Fall 2006

John R. Ettinger

As the managing partner of Davis Polk & Wardwell in New York City, John R. Ettinger ’78 spends a lot of time thinking about the future - specifically, how to position his firm most advantageously for the long term. In a profession where many managers plan for the next year or two, Ettinger tries to look well beyond that - five, even 10 years ahead. That’s one of the reasons he joined the advisory board of HLS’s new Center on Lawyers and the Professional Services Industry and is spearheading an effort to raise money for it. He recently shared some thoughts with the Bulletin.

We’d like to explore your thoughts on the future of large law firm practice 10 years from now. Do you expect much change in what the industry and the firms will look like?

Large law firms and the legal practice will look vastly different in 10 years' time. Strategic change in the legal industry tends to be quantum-periods of great change followed by times of greater continuity. I'm fairly confident that in the next 10 years we will see new practice areas emerge and old ones diminish, firms will continue to grow in size and geographical reach, career paths followed by lawyers will become much more diverse, pricing models for legal services will evolve, and in response to all of these trends, law firms may have to change some elements of how they are organized internally. The hard part, of course, is to anticipate correctly the precise nature of this change. I don’t think, however, that this will necessarily all evolve to a common model, even among even the larger firms. Factors that may push powerfully in other industries toward a uniform business model are unlikely to lead to the same result in the legal industry.

How will this growth affect large firms? Do you expect to see further growth and consolidation?

The growth patterns over the last few decades are one example of how industry change has notable discontinuities - sometimes fast, sometimes slow - but over the next 10 years, I think we will see a period of growth. Some growth will come just from consolidation among large firms - which will continue to a degree, though it will not be uniform through the industry - and some will come from smaller firms and practices joining larger firms, such as the intellectual property practices and firms that are now joining the larger, full-service firms. The growth will also reflect, however, an increase in demand for legal services, driven by economic expansion and the increasing complexity of what we do. Although it gets considerably less attention in the press than a number of other strategic issues, I think that there is no more important and commonly shared challenge for the large law firms over the next decade than how we are going to attract and retain the number of talented lawyers necessary to achieve the desired growth. "All politics is local," a wise politician once famously remarked, and to some extent these days all law firm strategy is also local in the sense of being a matter of personnel. That being said, for a number of reasons, including that, unlike many other industries, there aren’t the economies of scale leading law firms inexorably toward growth, you won't necessarily see one model prevailing in terms of scale.

You said that you expect to see change in the basic areas of practice and services covered by the law firms. Can you expand on that?

First, it is interesting to note how many specific practice areas, products, and types of matters and cases weren’t part of the practice 10 or certainly 20 years ago. This is likely to continue and accelerate. A vital strategic decision law firms have to make is which areas of practice to emphasize. It can’t be purely demand-driven, since the demand levels are probably high enough to support most practices. You’ve got to organize and balance your practices in a way that makes sense strategically - so that the whole is greater than the sum of the parts.

Second, in the last decade there has been an evolution in who delivers legal services, marked in particular by the advent of in-house legal departments with sizes and budgets of a completely different magnitude than in the prior era and both the emergence and the disappearance of various types of specialized firms.

Third, broadly speaking, there is a pendulum that swings constantly from relationship lawyering, in which outside law firms are seen as providing a comprehensive counseling function for their main clients to the other extreme of law firms being seen as providers of discrete transactional and litigation products. It's never entirely one or the other extreme, but the mix does vary, and for much of the last 20 years, the drift has been away from the counseling and toward the more transactional product-oriented practice. Some may disagree, but I believe the pendulum has been swinging back to a more relationship-driven model and will continue to do so for the foreseeable future. Because of the complexity of some of the issues we face, because of regulatory change and because the governance issues in recent years caused clients to rethink some basic approaches toward legal services we seem to be heading increasingly towards more emphasis on the broad counseling role. To do that, or as part of that, I think you will actually see the large law firms expanding the range of services they offer clients rather than just moving continually toward the higher valued-added services.

What will the impact of globalization be on the large U.S. law firms in 10 years?

