Key Alpha-Oriented Law Firms Merging

lawBingham McCutchen LLP, a law firm with fourteen offices around the globe and a substantial hedge fund practice, has decided to merge with Morgan Lewis & Bockius, according to a report Reuters ran Sept. 20.

Reuters’ Casey Sullivan, in attributing the merger news to “three people familiar with the matter,” said that Bingham’s managing partner Steven Browne left a voicemail message for the firm’s other partners saying that an agreement has been signed.

Sullivan also said that it wasn’t “immediately clear” who knows what about this at Morgan Lewis.

For those who enjoy playing press-leak Sherlock, this is a rather broad clue that Sullivan’s own sources are on the Bingham side of the deal, and most likely have their names on its partners’ list.

Neither Bingham nor Morgan has commented on the report for the record.

A Bad Thing?

Morgan Lewis, like Bingham, is a powerhouse in the provision of legal services to the hunters of alpha. It is, among much else, the sponsor of the “Hedge Fund University” webinar series. So the deal has some significance in itself as a reduction of the options available for those shopping for experienced independent counsel at the highest level. That would seem at least on the surface to be a bad thing.

Further (worse?), the news comes strikingly soon after the announcement that Locke Lord and Edwards Wildman Palmer have signed a letter of intent to combine. That merger will combine two firms both known for a strong private equity practice.

Don’t take it personally, though, alpha seekers. It isn’t about you. It’s about them. The problem isn’t a consolidation of the law firms that serve you specifically; it’s about the forbidding economics of the private independent practice of law in general in the second decade of the 21st century. One simple (but so far as it goes, accurate) statement of the problem is this: the great law firms of the 20th century grew up around the institution of the billable hour. Lawyers bill for their time as well as for the time of their support staff. This encourages firms to hire large staffs and to spend a lot of time on cash-cow projects.

The problem (again, on this true-but-partial view) is that various hardware and software wonders now in place can do in mere seconds, perhaps in less than a second, tasks that a partner, an associate, and their paralegal would once have spent several combined hours on.

The sophisticated clients know this. Hedge fund managers are perfectly capable of understanding that their lawyers aren’t meticulously combing through paper documents pulled from metallic filing cabinets to find key words. The documents are all online, the cabinet is the ‘cloud’ you’ve been hearing about, and the key-word search is automatic. So the “billable hours” thing as a metric has backfired upon those whom it once made very rich.

The reason I say that such an account is only a partial truth is because it seems such old news. Heck, as early as 1992, Business Week published the warning, “law firms that don’t adapt to a clockless era may find their time has passed.”

The two law firms mentioned above who might be regarded as the rescued parties – Bingham in the one case, Edwards in the other – have both had just as long to adapt to the “clockless era” as have their rescuers. Surely there is something more to the consolidation by 2014.

A Good Thing

Another, related, point though is that the same new technologies that have made it impossible to charge a lot of hours for menial tasks that no longer have to be performed at all have also made it possible for many of the clients of the law firms that cater to finance (traditional or alternative) to take much of the legal work in house. Bingham and Morgan Lewis haven’t been competing with each other of late so much as each of them has had to compete with the empowered chief counsel office in every institution from a bank to a hedge fund to an exchange.

So perhaps the consolidation isn’t so bad for the clients. It has come about because the clients no longer need so much of what the law firms are selling. That sounds like a good thing.

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