The Business of Law is Changing… Are You Keeping Up?By Greenfield/Belser
June 12, 2015
We’ve reviewed Altman Weil’s recently published Law Firms in Transition Survey, which takes a look at the state of the legal market in 2015. Shocking? No. Interesting? Yes. The survey was conducted in March and April of this year and took a poll of Managing Partners and Chairs at 797 U.S. law firms with 50 or more lawyers.
The biggest takeaway… there is optimism among today’s law firm leaders, with three quarters of firms expecting their gross revenue to be up in 2015.
Here are their other key takeaways:
- Increases in law firm profitability are clearly linked to strategic changes in lawyer staffing, efficiency of legal service delivery and pricing approaches. Firms that have the foresight to make strategic changes to their practice of law are consistently more likely to see increases in gross revenue, revenue per lawyer and profits per equity partner. Changes in lawyer staffing and strategies to improve the efficiency of service delivery are yielding the greatest results for firms willing to embrace a new way of practicing law.
- A high level of decision-making authority conferred on law firm leaders correlates with better economic performance. According to the survey, when comparing financial performance of those firms that rated leaders’ decision-making authority high vs. those firms that rated it on the bottom half of the scale (0 to 5), there was a consistent financial edge to those firms where leaders have more authority to drive change.
- Overcapacity of equity and non-equity partners, especially in larger firms, is endemic and a drag on profitability. Today’s conundrum—too many lawyers, not enough work. According to the survey, 61% of firms say overcapacity is diluting firm profitability. And 43% of all firms, and 67% of firms with 250 or more lawyers, say they have too many non-equity partners.
- Non-traditional competitors are actively taking business from law firms and the threat is growing. Think about it. Your clients are becoming your biggest competitor. More corporate law departments are keeping work for themselves and farming out the highly complex, difficult matters to their outside counsel. What about your clients’ technology reducing the need for lawyers and paralegals? Yep, that’s happening too. And, finally, non-law-firm providers of legal and quasi-legal services are also taking a bite out of the business.
- In 63% of law firms, partners aged 60 or older control at least one quarter of total firm revenue, but only 31% of law firms have a formal succession planning process. Why does intentional planning for the succession of Baby Boomers continue to be put on the back burner in most firms? Ignoring this movement is not an answer. Without systematic planned transitions, that revenue, along with valuable relationships, skills and knowledge, will be walking out the door in the next few years.
The survey indicates that many firms are engaging in a variety of changes in response to post-recession market forces. However, the majority of change still can only be characterized as limited, tactical and reaction. Sound familiar? Not only does partner complacency and resistance to change remain a persistent threat to law firm success, but Altman Weil noted that "firms are still gambling that a measured approach to change will hold them in good stead among peer firms taking the same incremental approach." Why aren’t law firms doing more to change the way they deliver legal services? The response from law firms with 1,000 or more lawyers, “clients aren’t asking for it.” The response from smaller law firms, “not feeling enough economic pain to motivate more significant change.”
We can’t shake the “clients aren’t asking for it” response. Strategic marketers and business developers know that you don’t wait for clients to ask. Instead, you anticipate clients’ needs and offer solutions, or better yet, create a need for them they didn’t know they had. Demonstrate you understand the law, the industry and their business. Demonstrate you understand what they want and need and are committed to delivering it. And most importantly, define and communicate your firm’s legitimate, meaningful and differentiating advantages… your value proposition… why you’re the best choice.
Today’s business of law is changing. It’s about becoming more like a business and less like a law firm. As noted in the survey, "It’s about changing the way work is done and priced. It’s about rethinking client relationships and service delivery." Firms have a clear opportunity to differentiate and stand for something (not everything) in order to gain a competitive advantage and position themselves for a sustainable, profitable future.
As noted in the survey, Bill Gates has observed that people are lulled into inaction because they “overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten.” Don’t be that firm!