Law Firms Make Changes to Firm Up Their Business ModelJuly 2, 2014
With apologies to Thomas Wolfe, law firms in the post-downturn economy are discovering what “you can’t go home again” truly means. The 2014 Citi-Hildebrandt Client Advisory, released in mid-January, had a slightly rosier outlook than the 2013 version, which began with the ominous, “[W]e think it is time to let go of any lingering notion that the industry will revert to the boom years before the Great Recession anytime soon.”
The economic downturn hit the legal industry in disastrous fashion — so much so that a recent American Bar Association report shows that unemployment among recent grads has climbed ever higher, even as national unemployment numbers have steadily declined. Local law firms are not immune from the fallout as they take steps to adapt to a new landscape.
“The demand for legal services has changed dramatically since 2008,” said Brian Johnson, managing partner of the Lexington office of Bingham Greenebaum Doll, LLP (BGD). “What the data uniformly shows is that demand for legal services is either stagnant or declining. The pie just isn’t getting bigger, so the focus is on how to get a bigger slice of that pie.”
The first step in doing that, according to Johnson, begins with the firm structure itself.
“We’ve really streamlined our governance. We now have one managing partner. We can move quickly and be more flexible,” he said.
Bill Lear, managing director of Stoll Keenon Ogden PLLC (SKO), echoes a similar sentiment.
“The biggest change is that we’ve had to become more efficient and more like a business,” he said. “We’ve recently hired a chief administrative officer, the equivalent of a COO [chief operating officer]. This is someone from outside the legal industry, from accounting and finance, to help us run the business aspect.”
Wyatt, Tarrant & Combs LLP similarly followed suit in hiring a COO, according to Lexington’s Partner-in-Charge Mark Burton.
“This allows our managing partner more time to focus on our clients and look for ways to better serve them,” Burton said.
Efficiency is the next step, with tightened belts allowing clients to reap the benefit.
“Our lawyers don’t need as much office space anymore, because our libraries and research more and more are online. This also reduces the amount of support staff necessary to serve clients,” Burton said.
SKO has seen dividends from utilizing more project management techniques, while BGD puts an emphasis on new technology.
“We think about what’s going to work, what’s going to be efficient, what’s not going to break the bank,” Johnson said.
With regard to, for example, the expense of e-discovery, Johnson said, “If you can bring that in-house, you can save your client money.” Johnson also pointed to an increasing array of more and more affordable apps for attorneys that buck the conventional wisdom that expensive equals better.
Reaching for bigger market share also entails a change in attracting new clients.
“We’ve put a good deal more emphasis on understanding the basics of business development,” Lear said of SKO’s efforts, which include training and mentoring sessions for associates, as well as some personnel additions. “We’ve hired true marketing professionals in the last few years. It’s all about return on investment — tracking how our marketing dollars are spent and the payoff on them.”
Bingham Greenebaum Doll, according to Johnson, plans to rise above the pack through exemplary customer service.
“It is really easy to find a smart lawyer,” Johnson said. “So what makes you, as a law firm, stand out to clients? Good legal ability is presumed. [The clients] want responsiveness. We’re planning to do lots of training on these issues, and it’s really from the ground up.”
Possibly the most resonant change to law firms is the ever-present notion of the death of billable hours as clients look for ways to chop back at legal bills.
“We are moving more and more into alternative fee arrangements,” said Wyatt’s Burton. “In a market that is very competitive, you will have law firms trying to woo clients with lower hourly rates. We need to remember that clients care more about the total cost of the project, rather than the hourly rate. If it takes someone twice as long to do something at an hourly rate that is 15 percent lower than ours, where’s the savings to the client?”
SKO is also using more and more fixed fees according to Lear, but BGD’s Johnson is a bit more contemplative.
“A lot of firms have been big on alter-native fee arrangements,” he said. “What I can tell from general counsel is that they’re not always happy with AFAs.” Johnson cited the notion that a fixed fee agreement usually means that one side or the other is expecting an advantage over traditional hourly billing. “Flat fees work for more predictable types of cases, but not all cases.”
Whatever the future holds, firm managers seem to have taken lessons from the Great Recession to heart.
“With regard to legal services, it’s a buyer’s market, and it ought to be. We’re here to provide for our clients, not the other way around,” said Johnson.
“We are adapting,” said Lear. “What has confronted all law firms in the last couple of years is that these changes are here to stay. The new reality is a permanent one. The old economy of the billable hour and ever-expanding workload isn’t feasible anymore. It’s more important to get better than to get bigger.”
Source: Business Lexington