NEW YORK — With all the talk in the legal industry about the dramatic level of change that’s coming and how law firms can best deal with it, the initial panels of today’s 22nd Annual Law Firm Leaders Forum, struck a more familiar and resonant tone: Client relationships still matter — indeed, in the end, it may be the only thing that does.
The Forum, held today and tomorrow at the Harvard Club of New York City, underscored the changes and new pressures the industry has been facing since the end of the Great Recession and how profoundly they are altering how legal has approached its business operations and its clients over the past decade.
Aric Press, longtime editor in chief of The American Lawyer magazine and now law firm advisor, began the opening session, entitled An Annual Report on Developments in the Business & Profession of Law, with two major insights. First, he contended that despite all the change that’s happened and the certainty of more change ahead, the law remains a relationship business, and no lawyer should forget that. Building on his work eliciting client feedback about the law firms they work with, Press observed that lawyers should be focused most on serving their clients and determining what clients’ needs are — because that certainly is where clients’ focus is. “Clients are not revolutionaries, they are busy people who want their problems solved quickly and without great cost,” Press said, adding that even as the industry and individual law firms obsess over change, they should not forget to always bolster the “relationships with the people that hire you.”
Secondly, and more pragmatically, Press noted there is just much less quality legal work in the market to be captured by the top firms. Or, to put it another way, “there are too many lawyers looking for it,” he said.
How law firms and partners relate to their clients — anticipating their legal needs, offering proprietary and usable advice, pushing for efficiency and cost-savings within their firm that can be passed on to the clients — is really what is going to separate the winning firms and lawyers from the rest, Press observed. “The future really depends on how you relate to your clients and how well you know them,” he said. “And unfortunately, I think that many firms don’t know their clients that well at all.”
Betty Temple, Chair & Chief Executive Officer at Womble Bond Dickinson and one of the Co-Chairs of the Forum, echoed Press’s comments, saying law firm leaders should really be considering what their clients want a law firm to be — an implication that could have profound impact on what the law firm of the future might look like.
“I think we’ll see that the most successful firms in the years ahead are the ones that have built themselves out by looking at their clients’ perspective, especially around how the firm operates and offers legal services,” Temple said.
Having the Right Metrics
In the following session, Bruce MacEwen, publisher of the Adam Smith, Esq. blog and a highly-regarded legal industry consultant, discussed the legal industry’s use of financial metrics — especially measurements like profit per equity partner (PPEP) or revenue per lawyer (RPL), which MacEwen said “once may have made sense, but are outdated today.”
The legal industry, especially the largest firms at the top, have propped up those numbers amid continued flat revenue and profit levels mostly by reducing the number of equity partners, down 20% since 2006, and the overall number of lawyers and partners, he explained.
MacEwen suggested the industry should look at “metrics that matter”, and offered some other industries’ take on what they consider important measures of success. For example, in retail, the focus is on same-store sales; hotels look at occupancy rates; and TV and cable channels keep an eye on viewership. If the legal industry adopted a measurement of, for example, the rate of recommendations a firm receives from clients (called, the “net promoter rate”), it could transform how the industry relates to their client and how it views profitability, he said.
“Is there any other industry in which executive compensation [essentially what PPEP shows] is held out as a measurement of success to be trumpeted up before clients?” MacEwen asked. “I think not.”
Finally, Gretta Rusanow, Head of Advisory Services for the Law Firm Group at Citi Private Bank, offered some concrete numbers to clearly demonstrate where the legal industry is heading. Based on her firm’s gathering of law firms’ financial results from several surveys, Rusanow showed that one of the biggest drivers of revenue growth since 2009 has been increases in the billing rate, especially among the largest law firms which continued to pull away from the rest of the pack.
Industrywide, revenue grew 3.8% in 2016, compared to the year previous, and the billing rate increased 3.3% during that time. Net income climbed 4.3 % in 2016, and PPEP grew too, at 4.1% in 2016 compared to 2015.
However, if you look at the numbers for just the top 15 law firms that are considered the PPEP leaders, you saw much more robust growth. Revenue was up 5.6% in 2016, compared to 2015; and net income increased 6.9%. PPEP among this group was up 6.6% in 2016.