Law firms leaders are not listening
They know the law business is undergoing dramatic changes but few seem to be doing much about it. Worse, their partners don’t want to do anything different.
When I was a pre-schooler and didn’t like what mom or dad was telling me to do, I’d cover my ears and shout “la la la la la,” so that I couldn’t hear them. Something akin to this is going on with grown-up law firm leaders. They don’t like what they’re hearing about the future of the law business and they’re covering their ears so that they won’t hear what is being said.
The stunt didn’t work for me then and it probably won’t work now for law firm heads, either.
Evidence of this comes from Altman & Weil, which just published its [2016 Law Firms In Transition](http://www.altanweil.com/LFiT2016?lipi=urn%3Ali%3Apage%3Ad_flagship3_pulse_read%3Bo8P8Wsj4QZe48WBkJeAQCQ%3D%3D" Target=" Blank) (pdf) survey. The eighth annual report cries out for a subtitle: The market for legal services is changing rapidly but law firms are not.
“(M)ost firms are choosing to proceed with lawyerly caution in the midst of a market that is being reinvented around them,” laments the study’s introduction.
As in last year’s survey, [firm leaders continue to see the future](https://www.linkedin.com/pulse/law-firm-managing-partners-see-future-ignore-james-bliwas?trk=mp-author-card&lipi=urn%3Ali%3Apage%3Ad_flagship3_pulse_read%3Bo8P8Wsj4QZe48WBkJeAQCQ%3D%3D" Target=" Blank) clearly alright but are reacting with a thundering round of indifference. They seem unwilling or unable to take steps to meet a mounting series of challenges in a way that could help ensure their firm’s continued prosperity beyond the next few years.
On the one hand, they admit that client demand is shaky, there are too many lawyers, the delivery of legal services is creakingly inefficient and firms are unwilling to change. But at the same time, they remain content to simply let the future just happen.
“I see nothing concrete to indicate real trouble ahead,” huffed the chair of a massive firm when I spoke with him after the study was released. To him, apparently, it’s damn the mounting empirical evidence: “There’s nothing we need to be doing differently.”
While not all managing partners are quite so deaf to a rapidly shifting market, some say trying to introduce new thinking about their business is a struggle. Last week, the head of an AmLaw50 firm confessed to me that, “It’s difficult to get my partners believe the sky is going to fall while they’re depositing seven-figure paychecks.”
He has a point: Revenue and per-partner profits rose last year at two-thirds of the firms in the survey.
Still, 23-percent report that profits declined in 2015, sharply in some firms, and this ought to cause concern even for firms that remain highly profitable. No business in any industry or sector under profitability pressure this widespread should consider themselves immune no matter how fat and sassy they might be today; just ask General Motors.
What ought to be especially nettlesome for managing partners is the longer-term outlook. Nearly half do not see pre-recession demand for their services rebounding in the next three-to-five years, and the same percent expect mounting profit pressures to be a permanent reality of the business.
Issues are arising from many different and disparate sources. The most frequently cited reasons, and the percent of respondents listing it as a cause for concern, include:
Competition from non-traditional firms increasing – 82%
Losing business to in-house law departments – 68%
The pace of change is accelerating – 62%
Demand for legal services is declining – 62%
Clients want a new service delivery model – 56%
Despite the fact that almost 7-of-10 respondents are concerned about losing business to in-house law departments, it’s really the least of their long-term troubles. This is a cyclical trend, rising and falling in waves like a fad. I’ve been in the law business forever and I am seeing the third or fourth time that clients have moved work inside only to conclude a few years later that it’s cheaper to send files to law firms. It will happen again.
But any reversing of the shift likely won’t be sufficient to assure a rosy future. In fact, [Deloitte just published](http://www2.deloitte.com/uk/en/pages/audit/articles/developing-legal-talent.html?lipi=urn%3Ali%3Apage%3Ad_flagship3_pulse_read%3Bo8P8Wsj4QZe48WBkJeAQCQ%3D%3D" Target=" Blank) a paper that predicts by 2020 – just four years from now – the law business will have changed so much that everything from recruiting and hiring practices to service delivery and pricing will be vastly different than anything the profession has seen in the past.
