This couuld be the introduction to a column about why technology, Web 2.0, and collaboration at a distance all add up to precisely zero threat to places like New York and London--making them, in fact, more important than ever--but I have a different road in mind. The road I want to go down today is about interpretation and nuance coming out of shared experiences, and how widely they may vary.

Our text for today is the National Law Journal's article "Survival Tips for Law Firms," covering a presentation on "The Law Firm of the Future -- Who Will Be the New Winners and Losers?" that I gave at DRI's annual convention in New Orleans last week. Here's the line from the article that got my attention (emphasis mine):

The law firms that survive during these trying economic times are the ones that are willing to discount rates, said panelists, which included Bruce MacEwen, a New York-based law firm consultant; Sheryl Willert of Williams Kastner in Seattle; Patricia Diaz Dennis, senior vice president and assistant general counsel of AT&T; and Raymond Williams of DLA Piper's Philadelphia office.

That's actually not what I said. But what do I know? I was only there.

With all deference and utmost respect to the reporter, understanding the demands of delivering from remote locations on deadline, the fascinating aspect of this story to me is how perceptions of the "same" event experienced by different people end up producing such different impressions.

So what did I talk about at the DRI annual meeting?

• The client/law firm disconnect
  • Two-thirds of law firms give themselves an A on client service, but fewer than 1 client in 5 does
  • 85% of clients rank us poorly based on our understanding of their needs
  • But 85% of them say they explain what they need very clearly
  • 60% of clients are unwilling to share investments in knowledge and training
  • But over 80% want to "share" cost over-runs
• The billable hour conundrum
  • Now that we can itemize to the dime what we did, by whom, when, and where, we think we're bulletproof on fees
  • But this is only an invitation to clients to micro-scrutinize what we actually did, and to tell us that we did it (a) unnecessarily; (b) with the wrong people; or (c) inefficiently
  • Wouldn't it be better, after all, if we could just get back to "For professional services rendered: $XX,000"?
  • As for "professsional services rendered," do you think it's a pipe dream? Go back 30 years (or less, where client trust prevailed) and it was commonplace. I'd like to think it would become commonplace again during the remainder of my career.
• The requirement to make your clients look good
  • Impeccable lawyering is, and has been for a long time, table stakes. Any serious AmLaw 100 or 200 firm can do your deal or defend your litigation with, in all likelihood, utter competence.
  • But true client service goes beyond that. An associate GC at Goldman Sachs calls legal advice "level 1" service, but you want to get to is "level 2." "Level 2" is "that you make me look good; you don't just return my emails, you figure out what I need to be totally prepared for this internal meeting I have coming up, and you advise me on that. Because that's where you distinguish yourself."

Back to the beginning: How could it be that it was reported that I recommended, in a soundbite, discounting rates--which I firmly disavow as a strategic model, and which I never have and never will advise--as opposed to all the thngs enumerated above that I actually thought I did say?

Actually, I can't answer that question. As I said, reporters in remote locations under deadline file stories. That's their job and I commend them for it. In my experience, they are almost without exception responsible, accessible, and committed to their craft.

My answer is on a slightly different level: They no longer have the last word. The famous "Mainstream Media" have lost their monopoly.

Look at the news that was reported in the space of a single week:

• The Christian Science Monitor will no longer publish in print, but only online.
• The Newark Star-Ledger, on track to lose $40-million this year, is laying off 40% of its newsroom staff.
• Time Inc. is laying off 600 people.
• The long decline in newspaper circulation appears to be accelerating, with drops occurring "nearly across the board."

Should we then be wringing our hands at the (inevitable, no matter how much they may protest) impairment of editorial coverage? I for one counsel optimism. How is that possible? Look around. There have never in history been more media outlets than there are now.

Other publications, including, I would fervently hope, "Adam Smith, Esq.," cover important issues with substance and depth in ways that conventional distribution models cannot always match. Imagine, if you will (yes, I've tried this thought experiment myself) bringing a business plan to a venture capitalist proposing, 5 years ago, to launch something resembling "Adam Smith, Esq.," but to do it as a monthly print publication. You would be escorted to the door before you could open your laptop. Why? Because it would be perfectly obvious that assembling a global audience of people interested in something as arcane (yes, I can say that) as "the economics of law firms" would be a fool's errand.

