Law firm change efforts stalled as business boomed

Altman Weil’s 2019 Law Firms in Transition Survey finds more U.S. law firms enjoying improved financial performance and reports greater confidence among law firm leaders. Buoyed by positive financial results, many leaders appear to have scaled back their skepticism regarding the long-term outlook for the profession.

“Strong 2018 performance is great news, but it can also fuel complacency,” says Altman Weil principal and survey co-author Eric Seeger.

“Regardless of short-term economic fluctuations, clients will continue to demand increased value from their service providers. We know leaders can encounter stiff resistance from partners, but it is their job to make the case for change and set the firm’s sights on longer-term goals.”

Highlights from the survey include:

—Financial gains: 78% of firms surveyed report higher gross revenue in 2018 compared to 2017, 77% of firms report increased revenue per lawyer, and 72% of firms report gains in profit per equity partner – all up significantly from the prior year.

—Rate increases: 61% of firms report raising their billing rates more aggressively than in previous years.

—Demand strengthening: 49% of firms say demand for their services has been up in each of the last three years, compared to only 40% that said so a year ago.

—Productivity improved: 63% of firms said their Equity Partners were busy enough in 2018 – the first time in six years that number has broken 50%. 60% of firms met or exceeded their billable hour targets in 2018 compared to 51% in 2017.

—Business model strategies: Among efforts to improve process efficiency, staffing and pricing strategies, only three tactics out of 20 surveyed are being pursued by more than 50% of law firms and these activity levels are largely unchanged from 2018. Why aren’t firms doing more to change? 66% of law firms say they are not feeling enough economic pain.

—Competitive differentiators: When asked what differentiates them from competitors, firms identify personal relationships with clients and client service as their top assets. They score themselves lower on efficient service delivery, flexible lawyer staffing, predictable pricing and technology sophistication.

—Market threats: Topping the list of managing partners’ concerns in 2019 is the prospect of a broad economic recession – although it rated only a 6.0 on a scale of 0 to 10. Leaders expressed less concern about competition from larger law firms, more differentiated firms, disruptive new technologies or alternative legal service providers.

—Long term planning: Only 37% of firms set long-term goals with a horizon of 5 or more years.

“As has been the case for years, law firms’ success will be driven by their ability to meet the changing requirements of the marketplace,” says Altman Weil principal and survey co-author Tom Clay. “Firms that can craft smart, client-focused strategies and execute on them rapidly are likely to achieve competitive advantages. And firms that can build flexibility, scalability and resilience into their business models will create sustainable advantages for the long-term.”

Conducted in March and April 2019, the survey polled managing partners and chairs at 810 U.S. law firms with 50 or more lawyers. Completed surveys were received from 362 firms (45%), including 49% of the 500 largest U.S. law firms and 46% of the Am Law 200.

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