Nobody is accusing Big Law firms of moving too fast in response to slack demand for their services and client demands for change. But a new survey released Tuesday shows that one important group is increasingly frustrated by the industry’s sluggish pace of change: Law firm leaders.
The ninth annual Altman Weil Law Firms in Transition Survey states that managing partners have lost confidence in their partners’ willingness to change how they operate. This year, 65 percent of managing partners surveyed said partners’ resistance to change was one reason their firm wasn’t doing more to adapt how they provide legal services to clients. That number was 44 percent just two years ago.
The survey of 798 leaders of law firms with 50 or more lawyers said this “concerning misalignment” between managers and their partners “must be solved if firms are to make necessary strategic changes.”
“Managing partners get it. They understand the external environment and what should be done in response,” said Eric Seeger (pictured right), a co-author of the survey and principal at Altman Weil, where he specializes in law firm strategy. “But they’re finding that it’s very hard to get that message across to partners in a way that motivates new kinds of action.”
The survey also underscores other ongoing trends in the legal market. There are “chronically underperforming lawyers” at 88 percent of firms. Demand hasn’t reached pre-recession levels at two-thirds of firms. And larger law firms are doing a lot more than their smaller competitors to respond, including trying to understand client calls for change, actively managing their firm to optimize profits and more quickly changing their staffing models.
Among firms with more than 250 lawyers, 72 percent said they were de-equitizing underperforming partners; 52 percent of smaller firms are doing the same.
Altman Weil asked firm leaders if they were participating in 10 activities designed to understand what clients want, such as having conversations about pricing and staffing or conducting formal client interviews. Across the board, a higher percentage of firms with more than 250 lawyers reported they were doing those things than firms with fewer than 250 lawyers.
For instance, 85 percent of firms with more than 250 lawyers said they were conducting management visits to key clients, compared to only 60 percent of smaller firms. And 64 percent of larger firms are conducting formal client interviews, compared to 36 percent of smaller firms.
Larger firms are also more actively using cost data to manage their firms’ profitability. Eighty-seven percent of firms with more than 250 lawyers said they use data to manage individual clients’ profitability, compared to 54 percent of smaller firms.
Firms that reported using profitability data also were more likely to report that profits per equity partner (PEP) rose last year. Among firms who said they use profitability data to help manage their firms, 66 percent also reported a higher PEP last year. Only 53 percent of firms who do not use profitability data reported a higher PEP.
One reason smaller firms may be less likely to change is they are not facing the type of market headwinds that larger firms are confronting, Seeger said.
The survey shows that larger firms are more troubled by an excess capacity of lawyers. For instance, only 23 percent of firms with 250 or more lawyers said their non-equity partners were sufficiently busy, compared to 45 percent of smaller firms. Smaller firms were also more likely to report their associates and equity partners were sufficiently busy.
“Larger firms have been more significantly affected by the major market trends,” Seeger said. “They tend to be dealing with larger clients who are more sophisticated in their buying practices.”
Managing partners who have grown frustrated, Seeger said, are largely stuck between two separate constituencies within their firms: Successful partners whom the current business model rewards handsomely and younger lawyers who are anxious about their firm’s future.
By appeasing younger lawyers by making changes such as compensating partners for their work’s profitability rather than simply origination, managing partners risk isolating senior partners. But failing to convince the powerful senior partners that change is needed can lead to a “hollowing out” of a firm when young lawyers perceive their firm is not making the necessary changes, Seeger said.
“The best way to drive change is to engage the senior partners, which requires substantial dialogue on why change is needed for the long-term health of the firm and the next generation of lawyers and clients,” Seeger said.
Managing partners can take heart in a least one bit of good news. The American Lawyer reported Tuesday on another survey by Acritas Research Ltd. showing that U.S. companies are still the dominant spender for legal services globally.
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