But, to launch the same publication online would be, and has been, entirely feasible:

• It permits you to "publish" multiple times per month, essentially at will, as topics develop;
• Everything is archived, and available through a click, in perpetuity;
• The combined power of word of mouth and my best friend, "Forward," will help grow circulation;
• The marginal cost of an additional copy is zero;
• It's available on demand across a variety of platforms from desktops to smart phones;
• And by now you get the idea: One would be a fool to launch any new publication other than online.

Don't for a moment think I'm Holier than Thou: Online publications can err as egregiously or more so than mainstream media--certainly if they're unreflective and sensational (I don't need to name names). But we have enough experience now with the media, onlne and off, to know who we believe and who we suspect of bias, who we know writes to unyielding daily deadlines and who publishes to the clock of a different drummer, who has column-inches to fill and who doesn't.

Herewith the first and last discussion you will ever read in these pages about the conventional publishing model.

Thank you for reading "Adam Smith, Esq."

The following comes from E. Leigh Dance (see immediately below), who has a strong perspective on what globalization means for our industry.  Thanks, Leigh.

E. Leigh Dance
For 15 years E. Leigh Dance has led the global legal services consultancy, ELD International, working with global law firms and corporate law departments around the world.  She is based in Rome and New York and has a London office. 

Earlier this month Thomas Friedman, in his October 5 New York Times column, wrote about the implications of our suddenly new age.  He describes what we're moving into as "globalization and financial integration on steroids." 

"Even though the dollar has strengthened a bit lately," Friedman says, "we are going to need foreigners and sovereign wealth funds from China, Asia, Europe and the Middle East more than ever to survive this crisis...  In the process, we are going to become even more intertwined and dependent on the rest of the world."

While many firms rightly focus on cash flow today, there's also the question of globalization.  American law firms, by and large, have a long way to go.  Adam Smith, Esq. has commented in the past (including in a June 4th column) that New York firms are behind the eight-ball (and behind the Magic Circle) in their international growth.  Whichever side of the proverbial pond, law firms cannot assume they've become global when more than 85% of their fee earners are practicing domestic law and based domestically.  
Of the AmLaw Global 100 (newly released this month), only 38 have more than 15% of their lawyers outside of home country. 

Of the Global 100 firms with offices in at least three countries, a few numbers:

Firm (overall ranking)             % of lawyers outside home country

Kirkland & Ellis (11)                8%
Greenberg Traurig (12)          4%
Morgan Lewis (17)                  7%
Slaughter & May (32)               8%
Bingham McCutchen (39)      4%
Foley & Lardner (41)               <1%
Proskauer Rose (49)              4%
King & Spalding (50)               4%
Holland & Knight (51)             <1%
Pillsbury (57)                            2%

... and at the opposite end of the spectrum:

Firm (overall ranking)             % of lawyers outside home country
Clifford Chance (1)                 65%
Linklaters (2)                           62%
Freshfields (3)                        67%
Baker & McKenzie (4)            82%
Allen & Overy (6)                     59%
White & Case (10)                 66%
DLA Piper Int'l (16)*               51%
Lovells (22)                             76%
Norton Rose (56)                   51%
Simmons & Simmons (59)     60%
*DLA Int'l does not include US - DLA Piper US is separate,only domestic

We know that the UK firms expanded internationally more quickly--the size of their home market dictated it.  Many UK firms are also ahead in fostering the diversity (origin, not race) of their lawyers and the firm's approach to serving clients from many places. 

Of course, UK firms have a glaring gap in their coverage that seriously discounts their lead in other countries:  the US.  The US makes up the lion's share of the world's legal market, and American firms have kept much of their manpower where the money is.  But the make-up of the US market is changing.

As Adam Smith, Esq. wrote in a May 16 article, recent McKinsey research showed that top companies have differentiated themselves through global talent management, including:

• "encouraging people to get experience across multiple locations,
• regarding overseas experience as a prerequisite for promotion, and
• offering managers incentives to move talented employees to other functions or geographies."

Though there are exceptions (Cleary and Latham spring to mind), these sorts of moves have been a relatively low priority for most American law firms.  Even though much growth in work with US multinationals has been outside of the US, now we're talking about a different global equation.

As Friedman comments, the avalanche of incoming foreign capital means that the days of unilateral exercise of American power are pretty much over:  "As the old saying goes:  He who has the gold makes the rules.  Well, we no longer have as much gold, and until we get some, we will have to pay more heed to the rules of those who lend us theirs."

