We asked five top legal professionals to identify the growth opportunities in store for NLJ 250 law firms. Although the answer depends on firm size and focus, snagging the business that lies ahead will require firms to put resources into areas that show promise now and provide a payoff down the road.
Corporate and Finance Global Chairman
The regulatory upheaval of the financial industry is one area that DLA Piper is banking on for growth. The passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act has created much uncertainty for clients and potential business for big firms, said Roger Meltzer, global chairman of DLA Piper’s corporate and finance practice. “It’s a black box, an unknown,” he said. “Clients want people who have some real experience.”
The 3,448-attorney firm also is tapping into the $6 billion sports industry. This year, it brought aboard a seven-partner group of former Nixon Peabody attorneys whose practices focus on sports and sports-financing projects. Having attorneys who can structure facilities deals, handle bankruptcies and take on team-management matters is necessary to cover the sports-industry bases, Meltzer said.
Revenue growth for big law firms will be a “mixture of ham and eggs and soufflé,” Meltzer said. The tried-and-true business will include litigation involving pharmaceuticals, patents, copyrights, antitrust, labor and employment, and technology, he said. He also expects an uptick in traditional types of financing and plenty of refinancing projects to keep attorneys busy. Finance work also will include a rekindling of hedge funds and private equity, he said. Insurance and reinsurance work is another bright spot.
DLA Piper has trimmed its ranks of less profitable practitioners in the past couple of years. In 2009, its attorney headcount decreased by 271 attorneys. This year, it dropped by 175 lawyers. DLA Piper is ranked No. 2 on the NLJ 250, with 1,207 partners and 2,077 associates. It has 92 offices worldwide.
A global presence is critical, but so is being the firm that clients turn to for bet-the-company specialty work. Boosting cross-selling, “to press and make inroads in embedded relationships,” has to be part of the growth strategy, Meltzer said. “That’s a hard thing to do. When clients find themselves in a difficult spot, they tend to default to the people they’ve used to get them out of a mess before.” — Leigh Jones
Go east, young man. Way east.
U.S. firms have been dabbling to various degrees in Asia, but the time has come for them to get serious about penetrating the complex market that is dominated by China, said legal consultant Peter Zeughauser.
“China is going to be the world’s biggest economy by the time first-year associates are five-year partners, and 15 years after that India will likely eclipse China,” he said.
Although a handful of U.S. firms have been successful in the region, the marginal players need to lay the groundwork now so that they can capitalize on Asia’s growing legal opportunities, he said. That will require overcoming the failed business models, language barriers, lack of understanding about local cultures and legal hiring practices that have crippled many previous attempts to establish profitable Asian offices. The model of partnering with local law firms is likely to be a winning strategy, he said.
In Europe, the weakening British pound is making trans-Atlantic mergers in the vein of Hogan Lovells and SNR Denton a very attractive option.
“With the currency fluctuations, the British and European firms appear to be doing more poorly than they actually are,” he said. “That means that profits-per-partner at American firms compare very favorably with the performance of the British firms.”
Trans-Atlantic mergers will give European firms access to the very lucrative U.S. litigation market, while U.S. firms will benefit from their well-established networks of offices throughout Europe and Asia — places where British firms generally have been more successful.
“If British firms want to compete for global pre-eminence, it’s very important that they have a robust U.S. presence,” he said. “That’s becoming more and more apparent. The only way they can possibly build that is through a merger.”
Trans-Atlantic mergers aren’t the only law firm combinations Zeughauser sees on the horizon, however. He predicts an end to the comatose U.S. merger market, as firms ranking between 20 and 80 on the Am Law 100 look to mergers as a way to distinguish themselves from the pack. Merging domestically also will make the newly combined U.S. firms much more attractive to the dozen or so European firms that would benefit greatly from joining forces across the Atlantic. — Karen Sloan
New York Managing Partner
Major, Lindsey & Africa
“We want patent litigators.” That’s the most common request recruiter Jon Lindsey hears when meeting with firms, and it’s one reason he believes that patent litigation will continue to be a hot area for law firm growth as the U.S. economy moves even further from its manufacturing roots.
“We don’t make washing machines anymore,” said Lindsey, the managing partner in the New York office of Major, Lindsey & Africa. “We make ideas. If you can monetize that idea or keep someone else from taking it away from you, that’s incredibly valuable and worth paying your lawyers whatever it costs because there is so much at stake.”
Firms aren’t just looking for a few good intellectual property attorneys, however. They are also waking up to the opportunities that exist in Latin America — a legal market that has been largely untapped by U.S. firms except for the recent explosion of offices in Brazil, Lindsey said.
