2016 was a watershed year for the legal industry, bringing into sharp focus some of the continuing issues arising from the Great Recession and foreshadowing some of the trends that will affect the industry in 2017.

Here is a look back at some of the big trends ALM Intelligence spotlighted in 2016, and a look forward to what we see on the horizon for 2017.

  • While The Prevailing ‘Gloom and Doom’ Narrative on Law Firms is Off-Base, Your Clients Just Aren’t That Into You:
    • Since the Great Recession, law departments have been forced to tighten belts and increase cost efficiencies. While demand for legal services remains high, the supply has changed. Law firms are facing a market undergoing rapid evolution, and clients continue to fuel industry innovation. At the same time, compared to the overall economy, Big Law is still outperforming both US GDP and its closest competitors.
      • Prediction: New competitors will continue to expand law department staffing options, spotlighting how and why departments hire outside counsel. This will further affect key law firm financial metrics and cause the prevailing feeling of gloom and doom to become a reality.
  •  Big Law’s Age of Uncertainty:
    • Given the uncertainty facing the industry, it is no surprise that many new law firm partners have wandering eyes. According to ALM Intelligence’s New Partner Survey, about 30% of new partners did not identify becoming a valuable firm member as a career goal, while about 20% chose working outside of a law firm as their primary goal in the next 10 years. In addition, lateral partner hiring continued to reach new heights, while lateral hiring success rates continued to be spotty at best.
      • Prediction: The flux in talent is one major driver of new competitors in the industry, and the industry should expect attrition to intensify at Big Law.
  • Rising Salaries: Good for Associates, but Good for Clients?:
  • Women in Big Law: Where Firms Are Succeeding and Failing:
    • 2016 is the year when diversity issues in the legal industry came to a boil and law departments started threatening the industry with their wallets, not just their ideals. The industry is now forced to grapple with contributing factors to the lack of diversity, including the way the industry hires, the types of diverse talent that leave law earlier, and the effect of the lateral hiring process on gender diversity.
      • Prediction: Law firms that are not diversifying will lose out on both existing and new client accounts. Law firms on the leading edge will put their wallets where their mouths are and establish detailed metrics that measure diversity within the firm and put bonuses at risk if those metrics are not met. Beyond the pressure on the corporate side, diverse talent will continue to use legal action, such as the lawsuits against Chadbourne & Parke and Sedgwick, against firms and companies that are not modernizing quickly enough.
  • De-equitization: Promise and Peril:
    • The law firm management structure has changed. Firms are now increasingly leveraging the non-equity tier and are also using non-legal operations staff to help run the business. While this brings some efficiency gains, it also creates issues such as covering non-equity partner salaries and diversity ramifications.
      • Prediction: Law firms will continue to struggle with how best to structure firm management without overextending the non-equity tier. For many firms, it is already too late. 2017 will be the year that the non-equity tier is put into sharp focus, and many firms will need to conduct layoffs to right-size, while others will simply fold.

Long story short: 2017 is shaping up to be a year of change — law firm management, operations and talent are all in flux and will continue to remain issues for the foreseeable future.

Hot on the agenda: where law firms fall in the law department supply chain, as staffing options multiply and talent becomes more fluid; what law firm management and governance looks like with the overcapacity at the non-equity tier, the rise of non-legal business managers, and the shift from baby boomers to millennials; how the increases in associate salaries will affect law firm finances and corporate counsel compensation as the realities of who will pay for these increases comes to a head; and the ways in which law departments and law firms will push for diversity in the legal industry, using metrics and spending to ensure that the industry finally progresses.

We anticipate some high moments in the coming year, but we are also realistic about the path forward. While the industry modernizes, some big law firms will surely be left behind.

ALM Intelligence Notes

  • Analyst Newsletter: Subscribe to the ALM Intelligence Analysts Brief, featuring the latest thinking from our analysts delivered straight to your inbox each week.
  • Lateral Hiring Due Diligence: A new ALM Intelligence report examines the obstacles firms phase when navigating the due diligence phase of the lateral partner hiring life cycle.
  • Legalweek The Experience: ALM’s biggest event of the year is upcoming. Register here.

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