Survey results show current state of the legal industry

By Thomas Franz
BridgeTower Media Newswires

The results of the 2017 Altman Weil “Law Firms in Transition” Survey are in, and the news remains bleak for the legal industry nationally.

The survey shows a continued trend of a decrease in demand for law firm services, overcapacity of lawyers in firms and a resistance to change in the way law firms operate.
“I think it’s further confirmation that law firms have a different environment than the old days,” said Justin G. Klimko, president of Butzel Long.

The numbers

In a press release, Altman Weil highlighted several significant figures from its survey, which is a poll of managing partners and chairs at 798 law firms across the country with 50 or more lawyers.

Chronic underperformance was highlighted by the survey. It indicated that 88 percent of firms have “chronically” underperforming lawyers, and that overcapacity is diluting profitability in 61 percent of law firms.

“The general idea is that people aren’t as busy as maybe you’d like them all to be, and I think that is true of most firms,” Klimko said. “There’s a lot of different reasons for it, and you sort of have to figure out if a particular practice area is waning, is it particular issues for a person, or what exactly are clients using non-law firm providers for some of those services.”

In the area of resisting change, the survey reported that 65 percent of law firm leaders say their partners resist most change efforts, and 56 percent say most partners are unaware of what they might do differently.
In a related statistic, 50 percent of firms reported that they are engaging in experiments to test innovative ideas and methods.

The survey also noted that 30 percent of law firms typically link alternative fees to changes in how work is delivered.

“We’ve literally been doing that since the 1950s,” said Miller Canfield CEO Michael P. McGee of alternative fees. “That’s how we’ve structured our practice forever, so there’s a great deal of institutional understanding of how that has to work, and I think that makes it a little easier for us and others.”

How to combat the trends

McGee said that Miller Canfield has been fortunate to not be seeing similar trends as presented in the survey.

He credited data collection as a key factor in being able to analyze how efficient Miller Canfield has been operating, and where it can make improvements.

“It’s important to have reasonably sophisticated analytical tools to allow you to capture that data and analyze it. It’s not just us, lots of other people have that, and we pay close attention to what the numbers tell us,” McGee said. “You need to have tools that allow you to evaluate what it costs to produce a particular product.”

Klimko said that after experiencing a decrease in the number of attorneys Butzel Long employed following the recession, it has rebounded, but is doing so much more selectively.

“Growing nonstop all the time in all places is not necessarily the case. You have to be more selective about where and how you grow. It’s not as easy as it used to be,” Klimko said. “We’re not just growing for the sake of growth, we’re trying to add where we need people and be selective in how we do it.”

Both Klimko and McGee pointed to technology innovations as a driver for change both in how firms and clients operate today.

“Since the recession, the competition not just from other law firms but from other sources outside of the law firm industry like artificial intelligence has caused change in the way that clients can consume services now,” Klimko said. “They are more sensitive to what the bills are now, and I think it’s a point of bringing value to clients and persuading them and showing them that you are value added to their endeavor.”

On a national scale, McGee said supply and demand have to return to order before there is significant change in the legal industry.

“I think the fundamental driver has not changed. There are still too many highly qualified lawyers chasing too little work that clients are willing to engage high-quality lawyers. For that reason, the big law market shows signs of disruption,” McGee said. “I think until we see supply and demand come more in alignment, we’re going to see these same kinds of numbers. I don’t think it’s going to come to an end this year, I think we’re several years away from that.”

Despite that outlook, McGee reported that Miller Canfield has been outperforming the results portrayed in the survey.

“Our distributable income was up by a healthy amount, and the measures that I look at, our revenue per lawyer was up 3 percent, that’s more than the average increase, same with profits per partner. I compare our own metrics to what the rest of the market is reporting, and I’m happy we’re certainly outperforming the means,” McGee said.

Looking ahead, Klimko said firms need to start thinking about their long-term future more than just short-term.

“It’s a brave new world. Law firms have to adapt, and the ones that do will be OK, and the ones that refuse to are going to have problems. I think all lawyers need to think about the way they’ve historically done business and adapt to new realities,” Klimko said. “You have to worry about not just what you’re doing tomorrow or next week, but in a few years also.”

The survey can be found at http://www.altmanweil.com/LFiT2017/.