industry to do that," McNamara says. "When you look at accounting, consulting, architecture, all of those professional services firms have far more national scale than we do."

Many managing partners acknowledge the threat ALSPs pose to their respective firms, but they downplay them nonetheless, noting, among other points, that every U.S. state bars lawyers from sharing fees with nonlawyers and prohibits nonlawyer ownership of law firms—at least for now.

Zimmermann says the Big Four are a competitive threat to law firms in the United States in cases that involve a high volume of documents or data. But some managing partners insist they can stay ahead of ALSPs if their firms offer specialized legal services that distinguish them.

Dentons Global CEO Elliott Portnoy has been warning law firms for almost a year now not to fall for the "myth of legal exceptionalism"—that the work law firms do is so specialized that the Big Four could never compete.

"A law firm leader who believes that it ends there isn't watching the talent recruitment efforts that these firms are doing," Portnoy said in November 2018. "They're not just hiring folks who do that; they're building up on litigators, transactional lawyers and regulatory experts."

Scale Isn't for Everyone

For a lot of law firms, scale comes in four flavors: hiring associates and cultivating them until they become partners; lateral partner or practice group hirings; opening offices in other markets; and mergers with other firms.

While every managing partner seems to agree with the adage, "If you're not growing, you're dying," not every firm finds every flavor of scale palatable.

The partners at Morris, Manning, & Martin have determined that, for now, they're not open to merging or "aggressive geographic expansions," managing partner Simon Malko says, with a focus on preserving the firm's culture.

"We want to continue to grow our business on our terms," Malko says, reiterating that the firm is open to what he calls organic growth—hiring associates and cultivating them into partners.

The partners at Bartlit Beck can sympathize with Malko. The litigation boutique, which spun off from Kirkland & Ellis more than a quarter-century ago, doesn't take on lateral partners or entertain offers to merge. Managing partner Jason Peltz says bringing in partners with their own clients would disrupt the firm's "team-oriented culture," in which clients don't belong to any one partner.

"We believe that the best way to assure that that continues is growing from within," Peltz says. "That's one big reason. The other, quite frankly, is training. We focus an enormous amount of our time on training our junior lawyers."

Kobre & Kim approaches the question of scale in terms of "product innovation" rather than sheer physical size, says Gary Singer, the firm's chief strategy officer. The firm, whose work centers on international disputes and investigations, adds staff and opens new offices only if doing so supports a new product offering, he says.

"We want to continue to offer products and services to people that uniquely serve their needs. If that means we grow in the process, so be it. But the real focus is on this niche opportunity we're trying to serve," Singer says.

The firm also has a different business model than its counterparts in the Am Law 200. As a conflict-free firm, it doesn't retain clients, which are typically referred by another Big Law firm, Singer says.

And then there are some firms that simply want to stay small. That's the case at Soule & Stull, a nine-person Minneapolis law firm. On the same day Dentons announced its "Golden Spike" strategy and the two major mergers, Soule & Stull proudly announced that it wasn't going to merge with anyone.

"We have a unique opportunity to provide a level of client service that big firms would be hard-pressed to match," says Melissa Stull, a firm co-founder.

What's in Store for Scale?

None of the pressures facing law firms—client demand for specialized services, increasingly expensive technology, the presence of the short list—are entirely new. But as they accelerate, managing partners say firms are being forced to think more seriously about scale.

"Mergermania," as Soule disparagingly put it, isn't abating. Altman Weil recently announced that the third quarter of 2019 was a "record-shattering" period for mergers, with 38 law firms announcing plans to combine. One of those deals—Indianapolis-based Taft Stettinius & Hollister linking up with Minneapolis-based Briggs and Morgan—will create a new 600-lawyer firm. Another, Lathrop Gage and Gray Plant Mooty's combination, announced in late October, will result in a 400-lawyer firm. Consultants anticipate plenty more mergers in 2020.

Bruch, of EY, believes the legal industry is on the cusp of a new phase in the scaling conversation. Now that many law firms have grown larger, the next question they are beginning to ask themselves is: How do we make this work?

"How do we actually take advantage of the scale? How do we actually provide a better service? Presumably, there is a better way," Bruch says. "Presumably, a law firm that provides hundreds of services, that has thousands if not tens of thousands of lawyers … a firm operating at that scale is going to use technology slightly differently, use process and control to start providing services more consistently or efficiently."

Some law firms have begun to add scale without hiring lawyers. Baker McKenzie is opening three centers in Tampa, Florida; Belfast, Ireland; and Manila, the Philippines, to provide support for its services. Eversheds Sutherland merged its consulting subsidiary with its corporate secretarial and volume insolvency teams, creating one entity called Konexo. Dentons created its own in-house technology lab, NextLaw Labs.

Bruch thinks law firms will eventually look like an amalgamation of their current form and that of an alternative service provider. An automated process of sorts will help a triage team examine a legal issue, he suggests, and the team will then use a set methodology to determine if the issue is complicated enough to be kicked up to a partner.

"That's, in my mind, where this ends up," Bruch says. "A place that looks quite a bit like a law firm and quite a bit like an alternative service provider."

In law firms' search for scale, the answer may lie in adopting some of the behaviors favored by the very competition applying so much pressure.

"That's where we are in the legal industry," Bruch says. "We're trying to figure out how these two models, which grew up parallel, are going to fit."

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