Both firm leadership and partners in their prime have lived through the glory days with their American or English legal systems making the rules and driving the approach to mega transactions, litigation, intellectual property, private equity and regulatory advocacy around the world.   The top Anglo Saxon law firms have excelled at serving global companies primarily run by Anglo Saxon executives according to a predominantly Anglo Saxon approach to international business.  Indeed, I am one of the Anglo-Saxon consultants who has benefitted from these glory days (though I have a few languages and several countries in my portfolio).

Last spring I moderated a roundtable of top global counsel where one General Counsel talked about his big Chinese legal team.  An American, he relayed their viewpoint, which had startled him: "Who says that future global business growth must be centered on American or western legal principles?  Why can't it come from the East-- from the Chinese, for example?"  The counsel around the table were squirming in their seats. 

What, globalization without us as the referees?  That's a whole different ball game. 

New game, new age.  In his article, Friedman quotes Jeffrey Garten, professor of trade and finance at Yale:

"Being a bigger debtor nation means losing even more of our sovereignty.  It means conducting our economic policies with an eye toward whether others approve.  It means bearing the advice and criticism that we have dispensed ad nauseam to other countries for over a half a century." 

Garten suggests that this goes beyond governments into the heart of business.  "Corporate decisions will become more sensitive to international factors, in part because more non-Americans will be on the governing boards."

US law firms with global ambitions need to look at how they can prepare to thrive.  Even if the vast majority of your workforce is here at home, that workforce needs to know lots more about navigating in the world's fastest growing markets, both externally and within the firm.  The vast majority of the lawyers in international offices of US firms tell me that their firm's operating and management style is all American. 

Nothing wrong with that, historically speaking.  But tomorrow, when more of your relationships at your big US multinational client are with non-Americans who may want to see the world and do business their way, you won't necessarily be their first choice advisors.

So what to do?  To succeed in this intertwined world, law firms must go beyond the cliché and foster a truly international mindset.  Just as important but far less tangible than the new Dubai office is changing service delivery to meet demands of non-American and globalized American businesses.  It has to be part of your plan.  Global talent management is just one piece of that profound and demanding strategy, and it goes beyond hiring foreign laterals. 

It's also important to reconsider and adjust your practice growth strategies for the fundamental differences in practice approach and dynamics across geographic markets.  Train lawyers and staff to work effectively in multi-cultural teams.  Hire people at home and abroad that speak several languages and have grown up in more than one country.  Move your institutional assets (of every age) across borders, including into the US.

Building cultural adaptability and capability is not easy.  But from my vantage point, you'll have to take Friedman's (and Darwin's) word for it:  you don't really have a choice.  

I am happy to re-publish the press release issued this morning by ThomsonReuters reporting on a new alliance we have struck.

For my purposes, the value of this will be being able to offer you, my readers, an additional perspective on legal industry market conditions at a time when they might be of particular interest.

As for his Times op-ed columns, we are, as you know, resolutely apolitical here at "Adam Smith, Esq." Perhaps the best that can be said of those is that we come not to praise but to bury them in the context of his winning the Prize. Or, as was said more pungently in Australia's National Post, "You don't get the Nobel Prize in Economics for writing newspaper columns (as I've been trying to explain to my mother the last couple of days). So the prize awarded Monday to Paul Krugman should not be read as an endorsement of Krugman's uber-Democratic newspapering."

Actually, I'll give the last word on his Times op-eds to his fellow columnist Maureen Dowd:

"I'm not sending Paul Krugman Champagne.

He won the Nobel prize in economics this week, and while I'm sure that's delightful for him, it has raised the bar to an impossible height for his fellow columnists at The Times. We used to strive for Pulitzers, or simply regional awards, or even just try to top each other on the paper's most e-mailed list.

Now we're supposed to compete for Nobels?"

We're here to take a brief interlude, a detour, if you will, into economic theory and into what Krugman's Nobel is all about.

Classic models of trade between countries, stemming from David Ricardo's shockingly brilliant concept of "comparative advantage," predicted, in theory, that trade flows would depend on such things as ratios of capital to labor, with capital-rich countries exporting capital-intensive goods and importing labor-intensive goods from labor-rich countries.

But that's not what the data showed. In reality, most international trade takes place between countries with very similar capital:labor ratios.

Krugman sought to, and succeeded in, explaining this. His explanation was based on economies of scale and on transaction costs across distances. What does this mean?

