An increasingly competitive market filled with cost pressures, commoditization and change has made for an interesting year for midsize law firms as they navigate through these murky waters. Indeed, even as other segments of the legal marketplace struggle, midsized firms are hovering just above neutral demand territory as other key indicators show signs of recovery, according to a new report by Thomson Reuters’ Peer Monitor.
One cannot be too optimistic, however, as this growth is delicate at best, says Jennifer Roberts, Senior Analyst of Client Management, in Thomson Reuters’ Global Thought Leadership, adding that this year is proving to be the first time since 2012 that midsize firms are showing signs of stabilization and modest demand growth. “Midsize firms really struggled the past few years,” Roberts said. “I don’t want to be too optimistic, but there are some bright spots and demand is inching positive.” Midsize firms are experiencing above neutral demand for the first time in two years, according to the report, and the segment also has the strongest realization, out of all the segments.
While the news is statistically positive, it’s not enough of a movement for midsize firms to pop the champagne corks yet. “Essentially, midsize firms had a really rough few years, and they responded, and did things strategically within the firm to bolster demand and market share, such as making strategic investments in technology,” she said.
Those investments may have helped productivity somewhat, because, even as the industry continues to suffer negative productivity growth overall, the midsize segment was hurting less, at -0.4%, according to the Peer Monitor report. In terms of productivity and hiring, the midsize segment appears better balanced than the AmLaw 100 with -0.6% productivity growth, and the AmLaw Second 100 with -1.6%, the report noted.
One challenge that continues with midsize firms is proving their value to clients at a time when many clients are decreasing the number of law firms they are using, said Roberts. “They have to really work to build a strong relationship with key clients,” she said. “Clients are looking for law firms who are willing to work with them on alternative fee structures and other varying strategies. I think midsize firms are poised to do that, and that is how they are capturing demand.”
Indeed, the report showed that worked rates have remained stable for the midsize sector at 2.3% growth year-to-date — in line with the past few years — whereas the AmLaw 100 struggled to hold onto the levels seen in previous years, slipping 1.1% compared to 2014.
“Overall, the work that the midsize law firm sector has done — like focusing on client value, diversifying their practices, bringing in strategic talent, making technology investments, and employing strategic efficiencies —has paid off, but they are not out of the woods,” said Roberts.