Most law firm leaders admit that recession-driven changes to both their pricing practices and their clients’ expectations that work be done efficiently are likely here to stay, according to a new survey from legal consultancy Altman Weil.
At the same time, a majority of firm leaders responding to Altman Weil’s fifth annual Law Firms in Transition Survey, which was released Tuesday, acknowledge being slow to alter their long-term strategies to address those changes.
The survey queried firm leaders at 238 firms—all of which have at least 50 attorneys—on legal industry trends, as well as on issues related to law firm growth and economic performance. Thirty-four percent of the respondents came from within the ranks of The Am Law 200.
Of the survey’s respondents, 95.6 percent said they view increased pricing competition as an ongoing trend, while 80 percent expect shifts to nonhourly billing structures to continue. But only 29 percent of respondents said their firms had made significant changes to their own pricing practices in the wake of the recession.
Altman Weil principal Thomas Clay, who authored the survey, tells The Am Law Daily that the results suggest that too many firms are “almost operating like Corporate America, in other words, managing the firm quarter-to-quarter by earnings per share.” Clay says such firms are taking a shortsighted approach. “I feel like we’re not taking the long view enough about things like truly changing the way you do things to improve the client value and things of that nature.”
For instance, Clay says most firms have responded to pricing pressures by simply offering discounts. Altman Weil’s survey found a median range of between 21 and 30 percent of legal fees at all responding firms are discounted, while the median range at responding firms with at least 250 lawyers is 31 to 40 percent. Those discounts may help firms keep clients happy now, Clay says, but they can create challenges in the future considering that major discounts can cut into profit margins while making it hard for firms to ever bring rates back to their prerecession levels.
Says Clay: “I see that as an insidious long-term issue. . . . Believe me, once you add discounts, [clients] never come back and say, ‘Oh, business is better, can we restore your price?’ “
Nearly 96 percent of the survey’s respondents said the focus on improved practice efficiency is another trend that has become entrenched, while 78.6 percent said they expect to face increased competition from such nontraditional sources as Internet-based legal providers and project outsourcing companies. Nonetheless, only 45 percent of respondents said their firms have made significant changes to improve efficiency. According to Clay, firms may need to rely on more contract attorneys in order to increase efficiency, improve profit margins, and reducing client costs.
Clay also notes what he sees as a troubling trend in firm leaders’ responses to an open-ended question the survey asked about the greatest challenges they expect to face over the next two years. The challenge cited most often, by 15.2 percent of respondents, was increasing revenue. Generating new business, firm growth, and improving profitability rounded out the top four. Delivering value to clients ranked eighth on the list, mentioned by 5.6 percent of respondents, while improving efficiency was mentioned by 2.8 percent, ranking eleventh.
“Revenue growth was just so far ahead of anything else. [And], I understand it, but I think it’s a short-term thing. I’d much rather say satisfying clients . . . and, one could argue that, if you do that, you will grow revenue,” Clay says.