Great article in the Legal Intelligencer on how law firms are changing their business models and practices to keep up with the pace of change in the legal industry and to meet changing client demands.
Some key takeaways:
- even firms that are smaller (100 lawyers), older and not thought of as innovators are doing things differently, like creating outside board of legal industry expert advisers, investment funds for the firms to support innovative ideas, and creating spaces within their offices so startups and entrepreneurs can interact.
- firms have largely eschewed innovation and have not traditionally offered the breadth of services consultants do. But, they are uniquely situated to do so because of the scope of their business, political, philanthropic, global and local connections.
- Firms of the future will have more professional resources embedded within to help identify what the client needs (and not just their legal needs).
- Firms will need more people who are trained managers and understand business needs and generally be more business-minded.
- Demographic trends will create a shortage of highly qualified lawyers to assume leadership positions at firms as well as a shortage of associates entering firms. This will create increased competition between firms and their clients for legal talent. Talent strategies, including professional development, advanced leadership training and retention programs, will become increasingly important.
Every year, Jon Escher, founding partner of the legal recruiting firm, Solutus Legal Search, based in Silicon Valley, makes a presentation to students about the Silicon Valley legal market.
He also prepares a guide to Northern California law firms by practice area, which includes descriptions of those areas as they are practiced specifically in this geographic area.
We just posted to the 2015 version of the Guide on this page of CDO webcasts. Unfortunately, the webcasting equipment malfunctioned, so we do not have a 2015 version of his in-person remarks this year, but we left the 2013 version up there in case you’re interested.
The American Lawyer recently published its 2015 rankings known as the AmLaw 100. Firms are ranked in a number of different ways relating to their financial performance: growth rates, profitability, revenue, etc.
Check out the data and analysis at their rankings landing page.
Thomson Reuters Peer Monitor — in conjunction with Georgetown University Law Center’s Center on the Study of the Legal Profession — recently issued its annual report on the legal market, which you can find here. Some highlights:
- 2014 saw a modest increase (0.5%) in the demand for legal services, which is better than the drop in demand experienced in 2013, but overall indicative of a trend, which has extended over the past 5 years, of fairly flat demand growth
- the growth has been in transactional practice activities (corporate, tax, and real estate); demand growth in litigation was actually slightly negative. Litigation still accounts for about a third of all practice activities (though it was more like 40% twenty years ago). Corporate accounts for 23% (and tax and real estate come in at 3% and 6% respectively).
- number of lawyers in US firms grew by 1.4% in 2014 (about a percent more than demand, which in turn led productivity to fall a bit)
- despite all this, profits per partner (PPP) were up 3.1% (over 2013, a year during which PPP grew by only 1%)
- if you adjust for inflation, business spending on legal services is down almost 26% from where it was in 2004
The Report also addressed the reasons why the legal market has not improved to the same extent that many other sectors of the economy have:
- corporations increasingly keeping work in-house or farming it out to non-law firm service providers
- general counsel finding litigation a less attractive option as it’s become more expensive (e-discovery)
- continuing proliferation of new, non-traditional service providers (facilitated by the steady world-wide collapse of, or the finding of workarounds to, regulatory barriers that shielded law firms from such competition in the past)
Finally, the Report includes a discussion of another observed phenomenon: the fact that the rising economic tide is not lifting all boats at the same rate. 20 firms in the AmLaw 100 and about the same number in the second hundred are far outpacing their competitors in their respective “classes.” Dubbed the Super Rich by the American Lawyer (see April 29, 2014 article (online) entitled AmLaw 100 Analysis: The Super Rich Get Richer available via Lexis), those in the first hundred grew their revenue by 20% and their PPP by almost 32% since 2008. And they accomplished this with only modest growth (5% headcount increase and only 4.3% increase in equity partner ranks).
The elite high performing firms in the second hundred increased their gross revenues by 4.6% (compared to the 1.1% growth rate for the other 80 firms in the second hundred. Their PPP increased 3% (compared to the other 80, which saw a growth rate of -0.8%).
