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Two more reasons why law firms may be slow to innovate

Whatever a clever law firm devises, competitors will soon learn and sooner thereafter adopt. This inability to capture the major rewards may discourage law firms from incurring the cost of developing innovations. This obstacle comes from an article to be published by Mitt Regan, Co-Director of the Center for the Study of the Legal Profession, that discusses offshoring legal services (at 143). In his view, since law firms enjoy no intellectual property protection for any innovations they develop, they don’t bother to come up with significant new advances. Firms are also torn between publicizing their progressive steps and protecting those steps from competitors.

The article mentions another reason why law firms might be reluctant to test new arrangements. “[L]aw firm financial structure may discourage investment in innovation. Firms distribute their profits to partners at the end of each year. Many do not hold back the equivalent of retained earnings for investment in the firm, in part because of fear that profitable partners leave for more lucrative options and other firms.” If a new idea takes capital or defers profit, the compensation expectations of partners (“right now!”) discourages both.

A gloomy picture, this, in terms of legal departments hoping for new thinking from their law firms (See my post of May 4, 2005: law firms not being innovative or being rewarded for new thinking; Sept. 10, 2005: law firms are not first movers; Feb. 11, 2007 on the lack of creativity by law firms; Oct. 30, 2005 #3: survey data on creativity; May 16, 2006: more survey data; and July 21, 2005: the low value law departments place on law firm creativity.).