Some Insight from a Business and Investing Legend

Posted on May 1, 2019 by Joseph Lamport

There are only a handful of brief and shining moments in life when the slipcovers get removed and we are permitted to see and sit upon the real fabric with which the universe has been upholstered.  In this week’s blogpost I’m going to write about just such a moment that occurred for me as a young man, in fact, only about a decade out of law school, when as luck would have it, I had a chance to attend (in a semi-official capacity as a fly-on-the-wall) a meeting among three titans in the business world.

 The first titan (more of a semi-titan really) was my then boss, Jimmy Finkelstein who was the CEO and publisher of the National Law Journal and New York Law Journal.

The second was Vance Opperman, at that time the CEO of West Publishing Company.  Vance’s family had recently sold West to Thomson Publishing for almost $4 billion so Vance really had achieved titan status.

And the third was Charlie Munger – Warren Buffet’s lifelong friend and business sidekick, and a titan in his own right who among his vast business and investment holdings was the owner of The Daily Journal, the largest chain of legal newspapers west of the Mississippi.

In other words, this meeting was something akin to the Yalta Conference which had been convened among the prevailing powers of the legal publishing industry for the purposes of carving up their world.  Mind you, this was back in the early days of Internet 1.0; Netscape was the dominant browser on the market and Google not yet a public company.  And newspaper publishers were still riding high, imagining that the future was part of their franchise, much as the past had been.

The reasons why these titans had gathered together have long since faded from memory—no doubt it was some grand corporate skullduggery.  My boss back then was generally obsessed with doing whatever he could to destroy his arch rival, Steve Brill at the American Lawyer, so no doubt that figured prominently, at least in his agenda.  But for the most part it seemed little more than a fishing expedition, literally; we spent the first half hour listening to Vance and Charlie trade stories about catching big walleye up in the north woods.  Finkelstein remained unusually quiet since his familiarity with fishing was limited to whatever he might happen to reel in on his expeditions to Zabars. 

Soon enough the conversation turned around to the legal publishing business.  Here Finkelstein perked up as he always did when provided with the opportunity to expound on the glories of his publishing empire -- an engine of profitability good for all seasons and markets, since his newspapers filled with employment and new business formation ads in good times and bankruptcy notices in bad times.  

Then Charlie Munger fixed us with his dead eye stare.  “With all the different businesses I’ve been involved in over my career,” he said, “there’s no better way to make money than with a legal monopoly.  But how long do you think even the best of those can last?”

Then as now, this struck me as one of the more revealing comments I have heard about American business.  The fact that it was said by one of the most successful investors of all time lends it an additional piquancy.  Monopolies present the very best business opportunities, natural or otherwise, and legal monopolies are the best of all since they are not susceptible to trust busters or the potential assessment of treble damages.  There is nothing more helpful to profits than when the law itself provides direct benefits and barriers to competition. Yet even so, great as the profit potential of a legal monopoly may be, it’s just not likely to last, not according to Charlie.  All things must pass, I’m afraid, especially the sweetest of legal monopolies. 

I’ve been thinking a lot about Charlie’s comment lately and its relevance to our present situation in the legal market.   For a long time, the legal publishing business was a classic instance of a legal monopoly.  Legal newspapers such as the Daily Journal and New York Law Journal feasted on the revenues from public notice advertising that was mandated by law, which effectively stipulated where those ads had to run.  Not only that but you could get lawyers to write articles for you for free and then turn around and charge law firms an outrageous subscription price and also get them to lavish more money on tombstone advertising.  What a business model!  But those days are long gone and the legal newspaper’s captive enclave has been overrun by technology and a flood of alternative information providers.

And what about the law business itself, which for so long flourished thanks to perfectly legal barriers to entry?   Of course, law firms have always had to compete with each other -- but that’s precisely what gave them uniform license to adopt incredibly inefficient and unbusiness-like practices.  For now, at least in the United States, these legal barriers to competition largely remain in place thanks to state bar associations and the self-regulation of the legal profession, which prohibit non-lawyers from owning, operating or investing in law firms.  Elsewhere – most notably the UK -- those protections have been stripped away creating a far more dynamic and diverse legal market, driving change by attracting new entrants and new capital in the form of alternative business structures.

But remember what Charlie Munger said.  The same sort of transformational change is inevitable in the US legal market and in fact it’s starting to happen right now in a host of ways.  What does this mean for legal marketing professionals?  Among other things, it means that the challenge of marketing a law firm is only going to increase dramatically from here on out.


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