Jan 18 '13
2012 was another turbulent year for US lawyers. That’s according to a client advisory paper by Citi Private Bank and Hildebrandt Consulting who said that law firms continue to face many of the same headwinds that first rattled the legal market in 2008.
Not exactly breaking news then. But what was telling was the reports forecast for the coming years. In the near term the legal market will be flat as major economic indicators and industry remain suppressed. In the longer term the report said that while things appear brighter, the legal industry will not return to the halcyon days of the boom years.
With revenue, profits and growth going nowhere anytime soon the 13 page report took an overview of the market since 2008. The report was keen to stress the importance of learning the lessons of the Great Recession and to apply those lessons going forward under today’s logic.
Citi-Hildebrandt identified 4 core principles that can be drawn since Lehman Brother’s collapsed in 2008.
Firstly, law firms must earn demand growth. This means offering fee discounts, alternative products and value-added services. Law firms need to be quicker on their feet as clients and prospects increasingly go in-house, outsource and shy aware from contentious litigation.
Secondly, law firms must trim up and boost productivity. According to the report whilst associate billing is up, the number of billable hours charged by income and equity partners has dropped. This stands in the context of a shrinking associate base and growing partner numbers. With this in mind firms need to close the productivity gap and put work on the table by offering competitive services and by cutting dead weight.
Thirdly, single digit growth is a return to the norm. Double digit profit increases was a child of the credit boom and largely speaking, they will not return. The big profit trend did not exist pre-boom, does not exist today and will not be the norm in the future.
Fourthly, law firms should embrace volatility. Law firms should see big market movements as a fact of life. As the legal market remains fluid into the future as talent shifts around, law firms should be ready to restructure, merge or oven, fold.
Turning to 2013 Citi-Hildebrandt said that the New Year is going to be moderately better than 2012 as housing is expected to pick up and deal sentiment rises.
But how can law firms succeed long term in the news legal services landscape?
The report outlined 3 core principles that law firms should adapt and live by.
Firstly, law firms should listen and engage with clients. Things are just as hard for other businesses and often clients have very specific needs and face the usual pricing pressures. Law firms should meet and cater for these needs by dialoguing with clients and prospects to understand and properly assist them.
Secondly, law firms should rethink their business model. Lawyers now operate in a fiercely competitive environment with a lot of lateral movement and pricing overhang. To meet these challenges law firms should adopt targeted strategies that aim for growth and firm goals.
And around these goals law firms should create their business model. They should also incorporate efficiency targets, a collegial culture and a fortress balance sheet into their long term strategy.
Thirdly, law firms should look to differentiate themselves from the cluttered market. Many firms are keen to do this by branding themselves but they should be careful to have the necessary business structures in place before putting themselves on the front shelf. Lawyers and law firms should also see merit in boutique firms who offer deep specialism and focus.
In conclusion it’s clear that the low demand, low profit, low growth trend of the last 4 years will continue into the foreseeable future. The potential for an uptick is there but until market conditions normalise law firms need to school themselves in the lessons of 2008-2012 and apply them with 2013 logic.