For Holland & Knight’s Steven Sonberg, the challenges of running a 1,000-lawyer firm with 17 offices are endless these days.
There’s a contraction in demand for legal services, competition from alternative suppliers such as contract vendors in India, an increase in legal work staying in-house, and continuing pressure from clients to reduce fees and offer alternatives to hourly billing.
Additionally, Sonberg is overseeing newly opened offices in Mexico City and Bogota, scouting around for a new office in Houston and presiding over a renovation of the firm’s Miami office that will be completed next year.
Is it any wonder that Sonberg as managing partner is starting to focus on succession planning and grooming the next generation of leaders at Holland & Knight?
“In the longer term, my hope is that over the next few years we will focus on transition issues — bringing new people into management-level positions,” he said. “I want to make sure that others are coming up and moving along. We have a lot of extremely capable people that bring to the table a lot of talent. We want to cultivate those talents and give people opportunities.”
Sonberg was just elected to his second five-year term in May and is clearly in no rush to hand over the reins of the firm, nor is his firm in any rush to lose him as its leader. He is just one of a host of managing partners to mention succession planning as a key goal over the next few years as Generations X and Y start to succeed baby boomers at law firms.
The myriad upcoming challenges Sonberg foresees echo that of other managing partners responding to the Daily Business Review’s annual managing partner survey.
Fifty-four managing partners who run large, medium and small law firms throughout the state responded to the anonymous survey, answering questions about how they envision profits, hiring, office openings and the economy, among other issues, in the coming year.
The survey shows managing partners, while facing significant hurdles in this post-recession economy, are optimistic (52 percent) or somewhat optimistic (38 percent) about the coming year.
While some might think expenses could not be cut any further, 71 percent of managing partners said they cut costs in the last year — 14 percent by reducing staff, 15 percent by cutting travel and entertainment, and 9 percent by reducing their summer associate programs.
Nineteen percent of the managing partners reported hiring contract attorneys in the last year to help control costs, up from 16 percent last year. Fifteen percent turned to partners for additional capital or holdbacks, which is up significantly from last year, when that number was at just 5 percent. Forty-two percent glumly reported they did not expect the legal economy to improve for at least a year.
But the news wasn’t all bad. On the positive side, 71 percent reported slightly higher billing rates this year, while 56 percent said they expect profits per partner to increase slightly in the coming year. And 38 percent said they plan to open new offices next year while 40 percent are looking for merger partners.
Holland & Knight is one of those firms looking to open a new office.
“We are looking at the energy area [in Houston],” Sonberg said. “Houston is a very competitive market, an even hotter market than Miami. Firms are opening up offices there all the time. There’s a lot of competition.”
Akerman Senterfitt just opened a new office — close to home in Miami’s Wynwood section. Sandwiched in a business incubator, the office is intended to capture entrepreneurial clients and tech startups.
Greenspoon Marder, which is one of Broward County’s largest law firms with 170 lawyers, is looking to expand in Miami and Jacksonville. The Fort Lauderdale-based firm opened an office in Tampa this year.
“Likely with lateral hiring plus internal expansion due to increased business, I would expect to increase our head count by at least 5 to 7 percent this year,” said firm managing partner Gerry Greenspoon.
One law firm that has no plans for new offices is the 120-lawyer Bilzin Sumberg Baena Price & Axelrod. The firm has rejected geographic expansion beyond its Miami base.
Currently involved with the All Aboard Florida high-speed train project, the $1.2 billion Miami Beach Convention Center, the $400 million purchase and renovation of the Perry Hotel in Miami Beach, Bilzin is “having our best year ever,” said managing partner John Sumberg.
“Having our sole office be in Miami has really worked for us,” he said. “Miami is white hot right now. When people from New York and other countries want to do projects in Miami, they ask around in the Miami community, and because of our emphasis in that community we’re on the short list. It’s helped us in that regard.
“Plus having everyone in one office, it facilities getting together and orchestrating strategy for the clients,” Sumberg said.
Other firms report their Latin American, real estate and litigation practices are performing well.
“The good news is the economy is recovering in Miami,” said Akerman chairman and CEO Andrew Smulian. “We’re also doing extremely well in New York. We closed 11 different major deals this year and are tied for first place for Florida deals by Mergermarket.”
While business is picking up, managing partners say they are facing continuing pressure from clients to lower fees or offer alternative billing.
“We think as a result of the recession, clients have become much more focused on value and efficiency,” Sumberg said. “That is one of the keys to being successful over the last decade for us. When clients want to talk about alternative billing, it doesn’t have to be a lose-lose, it can be a win-win. We are seeing some increase in these types of conversations.”
Clients continue to ask Holland & Knight for alternative fee arrangements in their efforts to control or reduce fees. Although alternative fees previously represented 5 percent to 7 percent of the firm’s business, that figure is now somewhere in the double digits, he said.
But arriving at a realistic fixed fee that will still generate a profit can be challenging, Sonberg said.
“I think it’s incumbent on law firms to look at the manner in which they deliver services, the manner in which they manage projects, and develop fee structures and alternative fee structures,” he said. “For instance, we set a fixed fee of $50,000 for a project. We have to make sure our internal structure is operating in a way in which we can deliver it in a reasonable fashion. It amounts to looking at how matters are going to be staffed, making sure we keep clients apprised of what’s going on and keeping good communication with clients to make sure the scope of the project is not changing.”
This trend has resulted in a new employee classification popping up at law firms: pricing directors.
“There is a continuing trend of more for less, and we are responding,” Smulian said. “Hourly billing still continues though. Lawyers being relatively risk adverse, generally they have been reluctant to try alternative fees. But there is definitely this demand on the client side and lawyers are going to have to become better at it.”
At Greenspoon Marder, hourly billing represents a minority of its total billing, with 40 percent hourly to 60 percent alternative fees.
“We’ve always worked in that manner, where we are very open and very creative in billing structures,” Greenspoon said.
Another trend managing partners are witnessing is more document review and discovery work being done by outside vendors in India, the Dominican Republic and elsewhere.
“Among the big trends in the legal industry these days is the emergence of some of the nontraditional legal industries,” said Smulian. His firm uses such outside vendors.
Sonberg of Holland & Knight agrees, saying, “There is a whole industry of contract lawyers that did not exist 10 years ago.”
Holland & Knight uses contract lawyers from time to time for contract work, billing and document review, he said.
Greenspoon is considering turning to contract vendors “as a cost savings measure,” he said.
But one law firm that will not consider outsourcing legal work is Kopelowitz Ostrow Ferguson Weiselberg Keechl, a 41-lawyer Fort Lauderdale-based firm. Even though the firm specializes in class-action lawsuits, often involving millions of pages of documents, firm managing partner Jeffrey Ostrow prefers to keep all his legal work in-house.
“There are a lot of options with e-discovery firms and real cheap labor outside the country,” he said. “But I only trust my own people to review documents and read them. I don’t want to have to spot check everything. I’m old-fashioned that way.”
Law firms also are focusing on succession planning. Greenspoon, Smulian, Sonberg and Sumberg all said they were starting to identify and groom the next generation of law firm leaders — and ultimately a new managing partner.
“I’ve certainly thought about it,” said Greenspoon, 62, who has managed his firm since it started 32 years ago. “That’s something we’re probably planning to implement over the next one or two years as a plan. We already include younger people on our management board. But clearly that must be dealt with — starting to turn over command to the next generation.”
Smulian said he is “starting to have conversations with people.
“You have to look ahead and be proactive in planning for the future,” said Smulian, who has three years left in his term.