Economies of scale mean that producer incentives are to concentrate production in a limited number of locations. Too abstract? Let's make it concrete: There's a reason Silicon Valley is a self-reinforcing hub of high technology and innovation in general. An engineering and entrepreneurial culture combined with venture capitalists combined with a world-class research university (Stanford) combined with a very start-up friendly business ecosystem has made it a hotbed for new companies.

Similarly, New York and London are likely to remain global financial centers as far as the eye can see. They both have the infrastructure that sophisticated financial professionals depend on. Permit me to state the obvious ones:

• English
• Entrepreneurial cultures
• The Anglo-Saxon common law tradition, and the rule of law
• An indigenous infrastructure of banks, law firms, marketing professionals, and all the multifarious support professions.

And the less obvious:

• Workable, if not Asian-clean-slate, physical infrastructures
• Terrific international air connections
• Fabulous stores, restaurants, museums, parks, and schools
• Great, and highly diverse, residential and commercial real estate

But back to Krugman.

He described his basic findings in the 1992 "Geography & Trade:"

"Because of economies of scale, producers have an incentive to concentrate production of each good or service in a limited number of locations. Because of the cost of transacting across distance, the preferred locations for each individual producer are those where demand is large or supply of inputs is particularly convenient -- which in general are the locations chosen by other producers. Thus [geographical] concentrations of industry, once established, tend to be self-sustaining."

An example he used was that the auto industry in capital-intensive Sweden exports cars to capital-intensive America while also importing cars from America.  The logic is that both Volvo and GM can reduce costs by producing a relatively large output (sufficient to satisfy worldwide demand) in particular geographic niches where the requisite inputs are concentrated. 

Krugman, of course, was building on the theory of comparative advantage, which he explained perhaps most famously in "Ricardo's Difficult Idea." Comparative advantage is a theory at once powerful and notoriously elusive, which--although beloved by economists, including yours truly--seems to inspire incomprehension even by those who loudly retort that while they subscribe to it, they only happen to see certain exceptions applying, which are only visible to those with a particularly subtle intellect.

At that point you know you're in the company of someone whose fellow intellectual travelers include those who proclaim their belief in evolution while demanding equal time in the schools for "intelligent design." They say they believe, but they don't believe.

Here's where Krugman's brilliant "Ricardo's Difficult Idea" comes into play. Permit me to quote at some length (my own Cliff's Notes version is here at the bottom):

My objective in this essay is to try to explain why intellectuals who are interested in economic issues so consistently balk at the concept of comparative advantage. Why do journalists who have a reputation as deep thinkers about world affairs begin squirming in their seats if you try to explain how trade can lead to mutually beneficial specialization? Why is it virtually impossible to get a discussion of comparative advantage, not only onto newspaper op-ed pages, but even into magazines that cheerfully publish long discussions of the work of Jacques Derrida? Why do policy wonks who will happily watch hundreds of hours of talking heads droning on about the global economy refuse to sit still for the ten minutes or so it takes to explain Ricardo?

[...]

At a deeper level, comparative advantage is a harder concept than it seems, because like any scientific concept it is actually part of a dense web of linked ideas. A trained economist looks at the simple Ricardian model and sees a story that can be told in a few minutes; but in fact to tell that story so quickly one must presume that one's audience understands a number of other stories involving how competitive markets work, what determines wages, how the balance of payments adds up, and so on.

[...]

I believe that much of the ineffectiveness of economists in public debate comes from their false supposition that intelligent people who read and even write about world trade must grasp the idea of comparative advantage. With very few exceptions, they don't -- and they don't even want to hear about it. Why?

[...}

[I]f one tries to explain the basic model to a non-economist, it soon becomes clear that it really isn't that simple after all.

There are, I believe, at least three implicit assumptions that underlie the most basic Ricardian model, assumptions that are justified by the whole fabric of economic understanding but are not at all obvious to non-economists. Here they are:

- Wages are determined in a national labor market: The basic Ricardian model envisages a single factor, labor, which can move freely between industries. When one tries to talk about trade with laymen, however, one at least sometimes realizes that they do not think about things that way at all. They think about steelworkers, textile workers, and so on; there is no such thing as a national labor market. It does not occur to them that the wages earned in one industry are largely determined by the wages similar workers are earning in other industries. This has several consequences. First, unless it is carefully explained, the standard demonstration of the gains from trade in a Ricardian model -- workers can earn more by moving into the industries in which you have a comparative advantage -- simply fails to register with lay intellectuals. Their picture is of aircraft workers gaining and textile workers losing, and the idea that it is useful even for the sake of argument to imagine that workers can move from one industry to the other is foreign to them.

