Weil’s demise happened quickly and is unfortunate. Since Bloomberg Law reported the news, many have covered the situation. David Lat also offered a detailed analysis.

Symptoms and central causes

As the dust settles, a couple of core issues appear to have thrown the firm off balance. Two partners, Barry Wolf, who planned to retire, and Michael Aiello, who was supposed to succeed him, had significant decision-making control. Reports suggest dysfunction between the two. Rainmakers were concentrated in the firm, and when Aiello departed for Cravath in September, the firm lost its highest-paid partner and biggest rainmaker along with five other M&A partners.

Personality conflicts and some dysfunction exist even in the best-run firms. But like a public company that isn’t delivering earnings for investors, Weil was lagging its peers in Profit Per Equity Partner (PPEP).

Guest columnist Ken Crutchfield is founder and CEO of Spring Forward Consulting. A regular contributor to LawSites, he has over 40 years of experience in legal, tax and other industries. Read more about him at the bottom of this post.

Law firm partnerships have an inherent vulnerability that corporations don’t because of ABA rules on client portability. Those rules let partners leave a firm for a better deal, taking clients with them. Low PPEP creates opportunities for other firms to poach.

Is this a one-off occurrence? 

A firm with lower PPEP can be like a car in the rain with bald tires. All is well in steady weather conditions, but the model’s fragility can be tested when storms create slick roadways. Partners may find it better to move.

BigLaw leaders should be checking the weather forecast. Indeed, leaders are scrambling to understand the lessons from Weil, even if it was a perfect storm of events that took down the firm.

Is a storm of lateral moves brewing?

My big question is whether lateral hires are about to accelerate. Several factors could be in play.  First, AI-native law firms are creating new demand for talent. And second, some technology-forward firms may master AI for increased PPEP before their peers.

AI-native law firms

Venture capital has been flowing into so-called AI-native law firms. These are new upstart firms without legacy processes, tech stacks, or change-resistant lawyers. They are full of bright minds and attorneys willing to test the limits of technology and tools to create leverage. Some are attracting proven talent, and others like Crosby are going after some of Weil’s assets.

Firm Prospects suggests that demand from AI companies is even becoming a distinct category for departures from AmLaw 200 firms.

Buyers of legal services are beginning to consider AI-native firms when selecting panels. Still, it remains to be seen when these new model firms will gain the reputation and cachet needed to perform higher-stakes work. Time will tell.

Managed service organizations (MSOs) affect PPEP

Some of these new upstart AI firms are organizing around the MSO model, and BigLaw may also begin to adopt it. MSOs may also become a practical way to achieve the benefits of AI.

An MSO is a business that handles a firm’s support functions and infrastructure. The non-legal functions are separated into an entity that can accept private capital without violating the rule against non-lawyer ownership. The intended benefit is efficiency and higher PPEP.

Healthcare has gone through a similar shift. Medical professionals continue to practice medicine, while an MSO manages the office or a hospital network. The MSO employs support staff, manages the back office, facilities, and technology.

Wood Smith Henning & Berman, a large litigation defense firm, recently took on private equity investment to launch an MSO.

MSOs show promise and may be a practical step towards reengineering firm workflows to leverage AI.

For early movers, firm partners may get equity in the MSO, which can increase retention and reduce lateral movement.

But decision-making and separating operations from the practice of law may test some boundaries and create execution risk.

For example, can an MSO move a support function like knowledge management to the Philippines to save costs? Does an MSO create a more responsive firm or a more bureaucratic firm? Early adopters face risk and reward. The success (or early missteps) could create more lateral movement. Longer term, I think those challenges will work themselves out.

If we assume AI changes how legal work gets done, firms that achieve results from the changes will likely have higher PPEP, and firms that don’t will have lower PPEP.

Who could be vulnerable?

Firm leaders should take an honest inventory of their management structure, including decision-making and sources of business. Do those partners operate on a time horizon shaped by their personal situation, or by the firm’s long-term interests? Where does new business come from? Does new work come in from a diverse set of partners? Or is it concentrated?

Does the firm lean into technology and have realistic plans to redesign workflows and to leverage AI?  Is the technology plan characterized by a few title changes of existing staff? Or is there leadership engagement that empowers a broader grassroots movement?

Engaging a third-party organization to help with an assessment may be advisable.

What can firms do?

If the assessment shows vulnerabilities, here are some potential actions a firm can take.

Relationship Intelligence

Consider an investment in a relationship intelligence solution. CRM is not a sexy category, but a system that helps assess the relative strength of client relationships and who contributes to them provides a clearer picture of a firm’s health and prospects. A system like this can also help facilitate conversation about firm incentives. A better system may help determine whether incentives like origination credit need to be adjusted to ensure firm growth and retain key partners.

Revisit your innovation program

Effective solutions combine new technology with process changes. Behavior must change, and data must be organized. Incorporate change management into plans. Is leadership committed to change? Develop KPIs and goals tied to successful outcomes, and create incentives that drive adoption. Even the best solutions fail if nobody uses them.

Monitor MSOs and AI-native firms

Keep abreast of trends and organizations leading change. There is no need to be first, but it is important to be prepared to follow fast when different approaches show promise.

No one has a crystal ball, but studies show why firms fail. I do believe we are close to an inflection point in the legal profession where motivated attorneys will look for the best tools and infrastructure to advise clients well and make money doing that.

Law firms are risk-averse, and no firm wants to be the next Weil. Hopefully the situation was a one-off event, but the pace of their demise is a wake-up call for other firms that might flirt with a slower version of the same if they don’t view themselves honestly.

Ken Crutchfield, founder and CEO of Spring Forward Consulting, has over 40 years of experience in legal, tax and other industries. Throughout his career, he has focused on growth, innovation and business transformation. His consulting practice advises investors, legal tech startups, firms, and others.As a strategic thinker who understands markets and creating products to meet customer needs, he has worked in start-ups and large enterprises. He has served in General Management capacities in six businesses.

Ken has a pulse on the trends affecting the market. Whether it was the Internet way back in the 1980s or Generative AI, he understands technology and its impact on business.

Crutchfield started his career as an intern with LexisNexis and has worked at Thomson Reuters, Bloomberg, Dun & Bradstreet, and Wolters Kluwer. Ken has an MBA and holds a B.S. in Electrical Engineering from The Ohio State University.