“If the pace of change continues to accelerate as we predict, the tipping point is likely to occur around 2020,” the professional services group of the consulting giant states categorically, channeling [Naomi Klein](https://www.amazon.com/Shock-Doctrine-Rise-Disaster-Capitalism/dp/0312427999/ref=sr_1_3?s=books&ie=UTF8&qid=1469117667&sr=1-3&keywords=naomi+klein&lipi=urn%3Ali%3Apage%3Ad_flagship3_pulse_read%3Bo8P8Wsj4QZe48WBkJeAQCQ%3D%3D" Target=" Blank). The paper goes on to predict, “Client demands and external pressures will primarily determine the business strategies of law firms.”
The early telltale signs of the “tipping point” can be seen in the two most-significant numbers: 82-percent of law firms are seeing competition from non-traditional firms while more than half of the leaders admit their clients want a new service delivery model.
So far, “non-traditional firms” mainly mean lawyers working under the umbrella of the large accounting and consulting firms. But it also includes the virtual NewLaw firms such as Cognition in Canada, Potomac in Washington and Valorem in California. While the NewLaw firms have captured less than 5-percent of what businsses spend on lawyers, only three years ago their impact was too small to measure.
“We’re reaching a critical mass where it’s feasible to start going after large, high value files from major businesses,” says Donna Kent, who is COO of Arizona-based NewLAWu.s. “Even just a year ago, that was unrealistic for us.”
Don’t tell this to managing partners and firm chairs.
According to the Altman study, when it comes to thinking strategically about meeting the mounting list of challenges, law firms seem to be a-wishin’ and a-hopin’, in the words of an old song. Less than one-third of leaders in the 300-odd firms surveyed – from BigLaw whales and global behemoths to regional firms and niche boutiques – have started thinking about what they need to fix.
What they are doing, in the words of a former chairman of a sizeable Canadian firm, is “[tinkering around the edges](http://www.lawtimesnews.com/201407214086/commentary/speaker-s-corner?lipi=urn%3Ali%3Apage%3Ad_flagship3_pulse_read%3Bo8P8Wsj4QZe48WBkJeAQCQ%3D%3D" Target=" Blank).”
Mostly, law firms are playing with fees yet only 33-percent of firms surveyed are instituting strategic changes to their pricing structure. Discounting an invoice is the most common approach, which carries its own risks. Yes, a discount will quell some client discontent stemming from the size of their invoices but how does a firm then submit a full bill without igniting a firestorm of protest from these same clients? And does a managing partner want his organization to be thought of as the Costco of law firms?
True, the very largest firms are finally trying to develop better [data on the actual cost](https://www.linkedin.com/pulse/new-profitable-approach-measuring-client-james-bliwas?trk=mp-author-card&trkSplashRedir=true&forceNoSplash=true&lipi=urn%3Ali%3Apage%3Ad_flagship3_pulse_read%3Bo8P8Wsj4QZe48WBkJeAQCQ%3D%3D" Target=" Blank) of providing services, which should make it easier to create alternative fee arrangements that are profitable. But pressure on fees is only one component of what is causing such a dramatic shift in the market for legal services.
In any event, simply discounting fees or quoting flat rates and implementing fixed price billing doesn’t address the fundamental, underlying issues confronting the profession such as inefficient service delivery. Indeed, nearly six of every 10 respondents say that clients are increasingly vocal about wanting a more efficient service delivery model.
Beyond the NewLaw firms, which had the benefit of starting from scratch, only a tiny handful of law firms have undertaken a strategic rethinking of how they do business, from the way services are offered to their pricing structure and internal organization.
Yet if predictions are correct, and 2020 is the magical year, leaders need to start their firms thinking now about how to adjust and adapt. Turning a law firm – even a relatively small one – in a new direction is like turning an aircraft carrier: It can’t be done quickly. The men and women charged with leading their institution must start planning today for the direction they will be heading four years from now.
Sadly, it doesn’t seem to be happening and there is [no off-the-shelf NewLaw model](https://www.linkedin.com/pulse/theres-newlaw-template-help-firms-transition-james-bliwas?trk=mp-author-card&lipi=urn%3Ali%3Apage%3Ad_flagship3_pulse_read%3Bo8P8Wsj4QZe48WBkJeAQCQ%3D%3D" Target=" Blank) they can grab and implement at the last minute.
Despite living in Canada, I’m not a hockey fan; the fights and “enforcers” make it seem like pro wrestling with sticks. But legendary player Wayne Gretzky once explained his talent for the game by saying he didn’t play where the puck was but rather where it was going.
More law firm leaders need to look for where the puck is going when it comes to planning for the future of their organization.
Why do you think firms are so slow, and so reluctant, to rethink their business model? Is this another example of nothing being more vulnerable than entrenched success? What will it take to get firms and their partners to address the growing challenges they face?