Georgetown Law Center for the Study of the Legal Profession and Thompson Reuters released their annual report on the state of the legal market last week and it is, as always, informative. The 2017 Peer Monitor Report is chock full of data and analysis respecting the tendencies in the legal market. While one might conclude that there is nothing groundbreaking in the 2017 Peer Monitor Report because it reaffirms the trends legal industry observers have seen for some time, its retrospective look at the legal industry’s last ten years says a lot.
Indeed, the report supports the view that the legal market fundamentally has changed. Once a “Seller’s market” largely controlled by law firms, the traditional legal market since the Great Recession has been transformed into a “Buyer’s market” where the consumer/client is the dominant player. The 2017 Peer Monitor Report concludes by recommending that law firms seeking a successful future focus more on profitability, a new leverage model, their core practices, and supply chain management.
Another report, from Bloomberg Law Big Law Business, delivers a slightly different message. Gabe Friedman’s Law Firm Leaders Feeling Good About 2017 notes an increase in law firm leader confidence because “[f]or the first time since the financial crisis, a majority of law firm leaders are projecting that demand for their firm’s services will increase.” The optimism, according to survey data collected by Wells Fargo Private Bank legal specialty group, is based on an anticipated uptick in transactional activity and a more favorable law firm environment under a Trump administration.
With the potential for a good 2017 for law firms as reported by Bloomberg Law’s article, should law firm leaders discount the conclusions in the 2017 Peer Monitor Report and its recommendations? There are at least five reasons they should not:
Client Control Over Legal Spend is Institutionalized and Will Not Be Ceded. The 2017 Peer Monitor Report’s data and analysis reflects economic and practice drifts that are now settled in the 10 years since the industry was turned on its ear. In that time, consumers of law firm services have seen the benefits of controlling legal spend. Whether resorting to alternative legal service providers, bringing legal work in-house, or dis-aggregating the outside services used, clients have seen and enjoyed the benefits of control. There is little reason for them to go back to the way things were prior to the Great Recession.
Client Legal Spend Options Have Become Engrained. Closely aligned with having observed the benefit of control, clients have found that legal spend options work. Alternative providers deliver outcomes that are good enough for the client’s needs. In-house legal departments can offer a host of benefits that are not enjoyed when using outside counsel. Breaking up the client/attorney relationship into more specialty firms for the outside services really needed has been a revelation. And for many clients the options have delivered efficiency and economy not previously experienced.
Non-traditional Competitors Smell Blood. The advent of non-traditional competition is a relatively recent phenomenon. Yet in the short time alternative service providers have been battling law firms for legal spend, they have demonstrated an ability to focus on value, results and speed. In contrast, law firms are suffering from overcapacity, are slow to adopt innovation or transformative technology, and are populated with attorneys resistant to change. The alternative providers love the tilted playing field and a good 2017 for law firms will not change their advantage.
An “Up” Market Will Also Fuel Alternative Service Providers. If the outcome intimated by the Wells Fargo Private Bank survey results is realized, the “up” market will not just benefit the traditional law firm. More transactional work or a Trump bump will be felt across the business world and the tide that raises law firms will likewise raise the alternative provider. If alternative providers have a few banner years, their ability to raise capital will be enhanced. A better-capitalized alternative for clients will only exacerbate the competitive pressure law firms have been feeling.
Better Law Firm Results May Stifle Needed Law Firm Change. As professions go, lawyers often are identified as being among the most resistant to change. Experience has shown that compelling lawyers and law firms to innovate and think outside the box is best stimulated when year-to-year results have disappointed. On the other hand, when the money flows and times are good, internal support for transformative change drops-by a lot. If the prediction of a good 2017 proves true, needed change at many a law firm will become harder to implement and at too many law firms endemic problems will fester.
The suggestion from Bloomberg’s article that 2017 could be a positive year for law firms is nice to hear. But too much should not be read into an outcome that will not reverse the distance the legal services market has traveled in the last ten years. Smart firms will heed the 2017 Peer Monitor Report and recommendations. Is your firm one of them?