Law firms not heeding winds of change: report

Lawyers recognize profound changes to the legal market, but firms are largely sticking to their old business models — often showing a lack of understanding of the forces driving those changes, according to a study released this week.

The survey from legal consulting group Altman Weil shows 96 per cent of law firm leaders identified “more price competition” as a permanent development, but only 29 per cent are changing their “strategic approach” to pricing.

Meanwhile fee discounts — which survey author Tom Clay calls “non-strategic” changes to pricing — were up. The survey showed 21 to 30 per cent of fees were based on discounted rates, and in large firms of 250 or more lawyers, 31 to 40 per cent of fees are being discounted.

The use of alternative fees such as non-hourly based billing is also up, but still only represents 10 per cent of fees collected, according to the Law Firms in Transition Survey, which received responses from law firm leaders at 238 U.S. law firms with 50 or more lawyers.

Survey respondents report widespread awareness of changes to the legal market but firms appear slow to adapt. While many respondents report making short-term adjustments to their hiring and billing practices, few are making broad, strategic shifts to their businesses.

Although 96 per cent believe an increased “focus on improved practice efficiency” is a permanent development in the legal market, only 45 per cent report that their firms are making significant changes to their strategic approach in order to increase efficiency.

Firms do appear to be making some big changes, for example by creating fewer new partners while upping their use of part-time and contract lawyers, which Clay says keeps costs down and boosts profitability.

Often it takes time before new recruits become profitable, so in these lean times firms are reluctant to hire new lawyers. Instead they are becoming less focused on size and more concerned with efficiency. Only half of respondents said increasing their lawyer headcount was key to their firm’s success. “They’re just hiring fewer people, because they can’t keep them all busy,” says Clay.

With firms hiring less, 40 per cent of respondents say they now outsource non-lawyer functions. And while only 7.7 per cent outsource legal work, 20 per cent of firms with at least 250 lawyers said they outsourced legal work.

So what are firms’ priorities then? The top answers were increasing revenue, generating new business, law firm growth, and profitability. Fewer than six per cent cited delivering value to clients as a top priority, and less than three per cent mentioned improving efficiency. Clay says these responses show firms are not heeding the needs of their clients.

“This is very troubling,” he notes. “Law firms that do not put client needs at the top of their priority lists and align themselves with those needs misunderstand what is driving the forces of change in the legal market in 2013.”

The report suggests one possible explanation is resistance to change among senior partners.

“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,” says Clay.

Although Canadian firms were insulated from the worst effects of the global recession, Clay says all the issues affecting U.S. law firms are at play in Canada as well.

“I get the sense that it’s not as dire in Canada by any stretch. But the dynamics in the profession are the same.”

The complete 63-page survey report is available for download here.

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