Another year for law firms is in the books and the numbers, to state it mildly, do not signal a return to the pre-2008 halcyon days. Based on a report from the respected Georgetown Law Center for the Study of the Legal Profession, it appears that challenges to the legal profession continue and are potentially systemic. The Center’s Report on the State of the Legal Market provides a cautionary assessment that law firms should note about their future.
First, the Report recognized what many already know and that is that clients control the legal services market like never before. It also sums up the numbers that reflect, among other things, sluggish growth in demand, negative growth in productivity and continued pressure on rates and realization.
These downward indicia of legal industry health are not all. The data also reflects a decline in law firms’ share of the total legal market due to the increasing influx of alternative legal service providers and clients taking more work in house.
Based on the analysis in the Report, the data is not an aberration. Indeed the Report concludes that this growing competition now cutting into law firms’ market share is not only not likely to abate, but could very well get worse.
Elizabeth Olson of the New York Times recently reported on the Center’s study and highlighted the risk (noted in the Report) that law firms that do not adapt could risk obsolescence. She cites the Report’s admonition that law firms that don’t make “bold, proactive changes” to the way business is done are in jeopardy.
While the looming hazard may exist, for most firms it is not imminent. Nonetheless, action must be taken now or the risk of a fateful future mounts.
Firms heeding the call for “bold, proactive changes” will need to consider fresh ideas borne from the new normal in order to remain relevant and competitive. Not all the new ideas will make sense, but thinking about them and today’s changed legal environment increases the likelihood of future success and sustainability.
For firms trying to prepare for change, here are five things to consider:
Educate. Change at law firms is hard. Many, new timers and old timers alike, will bristle at abandoning the tried and true approach to law in favor of a new way. So before new ideas are proposed or change threatened, spend significant time educating the ownership about the new normal and the dangers faced. An educated ownership could become an ally, a font of ideas (good and bad), and could drive the firm towards the client-centered solution needed.
Rethink the Economics. The billable hour is the common foundation for many law firms today at the same time it is falling out of favor with clients. Building a non-billable hour economic model that is client responsive yet profitable to the firm should not only be a goal, but also an imperative.
Change the Culture. One thing the Report criticizes is the billable hour culture on which so many firms measure an owner’s worth. A client service oriented culture, measured by indicia other than the billable hour, may be just the change needed to compete in the future.
Do a Merger with an Alternative Service Provider. Okay, this may be impossible in many instances because of the prohibition on non-lawyer ownership in law firms. But instead of merging with another law firm that, like yours, risks being outdated and left behind, think about joining with or being around the new generation of legal service providers.
Hire People with Start-up Mentalities. Many of the best and brightest of our youngest generation are bypassing the law for the start-up world in order to create the next best thing. The mindset that motivates them to find a better or more efficient way of doing things could prove very beneficial to a law firm preparing for the future. Instead of hiring solely on the basis of class rank, judicial clerkships and social connectivity, hire some “out of the box” thinkers that will stimulate a perspective that counteracts tradition for tradition’s sake.
Is your firm thinking about what it will do as law firm market share of the legal services market continues to decline? What will it do to sustain itself and thrive while other law firms do nothing?