Not is it obvious to non-economists that wages are endogenous. Someone looks at Vietnam and asks, "what would happen if people who work for such low wages manage to achieve Western productivity?" The economist's answer is, "if they achieve Western productivity, they will be paid Western wages" -- as has in fact happened in Japan. But to the non-economist this conclusion is neither natural nor plausible.

- Constant employment is a reasonable approximation: The standard textbook version of the Ricardian model assumes full employment in both countries. But in reality unemployment is constantly a concern of economic policy -- so why is this the usual assumption? There are two answers. One -- the answer that Ricardo would have given -- is that international trade is a long-run issue, and that in the long run the economy has a natural self-correcting tendency to return to full employment. The other, more modern answer is that countries have central banks, which try to stabilize employment around the NAIRU ["Non-Accelerating Inflation Rate of Unemployment"--Bruce]; so that it makes sense to think of the Federal Reserve and its counterparts acting in the background to hold employment constant. This is not at all the way that non-economists think about the issue.

- The balance of payments is not a problem: The standard textbook presentation of the Ricardian model assumes balanced trade -- indeed, it is usually a one-period model in which trade must be balanced. Yet the news is full of stories about the balance of payments, of complaints about trade surpluses and deficits. Why are these absent from the story?

Again, economists have good reasons for thinking that it is a good approximation to separate balance of payments from real international trade issues. In Ricardo's case, the essential ingredient was the argument by David Hume that trade imbalances are self-correcting: a surplus country will acquire specie, leading to rising prices that price its goods out of world markets, while a deficit country will correspondingly find its goods increasingly competitively priced. In the modern world, again, the channels involve less Invisible Hand and more government intervention: when monetary policies target the unemployment rate, exchange rates do the adjusting. Economists are also aware that even persistent trade imbalances are not necessarily a problem, and certainly that surpluses are not a sure sign of health or deficits one of weakness.

Permit me to try to summarize the virtues of comparative advantage.

The benefits of trade do not depend on countries' having absolute advantages over other countries, but only on having comparative advantages. This means that a country that is absolutely disadvantaged in producing all relevant goods and services can still benefit from trade. The secret is opportunity costs, not absolute costs.

Consider two hypothetical countries, North and South, which produce only two goods, food and clothes. If each country devoted its entire economy to producing food, North would produce 100 tons and South 200 tons. Similarly, if each devoted everything to clothes production, each would produce 100 tons of clothes. South appears absolutely advantaged, so where's the benefit from trade?

First, let's pretend that each country is equally predisposed to consumption of food and of clothes, so that each devotes 50% of their productive capacity to each. This produces:

Now let's assume trade barriers are lifted and each concentrates entirely on its preferred output in anticipation of being able to trade. This yields:

Of course, this "production" leaves North starving and South naked.

So if we introduce actual trade and imagine some arbitrary preference "price" of one ton of Food for 2/3 ton of Clothes, we get:

Everyone is better off.

Now, if you still don't believe me, consider the famous "attorney/typist" example.

Suppose you're the best lawyer in town and also the fastest typist in town; you have an absolute advantage in both.

Q1: Are you going to go to work as a secretary? Obviously not. You put your absolute advantage as a lawyer to its highest use.

Q2: Are you going to type your own documents? Obviously not. You put your comparative advantage as a lawyer to its highest use.

You are now a subscriber to the doctrine of free trade.

James Surowiecki, writing in the current New Yorker, talks knowingly about the repercussions of being a public company.

And he was writing before the most recent downward acrobatics occasioned by Congress' incomprehensible, profoundly irresponsible, self-serving, and altogether shocking rejection of the Treasury's rescue plan. Here at Adam Smith, Esq., we don't editorialize, but numerous analyses of the votes have shown that those congressional representatives facing contested elections voted overwhelmingly against while those with safe seats voted overwhelmingly in favor. You are at liberty to draw your own conclusions, but the word "courage" ought to be a part of your reflections.