“When you ask some firms about their Latin American practices, they talk about Miami or Houston. It’s like they stop at the border,” Lindsey said. “It’s a global economy. The globe doesn’t stop at the equator. It’s the next frontier for lawyers.”
Of course, the ease of expanding into Latin America depends largely on local rules, but a growing amount of business is enough of an incentive to clear the regional hurdles. For example, Lindsey’s firm recently assisted Littler Mendelson in opening an office in Caracas, Venezuela, and he expects to see other firms make similar moves.
Replacing lockstep associate compensation systems with models that advance young attorneys based on their skills will also be a more common firm strategy in the coming years, Lindsey said, citing the system adopted last year by Orrick, Herrington & Sutcliffe as a forerunner of the trend. Other firms have introduced similar compensations systems that break associates into tiers based on their performance.
“It’s having gates that people have to pass through and not automatically advancing associates year by year simply because they are a year older, but because they have developed the competencies clients are paying for when they pay higher billing rates,” he said.
Along those lines, Lindsey believes that firms will reduce the number of attorneys they hire directly out of law school, and rely more heavily on lateral recruiting — a change that will reduce the costs of training young attorneys. — K.S.
Association of Corporate Counsel
Throwing out the old law firm billing model is fine in theory, but reality doesn’t work that way, said Susan Hackett, general counsel of the Association of Corporate Counsel. Instead, changes at the practice-group level will eventually lead to the new model clients are seeking, she said.
“What we’re finding is that’s just really hard for firms to start that big, and come out of the gate with that big change,” she said. “If you don’t get an early foothold and start experimenting and finding successes within certain groups in the firm, then in a couple of years other firms will have made larger jumps and will be eating your lunch,” Hackett said.
Three years ago, the ACC unveiled its Value Challenge, which called on law firms to move away from traditional hourly billing. Anyone expecting an overnight revolution afterward was sorely disappointed.
“I kind of assumed initially when we went out to do this change that firms would immediately dive into looking at switching over their business model — that they would look at wholesale changes,” Hackett said.
In addition to practice-level experimentation, she expects to see more early case assessment. A handful of firms are now treating early case assessment as its own practice area, and several smaller firms that can’t compete with Big Law litigation powerhouses are developing a niche in the area, she said.
The idea behind early case assessment is that clients want to know what they are dealing with before hiring outside counsel and jumping directly into a multimillion-dollar litigation. The best way to determine that is through a third party that isn’t banking on nabbing the litigation matter it is reviewing, Hackett said.
“We all know that most all of these cases settle at the end of the day,” Hackett said. “Why would you pay out, potentially, millions of dollars in legal fees simply so you can settle it before it goes to trial. Why not settle it now?”
Firms recognizing that there is money to be made in early case assessment will not only profit, but will develop a stronger relationship of trust with clients who put a premium on clearing out litigation matters as quickly and cheaply as possible, she said. — K.S.
Indiana University Maurer School of Law – Bloomington
Law firms tend to prioritize law school prestige and grades in associate hiring decisions, but those measures don’t offer a clear picture of the candidates who will be prolific networkers, who will make good teammates and who will have good judgment.
Firms that want to keep clients happy are going to have to take a more sophisticated approach to hiring to find associates who will be competent and who will stick around, said Bill Henderson, a professor at Indiana University Maurer School of Law – Bloomington.
“You can’t make hiring mistakes,” he said. “Clients won’t tolerate high volumes of attrition.”
Henderson believes that the future of hiring lies in data-driven systems that identify the best lawyer candidates in more effective ways than simply looking at schools, grades and LSAT scores. Metrics that measure traits such as reasoning, integrity and negotiation skills also will improve professional development by determining what skills associates need to be successful and how to teach them. Henderson recently helped found a company that is developing metrics for lawyer hiring and development purposes.
“It’s really about testing some of the fundamental assumptions about what a good lawyer is,” he said.
He also expects to see some firms move away from the “rainmaker” model in the coming years as a way to build teamwork and to keep key clients on the roster. Reed Smith already has moved in that direction, he said, with an incentive system that rewards the whole team of attorneys working on a client matter, not just the partner who brought the client to the firm.
“They’re trying to reinstitutionalize clients by making sure that people who successfully bill a client are equally rewarded,” he said. “Instead of having one partner interacting with the client and managing a team of associates, five or 10 people may have contact with the client, all working together.”
One incentive to the teamwork model is that it greatly reduces the likelihood that partners will lateral out of the firm and take major clients along with them.
“This model focuses on people who bring in clients and also the people who grow them,” Henderson said. “It’s a more sensible incentive structure that I think fits the Am Law 50.” — K.S.