It’s been awhile since we’ve posted. Among the reasons we’ve been silent is that the financial picture for law firms generally had not seemed to change all that drastically over the last several months. It’s been largely flat for quite awhile.
However, we recently came across some modestly positive news and thought we’d share it. It’s from the latest Citigroup quarterly report and comes to us via the American Lawyer’s AmLaw Daily.
According to Citigroup, the first nine months of 2014 have been good financially for the law firm market. However, the news has not been equally good for each segment within that market. The largest and most international firms (particularly those with strong transactional practices) have fared the best.
Demand for legal services was up 1.6%. At the same time, firms kept a tight control on their headcount, which increased by only .6%. That means, of course, productivity is up. Revenue was up 4.8% at the largest firms (the AmLaw 1-50), but only 3% for AmLaw 51-100 firms and only 1.5% for smaller firms.
Looking at profitability and the segmentation within the industry becomes more apparent. 74% of AmLaw 1-50 firms saw profits per equity partner (PPEP) increase whereas only 59% of AmLaw 51-200 equity partners saw an increase in their profits. 51% of smaller firms saw a PPEP decline.
Citigroup projects that when the data for the entire year is in, the story for 2014 will be “mid-single digit growth for the industry as a whole . . . [with] AmLaw 1-50 firms . . . significantly outperform[ing] the other industry segments.”
Details about how Citigroup gathers its data are contained in the American Lawyer article.
Patrick Lamb, writing for the ABA Journal’s the “New Normal” series, parses three recent law firm financial reports that came out this week. He concludes: “Clients paid for fewer hours and spent less overall during the first 9 months of 2013 than they did in 2012, which was a down year itself.”
You should read the whole piece (entitled “Latest data reveals growing problems for OldLaw”), which you can find here.
At least that’s what a recent poll from Citi Private Bank’s Law Firm Group suggests.
Interviewed by the American Lawyer, Group CEO Dan DiPietro says that the results reflect “a growing understanding that what the environment was the last couple years will probably be the environment we’re stuck with for the foreseeable future.”
The bank surveyed 72 firms (27 Am Law 100 firms, 21 in The Second Hundred, 22 boutiques , and 2 UK firms.
Via the blog of legal business consulting firm Hildebrandt comes this report that most in-house counsel are expecting litigation work to double in 2014.
The source is BTI Consulting Group’s Litigation Outlook 2014.
The bad news, as Hildebrandt puts it, is that: “thanks to cost-containment measures such as early case assessment (ECA), alternative fee arrangements and a larger focus on settlements (the resolution rate is expected to hit 40 percent), the study stated that spending will increase a ‘mere tenth of a percent.'”
On the bright side (for firms, at least) in-house lawyers are expecting spending to increase more on IP litigation (2.7%).
The latest from the Thomson Reuters Peer Monitor Index (PMI) further supports the view that the legal market continues to struggle to gain ground. For background on the PMI, see our prior blog post on the subject.
You can read the entire report here.
- Q2 performance is in line with the overall trend of flat-to-slightly-higher growth that has largely in place for the past three years.
Litigation, which comprises 40 percent of law firm billings, was down 1.5%, but patent and labor/employment work was slightly up.
Attorney headcount growth slowed (to 0.7%), but firms are still continuing to add new attorneys at a faster rate than attrition.
“Mergers and lateral hires – even sometimes of entire practice groups – are increasingly being employed as means to achieve growth. Growth is increasingly a zero-sum game that means taking business away from someone else.”
We regularly post information about reports on the financial condition of the legal market. The latest comes from Citi Private Bank and is reported in the Am Law Daily. It deals with results from the first half of 2013 and the news is not great.
There was a bit of revenue growth during this period (0.5 percent), however growth in expenses exceeded that. Moreover, the growth is not attributable to any increase in a demand for legal services (which declined 1.3 percent). Rather it’s due to an increase in rates (3.7 percent).
Head count also grew during this period (0.4 percent in Q 2 and 0.5 percent in Q 1). Based on their survey of information from 172 firms, Citi predicts that 2013 will be a flat year. The 172 firms consisted of 81 Am Law 100 firms, 45 Second Hundred firms, and 46 additional firms.