Back to the repercussions of being public. Here's the intro:

Before the government stepped in last week, the bodies of financial institutions--Lehman Brothers, Merrill Lynch, and A.I.G., with Washington Mutual and even Morgan Stanley threatening to be next--were piling up so fast it seemed possible that Wall Street might simply cease to exist. The list of blunders that led to the carnage is by now familiar: firms succumbed to the frenzy of the housing bubble; relied on dubious mathematical models to manage risk; and leveraged bad bets with suicidal amounts of borrowed money. But the impact of these mistakes was made worse by a seemingly harmless decision that these companies made many years ago: the decision to go public. Doing so put the firms at the mercy of the stock market, and last week that mercy evaporated.

Once upon a time, investment banks were private firms, structured as partnerships, and relying on the capital provided by the partners in order to run their operations.

Sound familiar?

It only gets more so (interpolated text mine):

For Wall Street firms, going public was a deal with the devil, because it meant exposing themselves to what was, in effect, a minute-by-minute referendum, in the form of the stock price, on the health of their operations. This was fine as long as things were going well--the higher the stock price, the richer everyone got--but, once things started to go bad, that market referendum started to look like a vote of no confidence. And that made the problems that the companies were already facing much, much worse.

That's because the entire edifice of Wall Street is built on confidence. Investment banks [law firms] rely on short-term debt [people] to run their businesses, and their businesses consist of activities--trading, dealmaking, money management--that depend on people's faith in their ability to honor their obligations [continue to perform at impeccable levels]. As soon as the customers and creditors of a company like Lehman start to wonder whether it might collapse [the firm will lose top talent], they become less willing to lend or to trade, and more likely to demand their money back [take business away]. The perception of weakness exacerbates the reality of weakness. And although there are myriad measures of a company's health, nothing looks scarier than a stock price that's heading toward zero.

About now you may be arguing that the "stock price" of a law firm should reflect more than the inchoate and indefinable notion of "confidence" in its ongoing power as a magnet for talent, that, after all, the firm has serious clients and a genuine accomplishments and a powerful partnership and a strong pipeline of associates and robust and reinforcing systems of professional development, recruitment, knowledge management, business development, and so forth.

Nice try.

The problem is that if the "stock price" of a law firm drops, it might well signal a drop in confidence in the firm's ongoing viability, whereas the drop in the stock price of most corporations which aren't entirely dependent on confidence per se signals only a drop in expectations for their near-term performance, not an existential questioning of their reason for being.

Thus concludes the article:

The downward spiral can be stunningly fast and near-impossible to escape. Lehman's assets were not significantly more toxic last Monday, when the company filed for bankruptcy protection, than they had been a week earlier. And, technically speaking, the bank may not even have run out of money, since it had access to an emergency liquidity line from the Federal Reserve. What Lehman did run out of was credibility. It couldn't remain a going concern because creditors and customers no longer trusted it. Why would they, when its stock price had fallen nearly eighty per cent in the previous week? The less faith the market had in the possibility of Lehman's survival, the more remote that possibility became.

This doesn't mean that stock prices don't reflect reality--Lehman's business really was in bad shape--or that Lehman would have survived had it been private. But being publicly traded makes it harder to take the long view and survive market storms. [...]

Considering that Wall Street firms spend all day dealing with the market, they have been slow to understand just how vulnerable they were to it. Companies like Lehman and, earlier, Bear Stearns saw going public as an excuse to take on more risk and act more recklessly, when in fact becoming a public company makes caution more important, since the margin for error is smaller, and the punishment for failure swifter. Now that the government has acted, Wall Street (or what remains of it) may yet be able to regain investors' confidence. But long-term survival really depends on remembering the fundamental truth about playing with other people's money: it's a lot of fun until they suddenly decide to ask for it back.

Am I counseling, then, against considering the possibility of going public or taking on material amounts of outside investment? No, I'm only counseling against doing so without considering the long-run repercussions of having to deal with (a) transparency and disclosure that outside investors will demand; and (b) the possibility--and the repercussions--of their yanking their money.

You have tools to fight the reality that being publicly traded makes you "vulnerable" and that it punishes reckless behavior more swiftly. For example?

One thing investors always favor is a stable revenue stream over a variable one. They prefer subscriptions to events, wealth management programs to brokerage commissions, leases to sales, and, in general, ongoing relationships to opportunistic and expedient windfalls.

