NEW YORK—The talk of change and numbers was in the air today at the Legal Executive Institute’s Second Annual Law Firm Financial Forum, a highly interactive format, which was designed to explore several questions concerning metrics, measurement and profitability analysis for law firms.
Ralph Baxter, Chairman of Legal Executive Institute, hosted the first panel that looked to identify a better set of metrics for measuring law firm financial performance. Baxter opened by describing some of the fundamental changes that are roiling the industry for the delivery of legal services. He identified not only dramatically changing buying patterns of clients, but the rise of alternative legal service providers — which is a small slice of the market but growing — and the movement of the market toward those firms that are addressing client issues of price and service.
“Clients will not tell their law firms to innovate or change their ways of adapting technology or delivering services,” Baxter said. “Instead, clients will say they want a discount of they want a different pricing structure.”
The crowd of attendees for the Forum were going to participate in panels that addressed not just the metrics issue, but law firm profitability analysis and how that can drive better results and an assessment of law firm business models, including service delivery models.
Metrics, however, took the stage in the first panel, as Baxter explained that today’s changing legal market desperately needs to find more accurate and revealing ways to measure law firms’ financial performance other than the standard profit-per-equity-partner metric currently in favor. “The way we measure law firms in this changing world itself needs to change,” he said.
Jennifer Roberts, senior analyst at Thomson Reuters Peer Monitor, brought out some data to underscore how the legal industry was shifting. Roberts showed that even though the total demand for legal services was increasing, there continues to be significant (and growing) seepage away from Big Law. This seepage is seem by a greater amount of lower margin work being kept in-house and outsourced to smaller, alternative legal service providers, Roberts said.
In fact, in a survey of corporate legal departments conducted by Thomson Reuters, Roberts showed that more than 35% responded that they were reducing their reliance on law firms, and of that percentage, 79% they were bringing more of the work in-house and 60% said they were hiring more in-house lawyers and staff to handle this work internally.