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Spending for legal services is set to increase by about 30 percent less in 2008 than what was anticipated for 2007, according to soon-to-be released research from BTI Consulting. Despite the anticipated decline, certain firms in the area are still managing to increase their market share, while others are questionable, results indicated. BTI Consulting’s Marcie L. Borgal Shunk presented unreleased data yesterday at Woodcock Washburn to the Philadelphia chapter of the Legal Marketing Association. The survey results are the product of more than 2,000 interviews with corporate counsel, law firms, investment banks and business executives. She said her group predicts there will be a 6.1 percent growth rate in legal spending in 2008, compared with the 9.6 percent growth rate BTI predicted last year. The 9.6 percent actually turned out to be a little over 8 percent in spending growth for 2007, she said. While over the past few years outside counsel have been receiving greater percentages of law department spending, that trend is also leveling off, Shunk said. “We’re kind of as far as we’re going to get now,” she said. From about 2004 to 2006 there was a significant drop in the number of in-house hires, but now that number is increasing, Shunk said, as more law departments bring specialties in-house. There is no longer a push of budget dollars to outside firms, which means firms need to differentiate themselves even more, she said. BTI looked at the compound annual growth rate of individual law firms over a three-year period and compared that with the client spending over the same period in order to determine a firm’s market share. Dechert, Reed Smith, Morgan Lewis & Bockius, Fox Rothschild, Duane Morris and Pepper Hamilton had increasing market shares, according to the results. Wolf Block Schorr & Solis-Cohen, Ballard Spahr Andrews & Ingersoll, Drinker Biddle & Reath, Blank Rome, Cozen O’Connor and Saul Ewing had a below-average gain or downward trend in market shares, Shunk said. The company then compared market share with firms’ overall profitability per lawyer, not equity partner. According to BTI’s data, Dechert was the only firm that had above-average profits and above-average market share. Firms with gains in market share but below-average profitability were Fox Rothschild, Duane Morris, Morgan Lewis and Pepper Hamilton. Shunk said those firms are known as investors. Firms that were termed “challenged” in terms of having lower than average profits and lower than average market share were Wolf Block, Drinker Biddle, Blank Rome, Cozen O’Connor, Ballard Spahr and Saul Ewing. About 35 percent of challenged firms often move up to investors and over to the same category as Dechert, Shunk said. Another portion become targets for acquisitions. Hot Practice Areas Ways to increase profitability and market share can go beyond simple leveraging or billing, to include strategic choices in practice areas. BTI looked at practice areas in terms of routine to premium billing rates and high or low projected growth rates. The powerhouse practices, which mean high rates and high growth potential, include intellectual property litigation, “bet-the-company” litigation, class actions and regulatory practices. General litigation and mergers and acquisition work were considered high paying, but were in the middle in terms of growth potential. Gateway practices, which include those with high rates but low growth potential, were corporate, investigations, securities and restructuring, according to the results. Shunk said those practices will help propel profitability and are “powerful ways to better learn about your clients.” They give outside counsel an inroad into clients’ business objectives, she said. There were a few practices that made it into the “low rates, low growth potential” category, but Shunk said these are cornerstone practices that will always be around and consistent. They were employment, real estate, tax and environmental practices. Bankruptcy was the only practice to make it into the tactical category, which means it has lower rates but high growth potential, Shunk said. How to Be the Primary Firm Most clients have two primary firms, 10 secondary firms and then a group of others they go to for niche or jurisdictional matters, Shunk said. According to the research, primary firms get 32.3 percent of a client’s legal budget, secondary firms get 50 percent and third-tier firms get about 17.7 percent. Shunk said moving from a third-tier firm to a secondary firm can increase legal billings tenfold, while moving from a secondary to a primary position can increase billing threefold. The opportunity to take over as a primary firm for new or existing clients is closing, she said. In 2005, 50 percent of clients were switching primary firms and that number was at 61 percent in 2006. For 2007, 46.5 percent of clients were still looking to switch, Shunk said. Convergence, a topic she said hasn’t been around for the last two or so years, is back on the agenda. Nearly 35 percent of corporate counsel would recommend their primary firm. While that number may seem low, it is an increase from prior years, Shunk said. The number one reason – at 36.1 percent – a client would recommend a firm is for “exceptional client focus.” Other big reasons are good past experience and specific expertise. The single largest unmet need clients have is finding a firm that can deliver value, Shunk said. Value is more than billing rates, and includes time, energy and focus, she said. For example, Skadden Arps Slate Meagher & Flom is consistently on the list of firms that provide the best value, Shunk said. A typical primary relationship at large law firms is worth $3.65 million, but when the primary firm is viewed as the absolute best, that relationship is worth $6.2 million, according to the data. At a midsized firm, that same comparison goes from $2.37 million to $4.64 million. The four most important activities of the 17 BTI says help develop superior client relationships are client focus, commitment to help, provides value for the money, and understands the client’s business. BTI also provides what it says are nine proven tactics to “win clients’ hearts and dollars.” Some of those include acting quickly on business development opportunities, including clients in client teams and reviewing drafts of invoices with clients before sending them out. BTI’s research was based on interviews with 1,637 corporate counsel, 158 investment banks, 204 business executives and more than 200 law firms.

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