Law firms in transition: Keeping up with the times

  • October 01, 2013
  • Kim Covert

Law firms seem to have no trouble recognizing that the times, they are a-changing, but they aren’t doing a lot about it, according to the results of Altman Weil’s 2013 flash survey Law Firms in Transition.

Altman Weil polled managing partners and chairs at 791 U.S. law firms with 50 or more lawyers, receiving completed surveys from 238 firms, including 37 per cent of the 250 largest firms in the country.

The results suggest that while respondents overall believe the pace of change is increasing, there is “less evidence of tangible changes in how law firms operate,” writes Thomas S. Clay, a principal of the consulting firm.

“Most firms appear to be reacting to external forces and making incremental changes within the framework of the existing business model, rather than pursuing opportunities to meaningfully differentiate their firms in the eyes of clients,” writes Clay. “So far firms are staying ahead of the curve of transition with these tactics – but is this a sustainable long-term course if the forces of change really are accelerating?”

Sustainability in changing times is a key theme of the 2013 CBA Law Firm Leadership Conference being held Nov. 4-5 in Halifax, where Clay is scheduled to speak about how mid-size firms can take advantage of the changing legal market.

In its fifth annual survey, Altman Weil asked law firm leaders if they’ve changed their strategic approach in the areas of overhead costs; partnership admission and retention; efficiency of service delivery; and pricing.

The results suggested that there has indeed been movement in all of these areas – but that the changes are shallow and not particularly sustainable or strategic. For example, the primary response to pricing pressure appears to be discounts, Clay writes, but without appropriate oversight, “firms can find themselves in the counterproductive pursuit of unprofitable revenue, sometimes referred to as ‘suicide pricing.’”

Two-thirds of all alternative fee arrangements are provided in response to clients’ demands, but Clay writes that non-hourly billing was found to be more profitable in firms that offered it proactively.

Asked what their top challenges in the next 24 months will be, increasing revenue was the No. 1 answer, followed by generating new business, law firm growth and profitability. “The top four answers constituted just over 50 per cent of all responses. All four are internally focused, tactical issues with the primary purpose of protecting the status quo in law firms.”

Meanwhile, delivering value to clients is at No. 8 on the list, a topic of concern for just 5.6 per cent of law firm leaders. Improving efficiency is 11th on the list of 12.
“Law firms that do not put client needs at the top of their priority lists misunderstand what is driving the forces of change in the legal market in 2013. If firms would focus their considerable resources on truly understanding and aligning themselves with each client’s interests, they would be much more likely to achieve their financial goals,” Clay writes.

The forces of change identified by the managing partners polled in the U.S. are among those featured in reports prepared for the CBA’s Legal Futures Initiative, namely, flat or shrinking demand, pricing pressure from clients, and increasing competition from lower-priced, non-professional service providers.

Law firm leaders are less confident than they were in 2010 that their firms are keeping pace with the changes, but they still rate their overall confidence at a median seven on a 0-10 scale.

Where they’re falling down is at the partner level – they rated their partners’ adaptability to change at a median of five, and an awareness of it at six.

“Along with many external market pressures, there is internal drag from partners who don’t fully understand the need for change, who don’t feel any sense of urgency to change, or who are simply resistant to doing things differently,” writes Clay, adding that Baby Boom partners in particular combine significant economic sway in the firm with a short-term outlook.

“Law firms need to cultivate the opportunities in today’s changing legal market, rather than hunkering down against the threats. This is a difficult lesson for an inherently cautious profession, but it must be learned.”

Kim Covert is a writer and editor with the CBA in Ottawa.