Let's assume that going public is not within your sights at the moment: What do the preferences of investors have to tell you? Here are a few thoughts:

• Lateral partner acquisitions for revenue bumps are a losing game. This is buying market share, and what you buy is for sale to the highest bidder.
• Lateral partner acquisitions for increasing your firm's capabilities hold, to the contrary, potential promise. Skadden, for example, doesn't even ask lateral partners about their books of business; they only care about what potential partners can add to the firm's capability.
• Thinking of merging? Same analytics apply. Would it add capability or merely revenue?
• Or, approach it from the perspective of client relations: It's amply proven that the more practice groups within your firm a client utilizes, the more loyal that client is. Loyal clients provide more stable revenue streams than one-off clients. So cross-marketing is not just a nice thing, it could be vital to your long-run stability.
• Finally, don't permit partners (senior or otherwise) to hoard clients. Insist that they expose the clients broadly to other members of the team, making the client a client of the firm rather than the individual.

The vast majority of large, profitable, and growing US and global corporations are, of course, publicly held. So there must be something to that model.

But investment banks, and law firms, may be different. Pay attention.

One of the best single pieces of coverage comes from The San Francisco Chronicle.

Heller was founded in 1890, rode through the 1906 San Francisco earthquake (in the aftermath of which the nascent client Wells Fargo Bank set up a temporary headquarters at the home of founding partner Emanuel Heller), helped arrange financing for the Golden Gate Bridge, the Hoover Dam, and the Oakland Bay Bridge, and in more recent years took a pro bono case to the US Supreme Court that established the right of conscientious objection during the Vietnam War, took Levi Strauss public, and represented plaintiffs overturning California's same-sex marriage ban.

But it's over.

Here at "Adam Smith, Esq." we're not about sentimentality, not about pessimism, and not about optimism, but about realism. Heller's over. What can we learn?

We don't like to talk about it, none of us do, not me, not senior partners, not bankers or consultants to the industry, but the stark, glaring reality is that law firms are fragile institutions. Brobeck, Coudert, Heller, Shea & Gould, among the firms that didn't deserve it, and Finley Kumble and Myerson & Kuhn among the firms that did.  I could but won't go on. (Not to mention innumerable firms that were absorbed through merger in the nick of time to escape the guillotine.)

What went wrong?

Prefatory note: I don't have any inside information, but what follows is reading the tea leaves.

First of all, they should never have absorbed the Venture Law Group. It made no sense. Would it have made sense for VLG to be absorbed by another firm, perhaps Morrison & Foerster or Orrick? Perhaps, and of course we'll never know. But my instinct is that VLG was a sui generis creature that would never really fit within any law firm with a conventional legal industry business model. So Heller may have been ill-advised to take on the VLG group to begin with. Did this kill Heller? Of course not. Was it a strained fit from the beginning? Sure. And strained fits entail costs, economic and intangible.

Second, the Heller story should discredit, if more evidence or argumentation were needed, the notion of term limits for managing partners. Matthew Larrabee is of course the current, and final, managing partner, and Barry Levin was his immediate predecessor. What's wrong with term limits?,

Understand, as with the absorption of VLG, I'm not suggesting Barry could have saved the firm at this juncture any more than I'm suggesting Matt is responsible for its demise, but I'm strongly suggesting this:

• Your firm has a Chairman who is, by all accounts, widely respected inside and outside the firm;
• He has, as a matter of obligation to his Chairman responsibilities, let his practice go fallow, making him initially unproductive if he has to return to practice;
• The firm seems at the top of its game;
• There is no self-evident need to replace him;
• And you forcibly remove him anyway.

What sense does this make?  Why trade winning horses in mid-stream?

(Parenthetically, we are facing that same situation here in New York City as our term-limited Mayor Bloomberg will come to the end of his tenure on December 31, 2009, and everyone who is by self-anointment in line to stand for Mayor is, relatively speaking, a midget.)

Third, if you're in merger discussions at a moment of relative weakness, eschew hubris. Like to think that your firm is the firm that it was a decade ago or the firm that it could be a decade hence? Get over it. You're the firm you are today. So is your potential merger partner, and they might not be who you used to think they were.

I started this column by saying that I'm not an optimist and I'm not a pessimist, but that I'm a realist. I partly lied.

I am a realist, but I'm also an optimist, and I never have been and never will be a pessimist. You have the right to be optimistic about your firm, in merger talks or otherwise. More strongly: You have the obligation to be an optimist about your firm.

Fourth, fragility, again.

"Our assets go down in the elevator every night."

Take that bromide seriously.

You must give people a persuasive reason to come back "home" every Monday morning.

Make them believe in the ongoing vision of a vibrant institution, a living firm where they can make a contribution in their own