“Virtual” law firms, commonly referred to as “distributed” or “new-model” firms, are rapidly evolving segments of the legal industry. They eschew traditional organizational structures, often allowing lawyers to keep larger shares of their revenue—up to 95% in some extreme cases—and adjust their models based on their likes and dislikes within their previous firms. This continual evolution not only introduces new competition into the sector but also offers partners new opportunities and options.
The virtual law firm landscape has recently been experiencing a particular dynamism, fueled by increasing interest from private equity funds and segments of the AmLaw 200. Frederick Shelton, CEO of Shelton & Steele, a national legal recruiting, M&A, and consulting firm specializing in new-law models, refers to the current industry shakeup as “corporate Darwinism” happening in real-time. This fast-paced evolution, while facilitating innovative practice methods, significantly disrupts traditional operational models.
Notably, the very first virtual law firm, FisherBroyles, established in 2002, has been a source of multiple spin-off firms. Its largest offspring, Pierson Ferdinand, came into existence this month and lists over 50 former FisherBroyles partners on its website. Michael Pierson, the firm’s founder, reported having “commitments” from approximately 130 former partners to join the new firm.
The increasingly dynamic and competitive nature of the virtual law firm space has sparked diverse operational adaptations. For example, to set itself apart, Pierson Ferdinand unveiled a profit-sharing plan for early hires—a first in the virtual law firm realm. This paradigm shift could enhance attorney engagement and potentially foster a more collaborative and equitable work environment.
The pace of evolution in the virtual legal world is revealed in the changing dynamics of revenue distribution among founding partners, and the extent of services provided. As a general rule, the more revenue retained by firms, the more services they tend to offer their partners. Some firms offer marketing support, tech assistance, and allocated office space among other services, but most do not.
Despite the innovative approach, virtual law firms’ rapid evolution and proliferation have also begun sparking concerns. The success of the virtual law model may inadvertently be laying the groundwork for its potential undoing. With the newfound freedom and autonomy offered by virtual firms, nothing really stops attorneys from branching out and creating their own competitors that more closely align with their specific needs. This could lead to an oversaturation of the market, potentially destabilizing the sector.
In the final analysis, the development of virtual law firms signifies a seismic shift in the legal industry. However, this rapid evolution needs to be tempered with conscious policy and strategy decisions to prevent an implosion caused by over-competition and fragmentation. Read the full Bloomberg Law article here.