Most legal market surveys focus on law firm partners, and understandably so. With law firm C-suites becoming the rule rather than the exception, it’s important to recognize that there is a growing but perhaps underserved portion of the legal market represented by the allied professionals who keep the business side of a law firm running.
Thomson Reuters, the Association of Legal Administrators, and the Georgetown Law Center on Ethics and the Legal Profession recently published the 2019 Law Firm Business Leaders Report. Our goal with this survey was to hear from this underserved group to see what we could learn about the legal market as seen through the eyes of the MBAs, CPAs, and other professionals who work alongside the JDs.
Here are some of the key takeaways, from my vantage point:
Business leaders in law firms are aware of the numerous challenges that face their practices, including those that may inhibit future growth in financial performance and profitability.
To confront these challenges, many firms are pulling the usual levers — increasing billing rates, moving work to the lowest-cost resources, expanding practice areas, making lateral hires, etc. — to better protect profits.
But law firm leaders are increasingly aware that playbook can only take them so far. During the last economic downturn, most law firms exercised these same levers. As we’ve covered in our annual State of the Legal Market Report and elsewhere, the effectiveness of these levers in the future may be played out, or may result in treading water, at best.
Growth-oriented leaders are looking to technology and talent to pave the way to profitability. They are concerned about the potential drag of under-performing attorneys, but optimistic about the possibilities that new technologies — particularly advanced technologies such as artificial intelligence and automation — hold for reducing costs and errors and increasing efficiency.
The Law Firm Business Leaders Report reflects what I observe and hear anecdotally from our customers. What the report doesn’t totally capture is the tension between the lawyers tasked with growing the firm into the future, and those whose primary concern is more short term, focused on maximizing annual profits per partner.
The law firm C-suite, and those partners who strive to build the firm for the future are more likely to pursue longer-term strategies, including, for example, increased investment in legal tech and in systems that produce the data needed to understand client profitability and underpin growth strategies. These leaders are also seemingly more open to rethinking what has been seen as sacrosanct — law firm compensation, particularly for partners; the leverage model; and partnership classes and structures.
Law firm business leaders must also confront what I call “the change-efficiency paradox” or the inherent conflict between change and time. With change usually comes some short-term inefficiency with the goal of a long-term return on the investment. This can be a hard sell in the legal industry where clients demand efficiency today and timekeepers aren’t paid for the time they spend implementing change. Yet, some such trade-offs are imperative.
Law firms cannot simply stand still. As much as clients want efficiency, they also want changes in the delivery of legal services, and they make that quite clear whenever they’re given the chance. The challenge for law firm business leaders who push for strategic change is to convince their firms the trade-off is worth it.
My conversations with midsize law firm C-suite teams quickly move to two subjects above all others — profitability and growth. I hope this report provides context, confirmation, and fodder for law firm leaders who are focused on both near-term profitability and long-term growth.