NEW YORK — As today kicked off the Legal Executive Institute’s 17th Annual Law Firm COO & CFO Forum, the idea that systemic change on a number of fronts was continuing to transform the U.S. legal market seemed to permeate the air.
However, another strong indicator soon became apparent as early discussion revealed that when you talk about the U.S. legal market, especially in the context of law firm performance, you’re really talking about several different strata of performance.
“There is a real distinction between how different segments of the legal market are performing,” said Forum co-chair James Jones, Senior Fellow with the Center for the Study of the Legal Profession at Georgetown University Law Center. “The overall performance across the market is not even and is strongly driven by the better performances in the AmLaw 100 and especially AmLaw 50 firms.”
Jones, along with Gretta Rusanow, head of advisory services in the Law Firm Group of Citi Private Bank, gave the annual (and extremely popular) State of the U.S. Legal Market presentation, focusing on how law firms are adjusting their organizational strategy to better cope with challenges like increasing client demands for efficiency and cost savings, a battle for top legal talent, and growing pressure to be more innovative with process and technology.
Citing Peer Monitor numbers, Jones showed that law firm financial performance during 2017, while stronger than in 2016, stayed for the most part on the same relatively stagnant path the industry has followed since 2011. This path has seen sluggish demand growth (though that’s recently improved), productivity decline, modest growth in billing rates, downward pressure on realization, and upward pressure on expenses. And what revenue growth the industry has seen in the first half of this year has been driven by more aggressive rate increases — with rates increasing 3.3% thus far in 2018, compared to the same period in 2017, he noted.
Jones said that demand for legal services across all firms grew by 0.4% by midyear, although the average was again driven largely by AmLaw 100 firms, with AmLaw Second 100 firms seeing demand continue to shrink. Indeed, the stats tended to reflect this bifurcated market with 53% of all law firms experiencing demand growth while 47% saw demand decline.
With overall demand being mostly flat, these numbers reflect that in a general sense, “every firm that experienced growth did so at the expense of another firm,” Rusanow commented, adding that the experiences in the market for the AmLaw Second 100 firms were very different from what was being experienced by the AmLaw 50.
Citing some of the industry survey work that Citi had done, Rusanow said overall law firm performance results are the strongest they’ve been since the post-Great Recession period. “Still, it’s not going to be the same for everybody.”
Rusanow said that in her group’s conversations with law firm leaders, the leaders seem to be focusing on three main strategies in order to hold or improve their position in the market. These included:
- Building on strengths, such as leverage existing strongholds and focusing on firm branding;
- Institutionalizing client relationships to guard against talent loss and pricing pressures; and
- Needing to be more innovative in areas of efficient delivery of legal services and smarter process improvement.
“Overall, all of these challenges involve how to get into the heads of your clients in order to give them exactly what they want,” she added.