By Kathryn Regina

As founder of Lumen Legal and Chairman of the Global Board of Directors of the Entrepreneur’s Organization (EO), David Galbenski has extensive expertise in entrepreneurial success strategies. His new book Unbound: How Entrepreneurship is Dramatically Transforming Legal Services Today applies entrepreneurial best practices to the rapidly changing landscape of the legal services industry.

Recently we sat down with Galbenski to get his take on the important points of the book and how it will benefit legal professionals.

What’s the main focus of the book? What would you like readers to come away with?

David Galbenski: Two things. The first is that the financial and economic crisis of 2008 delivered the final blow to an industry that was already facing a variety of fundamental issues with its long-term business model. The book outlines a lot of the underlying trends that made the industry vulnerable to the financial and economic crisis of 2008. The result is that—unequivocally—the legal industry has been transformed.

Second, the key question all legal services professionals need to ask is, “In a game where the rules have changed, am I playing offense or defense? Am I going to be a leading innovator in this new environment, or am I merely going to match what my competitors are doing?” 

In addition to our analysis and predictions, we interviewed a dozen or more leading visionaries ranging from corporate counsel, law firms, legal outsourcing providers and more, to get their input on where the industry is going over the next three to five years. Interview sources include  lawyers from Google, Xerox, General Motors, Trilegal, Johnson & Johnson, Vallex Fund, and Deutsche Bank to name a few.

You mentioned that before the recent crisis the legal industry already had a variety of fundamental issues challenging the model. Can you describe some of these issues?

DG: The number one thing that law firms were facing was the on-going challenge to the very profitable associate “leverage model.” Corporations were perceiving a price-value gap in the tasks being performed by associates. And, corporations were starting to push back, which began to threaten the continuing profitability of the model.

The economic crisis has only accelerated this trend. Almost all corporations are now looking at every dollar they’re spending no matter where it’s being spent. Previously the legal department wasn’t subject to such a level of scrutiny. This increased attention to legal fees is further exposing the price-value gap for associate time.

The second thing is that law firms build a high fixed cost associate salary structure that escalated each year. To maintain profitability levels, law firms increased corresponding billing rates on an annual basis. As more and more corporations began pushing back on increased billing rates this model starts to crumble. And, again, the current economic situation is only accelerating the pressure on the model. 

The recent financial crisis has also had a significant, negative impact on large law firms with a significant New York presence. The financial industry generated a lot of price insensitive work for such firms and it fueled substantial profitability growth throughout the first decade of the 2000s. When we emerge from the current economic crisis, I don’t believe that you’ll see the vast majority of that work ever becoming price-insensitive again. A great example of the impact on profitability in 2008 is the 30 percent decline in profits per equity partner at Cadwalader, Wickersham and Taft. As more results get released from 2008, we will see similar results from law firms with significant revenue streams from structured finance and capital markets practice areas. 

Where do you see the legal services industry in the next five years?

DG: The legal industry is undergoing a dramatic transformation. Law is going global. Even small firms are able to outsource some legal support work overseas. Large firms are consolidating into even larger firms. Many will adapt or merge or scramble to survive in small niches. Many will simply go out of business. All will have to acknowledge the forces that are reshaping this industry, and they will have to make serious decisions that go to the heart of how they do business.

Throughout history in the legal services industry, most law firm leaders felt that the business equation regarding change was that the risk of inaction, meaning doing nothing, was less than the risk of action, doing something differently. So even though over the past decade, the trends identified in the book suggested a need for change, firms were still turning a profit with their existing model and did not see the need for imminent change.

This is no longer the case. The acceleration of change in the industry makes it imperative that firms look at their model or risk going out of business. So the equation has reversed: The risk of inaction is now greater than the risk of taking some action even if the firms do not know what the end result of the change will be.

Where do you see Lumen Legal in that equation? How are your services going to fit in?

DG: We’re consulting with corporations and law firms to create strategies with specific tactics on how to change their legal service delivery model. The key hallmark of entrepreneurial innovation is that the change allows the firm to be better, faster or cheaper than the competition.

Unbound: How Entrepreneurship is Dramatically Transforming Legal Services is scheduled to be released on April 2, 2009. To be the first to read the book, please send an e-mail to Lumen Legal at kweaks@lumenlegal.com and you will be entered into a drawing to choose 10 lucky winners when the book is published.