It is a time of joy and angst for midsize law firms and their lawyers. For the first time, they are experiencing big demand from big business. Under pressure to cut legal spending, a good portion of corporate America is dumping high-priced big-city law firms and substituting smaller, lower-cost regional firms. Phones are ringing at midsize firms with invitations to make pitches and respond to requests for proposals.
However, there is plenty of anxiety to go around at law firms of all sizes. The rules underpinning the business side of law firm life are nearly unrecognizable from just a few years ago. The economic crisis that began in spring 2008 amplified the impact of those changes — which have been under way for years, according to law firm consultants. Firms faring well despite the recession are doing things differently, advisers said in a recent series of interviews.
The once-familiar ways of hiring, billing and pursuing new business largely are gone, leaving lawyers who preferred old-fashioned methods hunkered down and uncertain how to proceed, said Allan Colman, law firm consultant with The Closers Group in Torrance, Calif. The primary new focus for law firms? Think and act like a business, Colman said.
Under the old rules, bringing in new clients “used to be glad-handing and personality matching,” said Sandra Giannone Ezell, managing partner in the Richmond, Va., office of Bowman and Brooke, a 140-lawyer products liability defense litigation firm.
At midsize firms, relationships are all the more important, because losing just one client means a significant hit to revenues. But now, with companies driven by intense pressures to reduce their legal spending, cost is the key, and that’s where midsize firms have the distinct advantage.
“What’s happening now is that it’s all driven by price and profit,” said Bob Gero, law firm consultant at The Gero Group in Philadelphia. All lawyers should realize that their clients are getting pitched by other firms, he said.
Although hit by the recession, midsize law firms are on better financial ground compared to their bigger brethren. According to the most recent Am Law 200 survey, revenue was flat in 2008 at the law firms that ranked between No. 101 and No. 200 in terms of gross revenue, compared with a decline of 1.2% — the first decline since 1991 — among the nation’s 100 top-grossing firms. The financial outlook among the largest firms was not expected to improve during 2009, which could create even more opportunity for smaller, more affordable firms.
Midsize firms have clear advantages now. “They can move faster. They don’t have the overhead. They have great talent,” said Colman. Many offer some type of alternative fee arrangements and aren’t afraid to discount rates, he said.
Lawyers at midsize firms “feel this is our time,” said Alan G. Starkoff, who heads the commercial litigation practice group at 125-lawyer Schottenstein Zox & Dunn in Columbus, Ohio, a business law firm.
In a move to collaborate and compete with larger firms, a group of regional law firms from around the world created the Law Firm Alliance in 2000, when firms nationally were going through an intense growth and merger cycle. It now has more than 50 members. Midsize firms not caught up in that frenzy wanted to avoid the competitive disadvantage of staying smaller.
Using their network colleagues, regional firms could offer their clients a national presence without undertaking the cost of maintaining offices in multiple cities, said David P. Rosenblatt, a founder of the alliance and managing partner and head of the environmental practice at Burns & Levinson in Boston.
“It was a way to try to remain competitive,” he said. Organizers hoped it would minimize their clients’ needs to go to bigger firms, he said. The alliance now comprises 2,500 A.V.-rated lawyers in the United States and abroad.
In today’s tough economy, the alliance is “more important and relevant than it’s ever been,” Rosenblatt said.
Lawyers are using the network in new ways — such as pursuing multistate litigation and other projects that require lawyers in multiple locations, said Starkoff, the sitting alliance chairman. For example, a group of health care lawyers in the alliance recently proposed to a health care company that they undertake a national representation, he said. He expects other practice areas to follow suit.
Health care remains a strong practice area, as has litigation, said attorney Ezell, whose products liability defense firm expanded its clientele from auto companies to all manufacturers.
“Demand for litigation, unlike other legal services, has not dropped at all,” she said. “One thing we know in a bad economy: Filings go up.” Businesses don’t work out contract disputes because maybe there isn’t going to be a next year’s contract. “It becomes more litigious.”
Ezell’s firm has embraced alternative fee arrangements, while many firms are still struggling with accepting it, she said. With prospective clients, “We say, ‘We are not afraid. We have an accounting department that is set up to deal with it.’ We have a mindset that is prepared to deal with it and we don’t resist it.”
Prospective clients “take for granted that you are good lawyers, that can do good work. Now they want to know [if] are you going to be a good business decision for them not just in the short term but over the long haul,” she said.
Big firms may be hurting because they have priced themselves out of certain markets, but life at midsize firms is not without its lumps.
At 230-lawyer Bass, Berry & Sims in Nashville, Tenn., whose clients include public companies and Hospital Corp. of America Inc., 10 lawyers and 22 staff were recently laid off, said managing partner Keith Simmons. The reductions are not nearly as large and widespread as those at the bigger firms, but it still hurts, he said.
“I think [that], through times like this, you learn to manage really tightly,” Simmons said. “Those were positions we felt like, if you looked out at 2011, we probably wouldn’t need anymore, particularly on the staff side.”
The firm retooled its staffing after a series of lengthy interviews with clients, analyzing their future needs. Thinking about how law firms have changed “would be all the more interesting if we weren’t in the eye of the storm,” he said. “Intellectually, it’s a really interesting thing. Managing through it has some challenges.”
Legal market changes represent more than just a cyclical downturn, he said. “More than that, I think it is a major transition into something else. I don’t think any of us know exactly what that something else is.”
More than ever, clients are looking for a trusted adviser, not just a lawyer to complete a project, Simmons said. How does a firm bill for that? Some of those conversations you bill and others you don’t, he said.
“I’d much rather a client call me and talk through things and not bill him for it than not get the call at all, because ultimately I’m going to come out ahead in that deal,” Simmons said. “If I’m involved in what’s going on, ultimately it will turn into revenue.”
The future remains unpredictable because lawyers feel limited by the demands to be creative in their business thinking, he said. “It is an awkward time. It is an interesting time.”
Emily Heller is a regular contributor to The National Law Journal.