Altman Weil's seventh annual Law Firms in Transition Survey documents how the business of law is changing and identifies emerging forces moving the legal market forward. Survey participation reached an all-time high in 2015, with responses from the chairs and managing partners of 320 US law firms with 50 or more lawyers, including 45% of the Am Law 200.
"The recession disrupted the legal market status quo in a number of ways that some firms are managing better than others," says Altman Weil principal and survey co-author Tom Clay. "It's a buyer's market, there are new kinds of competitors, smart technology is taking off, and law firms have to reinvent themselves in a leaner, more agile and more responsive model."
The survey finds that market demand has already returned to pre-recession levels in 32% of law firms, and another 41% of firm leaders expect demand to return in the next few years. Two-thirds of firms participating in the survey report increases in gross revenue, revenue per lawyer and profits per equity partner in 2014.
However a quarter of all law firms surveyed, and one third of firms with 250 or more lawyers, do not expect demand to come back in the foreseeable future. And there are other troubling signs that all is not well in the post-recession law firm marketplace.
Key findings from the 2015 survey:
-Overcapacity, especially in larger firms, is endemic and a drag on profitability. In over half of all law firms, partners are not sufficiently busy according to the survey. In firms with 250 or more lawyers, the number of partners who don't have enough work jumps even higher. Not surprisingly, 61% of all firms say overcapacity is diluting firm profitability, and that's the case in 74% of firms with 250 or more lawyers.
-Non-traditional competitors are actively taking business from law firms and the threat is growing. Clients themselves are the most active competitor outside of the traditional law firm ranks. Sixty-seven percent of responding firms say they are currently losing business to corporate law departments that are in-sourcing legal work. Clients' use of technology tools, non-firm legal vendors and non-traditional law firms are also cannibalizing work that once went to law firms.
-There is a clear correlation between strategic change and improved economic performance, but less than half of the firms surveyed are pursuing change strategies for lawyer staffing, efficiency of legal service delivery or pricing. When asked why they aren't doing more, the number one reason, chosen by 63% of law firm leaders, was "Clients aren't asking for it."
-Strong leadership also correlates with improved economic performance. The survey found a consistent financial edge attached to those firms in which firm leaders have been given more authority by their partners to drive change.
"Law firm leadership is a tough job," says Altman Weil principal and survey co-author Eric Seeger. "But those who take the path of least resistance or settle for the lowest common denominator of agreement are caretakers, not leaders. That might have been a viable alternative in strong economic years, but in the current market it reflects a failure to address threats and seize opportunities at this pivot point for the legal profession."
Conducted in March and April 2015, the Law Firms in Transition Survey polled managing partners and chairs at 797 U.S. law firms with 50 or more lawyers. Completed surveys were received from 320 firms, including 47% of the 350 largest U.S. law firms and 45% of the Am Law 200.
The complete survey report includes sections on industry trends, market demand and competition, pricing and alternative fee arrangements, efficiency of legal service delivery, lawyer staffing strategies, law firm growth and economic performance.
It is available to download at: www.altmanweil.com/LFiT2015.
Published: Tue, May 19, 2015
