We've Learned Lessons from the Recession, Right?

Published on: 
06/27/2013
Before 2008, the world of the law was a wonderful place. Many large and even mid-sized law firms went their own merry ways, happily assuming that high associate salaries and partner draws, rising rates and the occasional leveraged merger with another firm were all part of a pattern that would continue indefinitely.

Then came the Great Recession, and like overindulgent partiers on the morning after New Year's Eve, firms swore that they had learned their lessons:

  • We won't indiscriminately add lawyers, whether from law schools or as lateral hires, unless and until client demand is there.

  • We will no longer pay compensation out of scale with what clients will accept. Our emphasis will be on adding value for the client, not on maximizing our revenue and profit.

  • We will never again assume we can raise rates like clockwork. Clients want alternatives to the billable hour, and we will give them choices tailored to their own needs and situations.

  • We will pursue overhead reduction in operating costs throughout the business cycle rather than waiting until a slowing economy or angry clients make us cut.

  • We will no longer just take whatever clients are available, because trying to grow without a clear strategy is a recipe for disaster. Our focus will be on clients that provide the most profitable and professionally desirable work.

Perhaps some firms actually meant it. Yet five years later a good case could be made that those "lessons" have been forgotten.

The 2013 Altman Weil "Law Firms in Transition" survey of leaders at nearly 800 domestic firms with 50 or more lawyers shows that "business as usual" remains in 2007 mode for many of them:

  • Eight out of 10 firm leaders believe "more non-hourly billing" is here to stay — but only 29 percent of firm leaders said their firms have significantly changed their pricing strategy since the recession.

  • Billing based on metrics other than hourly rates represents only 10 percent of fees collected at surveyed firms, and two-thirds of all AFAs were provided in response to client requests, compared to only about one-third offered proactively by the firms.

  • Only 13 percent of respondents said they were "highly confident" their firms could cope with new competitive market conditions, and only 5 percent considered their partners to be "highly aware" of what it will take to be successful in these conditions.

  • Only 30 percent of firms surveyed said they have experienced a net reduction in overhead costs.

  • More than half of firm leaders still believe that growth in lawyer headcount is a requirement for their firm's future success.

  • Almost one-third of respondents said their firm's top challenge was increasing revenue and getting new business; 5 percent cited adding client value, and 3 percent said improving efficiency.

It is inevitable that larger firms that approach the business this way will continue to falter. Neither the 1 percent of the corporate world on which they focus, nor the 99 percent of individuals and smaller companies that generate most legal work, will tolerate such self-centeredness in their counsel.

Pay attention, large firms: You didn't grow by being inattentive to client needs, and all lawyers will need to be significantly more attentive in the future if they expect to retain client loyalty — and business.

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