NEW YORK — The first panel of the Legal Executive Institute’s 14th Annual Law Firm COO & CFO Forum aptly set the stage for the two-day event, outlining the massive changes that will continue to dramatically alter the legal services market over the next decade.
Those changes, according to the panel, include continued flat demand for legal services, segmentation and hyper-competition among law firms for that business, and a changing market that is seeing new players enter and push for more work.
“This first panel really highlights the overall theme of the Forum, which is how firms are thinking about their strategies in dealing with this hyper-competitive and rapidly segmenting market,” said James Jones, Senior Fellow at the Center for the Study of the Legal Profession at Georgetown University Law Center and one of the Co-Chairs of the event.
In the years since the financial crisis, Jones explained, the legal services market has seen stagnant growth in demand for law firm services. Demand, as measured by billable hours, has averaged just 0.5% growth, remaining essentially flat. While growth climbed a bit in 2013-‘14, it’s still far below the average of 4.3% annual growth in the years before the crisis.
“With all the changes in how legal services are delivered and how the market is comprised, the CFO and COO needs to keep firm management focused on the real world.”
— Ralph Baxter
This weakened demand has only added to rabid competition among the expanding market of legal services providers and eventually will be most felt among law firms, said Dan DiPietro, Managing Director and Chairman of Citi Private Bank Law Firm Group and Co-Chair of the Forum. This hyper-competition is seen in many facets of the profession — such as realization rates, which have dropped to 84.4% last year compared to 93.2% in 2007, due mostly to heavier levels of discounting to secure business, DiPietro explained.
To demonstrate how some of this competition is coming from non-traditional sources, Ralph Baxter, chairman of Thomson Reuters’ Legal Executive Institute, quizzed the attendees about what they believe to be the overall dollar value of the legal market. Many under-guessed.
The current legal market is pegged at $437 billion annually according to Peer Monitor, said Baxter, with more than one-third of that ($160 billion) staying in-house at corporate legal departments every year.
Another sliver of that market, at just $1 billion, is going to newly emerging legal process outsourcing firms. While currently just a small portion of the market, that segment is growing an astounding 30% annually.
Baxter noted that it is the job of a law firm’s Chief Financial Officer or Chief Operations Officer to make sure their firms understand this market. “The role of the firms’ CFO or the COO needs to be part of the firm’s strategic outlook to the rest of the market,” said Baxter. “With all the changes in how legal services are delivered and how the market is comprised, the CFO and COO needs to keep firm management focused on the real world.”