No flash in the pan

By | 19th May 2011

In 2010, about 8 years after filing for Chapter 11 protection, Polaroid entered into a contract with Stefani Joanne Angelina Germanotta.

Polaroid used to be the film company of the future, famous for its instant film cameras.

Its eventual bankruptcy in 2008 was widely attributed to the failure by management to anticipate the effect of the advent of digital photography on its film business.

And Stefani? What is her role in all this? Those of you who are well versed in such things will have immediately recognised that Stefani is better known as Lady Gaga and it is she who is now Creative Director of the company and said to be the “new face” of Polaroid.

Let’s hope she succeeds because Polaroid is not the only market leading company to come a cropper. In the 1990s Helen Steel and David Morris distributed leaflets asking what was wrong with Macdonalds and were taken to court by the company claiming defamation. Although Macdonalds won damages, they spent over 7 years in litigation and they ended up millions poorer and with beef burger all over their corporate face. It is believed that as against £40,000 damages awarded to the company in the Court of Appeal (reduced from £60,000 at first instance) they spent over £10 million in legal costs and endured years of poor publicity. To add insult to injury, the defendants made it clear they could not and would not pay and the company soon decided not to pursue them for the money.

I fell to thinking about these two stories as a result of yet another article in The Economist [A less gilded future, The Economist, 5th May, 2011]. There seems to be a trend towards increasing coverage of issues relating to e-discovery and law firm related articles in this magazine over the past 12 months or so, and this prompted me to look up the readership demographics to see who was actually taking onboard the information provided by the paper. It seems that the Economist has circa 1.4 million readers worldwide and readers tend to be senior business people (39% C-Suite, 48% Director or higher). It tends to be a touch US centric but Autonomy and Kroll are among the big consulting firms that regularly advertise, presumably because they know they will reach this audience of CFOs/CEOs/CIOs.

This latest article postulates that while the legal world has undergone a recession like everyone else it has also undergone structural change. The thrust appears to be that ever increasing profits at law firms are no longer guaranteed and nor is their very survival.

The evidence is not hard to find. The article itself cites the collapse of US law firm Howrey and in this country last year we saw the demise of Halliwells. In recent years well known names such as Frere Cholmeley and Oppenheimers have disappeared.

This year will see the start of new regimes for law firms under the provisions of the Legal Services Act and we will all be getting used to new entities called Alternative Business Structures [see  Nailed to the perch, 4th May, 2011] .

I had an intriguing conversation last week about how easily law firms would attract outside investors as envisaged by the Legal Services Act (and Messrs. Irwin Mitchell). I have to admit I was not persuaded; I wondered what I would do if I had £50 million to invest and came to the conclusion that I would not necessarily be looking for a law firm as a home for my money. Superficially attractive as the large well known firms may appear, they are really only as good as their last transaction and everything pretty well depends on the stars being retained to do more of the same.

So, on the assumption that I were to be tempted to invest in a law firm what would I look for?

I would certainly start with a group of high quality lawyers. It is often said that expertise is taken for granted these days but I would not want to invest without being reassured that the lawyers were of the highest intellectual quality and had an element of entrepreneurial skill as well.

I would also look for a tried and tested model. Business is littered with examples of companies branching out in new and untried directions and coming unstuck. Coca Cola got into all kinds of trouble when it tried to market a different formula based Coke and I have already mentioned the example of Polaroid who failed because they could not find a way to make money out of digital technology when they were kings of film. After all, the switch to digital would have meant that they would have had to abandon a successful revenue stream in favour of something untested but which would effectively pit them against themselves.

Good corporate governance is also key to a successful enterprise in my view. Without that as a base, it is difficult to see how long an enterprise can be successful.

Of course firms will need to be approachable and run a good operation. They also need to speak plain English (and other languages as required) and should not descend into technospeak. Being able to understand and use Latin tags used to be the hallmark of a successful law firm. No longer! Clients want to understand what their lawyers are talking about and the same is true of those who want to sell ancillary services such as litigation support!

A law firm must be efficiently run, reliable, good at its job and give value for money otherwise clients will try another.

So, you may ask, in which law firm would I place my £50 million if I were so lucky to have that amount of spare cash? Not surprisingly, I am not going to be caught on that particular hook because it is almost impossible to speculate without giving offence to one firm or another. But what is clear is that a law firm which does not offer its clients a good value, highly expert and relevant service, will ultimately be a poor investment for third parties and its own partners and indeed may not survive in the present climate.

Just think that we are now in the era of the super injunction. It is almost impossible to pick up a newspaper or listen to a news report or watch a podcast without tripping over the things! A year or two ago they were only news because they were new. Remember Trafigura? [King Charles and the Twitterati, 27th October, 2009] Back then you were not supposed to talk about them or even mention their existence. Nowadays our papers are full of pictures of Imogen Thomas, the girl at the centre of the row over the super injunction granted to a professional footballer, whose identity is well known to the Twitterati, but denied by the injunction to the rest of us with no time or inclination to wade through Twitter. Unfortunately for poor Imogen, the courts refused to protect her identity despite the order in favour of her alleged lover. I am not sure where that leaves consideration of her right to a private life but, for the time being, her friend’s identity is officially protected, and hers is not. (Something wrong here? – Ed)

Twitter is having a field day. It seems likely that it will so effectively undermine the terms of the injunction as to render the injunction and others like it entirely pointless.

In the latest twist, it has been reported that the footballer at the centre of this spat has asked the High Court for an order to search the emails and text messages of journalists at News Group Newspapers in an effort to show whether they have breached the terms of the injunction. It remains to be seen what the court will decide.

All of which goes to show that the world of litigation is changing rapidly and if, as a lawyer, you are not prepared to keep abreast of the changes and adapt accordingly, you run the very real risk of being left behind by your competitors and, in extreme cases, going out of business. It is unlikely to happen overnight, but the slippery downhill slide will be inexorable.

There may well be partners in law firms out there who have pound (or dollar) signs in their eyes, thinking that their firm is ripe for outside investment which will enable them to take off for the Bahamas and never come back. It is quite possible that some will get lucky but unless they have the likes of Stefani Joanne Angelina Germanotta on their side they would be ill advised to bank on it and would be better advised to look to the way their law firms are run and how they intend to deal with the changes which are being forced on them by changing circumstances, the loss of loyalty from clients and the ever present demands of technology.

Otherwise they may become the flash in the pan of 2011-2.