There is no question that globalization will have a great effect on the law firms. But having said that, I may be a bit of a contrarian here. Seven or eight years ago, I disagreed with the then prevailing viewpoint that we were inevitably heading toward a wave of trans-Atlantic mergers, and I think that has proved to be right. Going forward, even 10 years from now, most of the large firms will have a considerable global reach, but this is another case where there will be a significant variety of models. Some will approach the challenge as giant global firms; others, through highly integrated joint venture alliances or through smaller specialized foreign presences. Each model has its relative strengths and weaknesses and depends greatly on what work you’re trying to do. Also, remember that there are a number of natural limits to the complete globalization of law firms. First, many international transactions are not fundamentally cross-border, and there is usually a single country nexus or governing law that prevails. Second, legal systems and the role of lawyers and law firms will continue to vary fundamentally from jurisdiction to jurisdiction. I'm not saying globalization is not important - large firms will have to offer a superb international reach. But the challenge is to understand precisely what you're trying to do and how to do that well.

As chairman of a large firm, how much of a strategic issue is personnel for you? How will this issue drive change in large firms over the next 10 years?

Personnel issues will be as important as anything else in determining what large firms will look like. The major change thus far has been the exponential expansion of alternative career paths for lawyers who start in, or consider starting in, large law firms. Plus, most large law firms are attempting to grow faster than the law schools. One could speculate that this will lead to a less leveraged firm structure where most firms have several associates per partner. However, I suspect that the demand for services of the type we currently provide will continue and will continue to support the leveraged model. The way law firms price their services, though, may also need to evolve as part of the equilibrium process of matching the supply of lawyers with the growing demand for services.

I think firms will continue to attract and retain lawyers in numbers to support this growth because the intellectual stimulation of the work we're doing is vastly superior to what it used to be. And I’m not looking at this through rose-colored glasses. While there's a fair amount of routine work we ask our associates and even our partners to do, the opportunity now for associates to get more interesting work and to assume greater responsibility is far greater than before. I spoke not too long ago to a young partner at a firm who left the law for banking only to return a few years later despite considerable success as a banker. Interestingly, he was motivated to return by the access he had as a lawyer to the senior-most corporate executives and to the most important issues of corporate strategy, which he did not find in banking.

But to succeed over the next 10 years in recruiting and retention, law firms will have to exploit our comparative advantages, such as the basic flexibility of our business structure in accommodating long-term career objectives. Law firms, unlike most other economic organizations, can and should permit their lawyers over the course of their careers to do a number of different things, including things outside the firm. We’ve been encouraging our lawyers in recent years to consider taking some time during the course of their career for public service, broadly defined. Another comparative advantage is that our horizontal, non-job-specific form of organization is particularly well-suited to provide more part-time and flex-time opportunities and potentially more creative career paths.

What implications do you see for law school education based on the changes you anticipate?

One important conclusion, if you accept both what I say about the increasing complexity and importance of projects on which lawyers will work and that the career paths of lawyers should be broadened from the associate-to-partner-to-retirement model, is that the law school should increasingly look to train lawyers for larger leadership roles in our society. The graduate business schools and schools of government have elements of this in their programs that law schools should consider. In that regard I think it is also important that the profession, both through the law schools and professional groups, spend more time studying itself and not just specific legal issues; a higher degree of self-consciousness is important and healthy. This is not to say that technical lawyering skills and substantive legal topics should be de-emphasized. In fact, I think that there could be greater integration between the law schools and the law firms in this regard. Because of the greater complexity and breadth of practice that I alluded to, law firms now spend an amount of time training new lawyers that dwarfs what we did 10 years ago. There is a huge duplication of effort among firms, and we are often dealing with matters where the pedagogy of law school is potentially much better than ours. But I think this last point is the least important. Much more important is training lawyers broadly to be prepared to play a larger role in a global society.

You graduated from HLS in 1978 and have been practicing now for almost 30 years. What excites you the most about coming to work every morning?

Three things. First, my colleagues have always been a most important part of why I enjoy coming to work. The people with whom I currently have the pleasure of working have a wider range of interests, talents and backgrounds than ever before, and it is extremely exciting to collaborate with these people. Second, as the work gets even more intellectually interesting and challenging, the evolution of the practice continues to make it new and exciting. I’m a big fan of the idea that you shouldn’t stay in a comfort zone for too long. Third, I want to see where all these questions that we have been discussing come out. It will be fascinating to see where we actually do end up 10 years in the future.