The fourth annual Altman Weil “Law Firms in Transition Survey” shows a dramatic shift in attitudes among U.S. law firm leaders since the survey was launched in spring 2009, six months after the first shocks of the economic meltdown.
“Emerging legal market trends that were viewed with considerable skepticism in 2009 have become majority opinions in 2012,” said Altman Weil principal Eric Seeger. “These are striking changes.” The 2012 “Law Firms in Transition Survey” reports that 92 percent of law firm leaders believe that more price competition will be a permanent fixture of the post-recession legal marketplace. This is more than twice the 42 percent who thought so in 2009 when the survey was first conducted.
In 2012, 84 percent of firm leaders think more commoditization of legal work will be a permanent change, while only 26 percent of those surveyed thought that was the case in 2009.
In 2012, 68 percent of firm leaders believe that there will be fewer equity partners in law firms than in the past, up from 23 percent who held that opinion three years ago.
Today 55 percent of respondents think smaller first-year classes are a permanent trend, compared to a mere 11 percent who thought so in 2009. For 10 core issues identified in each iteration of the annual survey, the number of law firm leaders who believe there will be permanent change in those areas has doubled, tripled, quadrupled or more between 2009 and 2012.
“Many of the challenges facing law firm leaders in 2012 are now well defined and largely agreed upon,” said Altman Weil principal Tom Clay. “But the best way to respond to this array of changes is less well understood.”
“Firms have done the urgent things necessary to support firm profitability in the short term. Maintaining and growing profitability will be much more difficult going forward and will require rethinking key elements of the law firm business model.”
When asked about their overall level of confidence that their firms are fully prepared to keep pace with the challenges of the new legal marketplace, law firm leaders gave themselves a median rating of 7 on a scale of 0 (not at all confident) to 10 (completely confident).
The median self-assessment rating slipped from 8 in 2011 to 7 this year.
The slight decrease in confidence may indicate a greater recognition of the difficulty of bringing their partners along. Leaders assessed their partners’ awareness of the challenges of the new legal market at a median rating of 6.
“Reasonable confidence in the short term is probably warranted,” said Eric Seeger. “But if the legal market has significantly and permanently changed, then firms and their partners are going to have to significantly and permanently change too. You don’t want confidence to tip into complacency.”
The survey asked firm leaders to comment on their firms’ greatest challenges in the next 24 months.
Sustaining and growing profitability is a primary concern among firm leaders, exacerbated by ever-increasing competition for a fixed, or, as some observed, shrinking amount of available legal work. This includes generating high-quality new business and identifying new markets for expansion.
The quest to attract and retain the most talented lawyers was mentioned repeatedly in the firm leaders’ comments.
The reasons for this are not only to get and keep those talented lawyers’ books of business, but also to offset the expected loss of retiring Baby Boom partners over the coming years.
Strengthening relationships with clients by thoroughly learning their businesses, helping them avoid risk, and offering efficient, cost-effective service is seen as critical.
Firm leaders cite the need to take these actions proactively rather than waiting for clients to request them.
Finally firm leaders talked about the challenges of leading change, managing the expectations of partners in a changing profession and re-engineering the way they practice law.
One survey participant commented: “The practice of law is just more difficult than it has been previously, and we are having to adjust to this reality.”
Conducted in March and April 2012, the survey polled managing partners and chairs at 792 U.S. law firms with 50 or more lawyers.
Completed surveys were received from 238 firms, including 40 percent of the 250 largest US law firms.
The full survey includes sections on economic performance and billing rates, alternative fee arrangements, firm growth, lawyer and staffing levels, succession planning, client relationships and the future of the profession.
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