Four years after Lehman Brothers died and the national economy plunged into a deep crisis, the legal marketplace remains splintered, uncertain and likely to stay that way. The Great Recession hasn’t sunk all boats, nor lifted them. The health of practices varies by lawyer and practice group; within the same firm we find corridors never busier and others filled with lawyers who have little to do but pray for the patience of their partners.
The stress is palpable. Jobs and status are at risk. In The American Lawyer’s recent survey of the leaders of the Am Law 200 — the top-grossing firms in the United States — 46 percent said they expected to de-equitize partners in 2013. More — 55 percent — expected to ask at least one partner to leave. (Five percent planned to push out at least 11.) Partnerships, unlike diamonds, aren’t forever.
It could, of course, be much worse. In many ways, this is a marvelous time to be a lawyer. The world grows ever more complicated and integrated. The need for expert legal assistance will only grow, whatever short-term setbacks individual lawyers and firms may feel. For all the supposedly dire reports about falling demand for legal services, most of them peg demand to be merely flat or down by a percentage point or two. For lawyers who came of age during the boom years, this hurts. But the pain is slight compared to what many of their business clients have had to absorb over the past few years.
More importantly, the community of business clients who account for the bulk of legal spending in the United States has been unwilling or unable to press its advantage across the marketplace. For all the talk about discounts or alternate fee structures, the customers have not demanded sweeping changes. Acritas, the sterling British market research outfit, asked a couple thousand in-house counsel around the world what changes they anticipated over the next two years. Roughly one-third predicted some combination of increased pressure on fees or experiments with new fee structures. But almost as many said they expected nothing to change or didn’t have a prediction. That’s becoming modesty, not revolutionary zeal.
All of which suggests to me that what we had grown used to — the so-called Old Normal — is finished, but a New Normal has not yet formed. If it’s not clear what shape that will take, here are several factors that will be key in shaping it:
As Colin Jasper, the Australian pricing consultant, likes to point out, the billable hour isn’t dead — it’s just overused. Of all the various billing arrangements lawyers can use — from fixed to caps to retainers, etc. — only the billable hour puts the bulk of the risk squarely on the client.
In some cases, especially when the matter includes a significant number of unknown factors, that’s appropriate. But when a set of tasks can be anticipated and described, why should there be any doubt about the cost?
Law firms are learning from experience — a recent survey by ALM Legal Intelligence reported that, on average, firms now handle about one-fifth of their matters on a non-hourly basis — and bringing in experts to help guide them. These pricing officers are charged with discussing fee arrangements with clients and then crafting deals that will suit the matter. According to Toby Brown, who directs pricing for Akin Gump Strauss Hauer & Feld, there are at least 130 administrators doing this work at major firms.
There is no end in sight. According to tracking by The American Lawyer, more than 2,000 partners have moved in or out of the Am Law 200 firms every year since the turn of the century.
In a recent survey of law firm leaders by ALM Legal Intelligence and Lexis, 96 percent expected to hire more laterals over the next two years. They acknowledged that this strategy was not a panacea. Only 28 percent rated their lateral record over the past five years as “very effective.” Another 61 percent called their efforts “moderately effective — some retention or growth issues as well as some positives.”
For laterals, geography can be destiny. According to a recent American Lawyer survey, the top three cities for lateral shopping were New York, Washington and San Francisco. About 9 percent of the law firm leaders surveyed reported an interest in acquiring laterals in Philadelphia.
All of this suggests that for the foreseeable future, there will be some level of uncertainty in partnerships as firms work to attract and retain some partners even as they plan to force out those they deem underperforming.
Lawyers have long liked the independence of working on matters in ways best described as idiosyncratic. Until recently, the sorts of best practices and efficiency efforts that are standard in other professions and crafts had not been well received in the law. But as pressures on costs have increased and clients have forced firms to manage to price points for some matters, firms have had to learn to operate in more orderly and predictable ways.
A recent survey of medium-sized and large firms by ALM Legal Intelligence shows that about half have started some sort of project management training. But only one-quarter suggested they thought their efforts were satisfactory.
In practice, project management techniques are just one part of the developing legal landscape. It’s not partners and associates anymore. Now it’s the gamut from outsourced staff to temporary help to technology solutions, in or outside of any single firm. The legal world isn’t flat, to paraphrase writer Thomas Friedman, but it is a lot more complicated.
The bubble is bursting. Too many law schools are producing too many ill-prepared law graduates for too few traditional jobs.
It’s not that the need for more lawyers is disappearing. It’s that the law schools are poorly positioned to identify unmet needs or train their students to meet them. And they continue to charge as much as the traffic will bear, under pressure themselves to ship money back to general university coffers to underwrite operating costs all across the campus.
Change here will occur only if the American Bar Association relaxes its mandatory six-semester accreditation rules — and if students start voting with their feet. Let’s not hold our breath.
To review then, there is much ferment and little certainty. The norms are being challenged — cost, structure, relationships, training. After all, running the business of law is not for the weak.
Aric Press became vice president, editor in chief of ALM in November 2010. Before that he served as editor in chief of The American Lawyer since 1998. Press joined ALM from Newsweek, where he had been a writer and senior editor for 19 years. In his new role, Press serves as ALM’s senior editorial officer.