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Covid has propelled officeless law firms towards a 1,000 lawyer movement

Welcome to the Big Law Business Section on the evolution of the legal market written by me, Roy Strom. Today, we look at the rise of deskless (or at least desk-light) law firms that have thrived during the pandemic. Register to receive this column in your Inbox on Thursday morning.

The law firm John Lively launched in 2018 with 11 lawyers was unconventional – it’s called Practus LLP – but the concept wasn’t exactly new either. His lawyers would work from home and keep a greater share of the fees collected, thanks to the firm’s reduced overhead.

Four years and a global pandemic later, the major law firms that Lively poach lawyers from have understood one such idea: Everyone knows they can work from home. But these big companies are struggling to cut one of their biggest costs. They are stuck with long-term Class A office leases that look like garish stapler graveyards as lawyers resist returning to the office.

Today, alternative business leaders are touting their model as a way for individual partners to avoid paying for high-priced space — which takes a chunk out of their profits — without having to worry about battling colleagues who want to cling to the status quo.

“It opened people’s eyes,” Lively said of the pandemic. “As these firms adopt policies to force people back, you’ll see many lawyers say, ‘I want to make a choice’.”

Lively and other CEOs of “virtual”, “hybrid” or “remote” firms say more Big Law partners than ever are making the leap from their comfortable offices into a brave new world. Practus has hired 25 partners over the past two years, growing more than 125% as it recruited lawyers who had previously practiced at firms such as Foley & Lardner and Litchfield Cavo, as well as in-house at GlaxoSmithKline and PIMCO .

Today, more than 1,000 attorneys are working under lightweight Practus-like desktop models at at least 10 firms, according to Bloomberg Law reports.

Fisher Broyles is the largest and best known alternative company. Its Big Law expatriate founders started the firm 20 years ago and in 2020 cracked the ranking of the country’s 200 largest law firms by revenue. Last year, the self-proclaimed “distributed” firm generated $136 million in revenue, up 30% from the previous year, and now has nearly 300 lawyers. He has hired 50 associates in each of the past two years.

The firm’s financial metrics do not easily match those of the traditional law firms it competes against in the AmLaw 200, primarily because every attorney in the firm holds the title of “partner.” But one number is telling: Its cost per attorney is about $70,000, less than a third of Big Law’s most frugal competitor, according to AmLaw data.

Like its non-traditional peers, Fisher Broyles has a formula-based compensation system. Lawyers keep up to 80% of the income they generate, split between lawyers who find work and those who work on these issues. But there’s no safety net: Partners don’t get anything they don’t bring or work on, so they’re not supported by anything other than the revenue they work on. generate.

James Fisher, the company’s co-founder, said he’s seen a surge in interest since the partners got used to working from home.

“Once Zoom became the norm, the very idea of ​​having to be physically present was considerably less important,” Fisher said. “And the fear partners had of their customers thinking them less for remote work was immediately swept away.”

Certainly, alternative firms do not pose a systemic threat to Big Law today. There are more than 105,000 attorneys at the top 100 law firms by revenue, making the combined “cloud” move a rounding error on the back of a $127 billion industry.

It’s impossible to know how much revenue these companies brought in last year – Fisher Broyles is the only one who shared their revenue numbers. A generous way to estimate the figure is to apply the revenue-per-lawyer figure reported by Fisher Broyles: $461,000. That would put the group around $500 million in combined revenue last year.

The true figure is likely much lower, said Frederick Shelton, CEO of legal recruiting and creative rain consultancy Shelton & Steele, which specializes in recruiting for these types of businesses.

Only a handful of virtual businesses attract partners with large enough business volumes to support such a high figure, he said. Some virtual businesses exist to service the client list of one or two rainmakers.

“They don’t live the high life,” Shelton said. “But a lot of people flocked to virtual and hybrid models during and after Covid because they realized they could be perfectly happy and earn very good incomes without having to sacrifice ‘little’ things, like their health or their families.And AmLaws still believes that 60-70 hour weeks are perfectly acceptable.

“Distributed” firms have always recruited lawyers who dislike or don’t fit Big Law for various reasons. Many businesses have their origins in the recessions of the 2000s, when setting up a website and working from home was a cheaper way to start a business than renting space.

A common story: a partner develops a list of clients within a large law firm on which he works alone or with a small group. The partner resents the company for providing little support, or the group sees that they are not compensated fairly compared to their peers. So they move to a virtual platform.

This narrative is changing. I spoke with two attorneys this week who had moved solely because they had become so comfortable working remotely during the pandemic.

A lawyer declined to be identified so she could speak candidly about a former employer. She said she left a mid-sized firm in New Jersey once she realized that lawyers who chose to continue working remotely would be considered “second-class citizens” there.

“I’ve been around long enough to find out who’s running the law firm and what they think about it,” the lawyer said. “And I knew that if you didn’t show up for work all the time, you would be seen as an unengaged lawyer at the firm.”

She said she was working longer hours without commuting and her income had increased by about 50% compared to her previous business.

Steven Young has been a litigator for 48 years and was virtually exhausted in January 2020 when he decided to leave a mid-sized law firm in Southern California.

“I lacked both appreciation for what I had done and was also frustrated with the traditional way law firms, large and medium, do their business,” Young said.

Then the pandemic hit, forcing Young to work from home for the first time in his career. He changed his plans: instead of starting his own firm, Young joined the virtual law firm Practus.

He says he reduced his billing rate from $1,000 to $1,200 at $600 an hour. Even with the steep discount, he’s making more money than at his previous venture, Young said, thanks to the financial model that allows partners to keep up to 80% of the work they generate and manage themselves.

“I make more money per billed hour that’s collected, and I get tremendous satisfaction from practicing law,” he said. “It’s more satisfaction than I’ve ever known because I was always under someone’s thumb as a partner and I’ve always had to answer to another partner since I was a junior partner.”

Many virtual firm lawyers predict that large law firms will have to drastically reduce their office space in the future. Some are already planning to reduce their consumption. Duane Morris says he will reduce office space by 20% over the next five years and Clifford Chance’s next lease in New York will be a quarter smaller.

“Virtual partners” are a biased bunch, but they don’t see lawyers returning to the office five days a week anytime soon.

“It’s a very slow wheel to change,” said Chris Harrison, who left the mergers and acquisitions practice at Schulte Roth & Zabel in 2015 to found virtual firm Sterlington, which now has up to 40 lawyers. “If you look two to five years ahead, you’ll see this is a routine event where the partners will leave Big Law for this pattern. And if you look 10 years into the future, you’ll see them have adapted.

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It’s all for this week ! Thanks for reading and please send me your thoughts, criticisms and advice.