While law firms have mostly recovered from the Great Recession, they now face new threats to which they are not adequately responding.
That is the message from Altman Weil’s recently released 2018 Law Firms in Transition survey, an annual gauge of how larger law firms are responding to the recession and its aftermath. The survey, which began in 2009, polls firms with more than 50 lawyers, to determine which responses are achieving the best outcomes. The 2018 survey, which was sent to managing partners and chairs of those firms, resulted in a nearly 50-percent response rate (398 of 801 firms), including 45 percent of the 500 largest firms in the U.S.
“Ten years on, we think law firms face a different kind of threat,” the report said. “The recession was a ‘known’ event (albeit severe) to be endured and managed—as law firms had done in prior economic downturns. The threat in 2018 is broader and more nuanced, arising primarily from the sweeping force of technology evolution over the last two decades that has resulted in the commoditization and commercialization of more and more legal services.”
Altman Weil said the result is that law firms are facing new kinds of economic pressures: At the same time clients are demanding more cost-effective legal services, a growing array of alternative legal services is providing lower-priced competitors for law firms.
The problem, according to the report, is that the improved economic climate of recent years has lulled law firms into a false sense of security and a failure to plan for new crises. “Most law firms continue to plan for short-term, incremental improvements in performance, while deferring or slow-walking more forward-looking actions to address long-term, systemic threats.”
Despite the more unsettled legal landscape, few law firms are taking steps to differentiate themselves from their competitors, the report said. In fact, it said, in 69 percent of the law firms that were polled, “partners resisted most change efforts.”
To Minnesota lawyers who work as legal consultants and keep a close eye on the legal industry, the report provided few surprises.
“At the end of the day, I agree with the premise that law firms should be forward-looking and there’s this opportunity for innovation, yada yada, but the reality is, that’s not the way lawyers think,” said Roy S. Ginsburg, an attorney coach and consultant who has practiced for 35 years. “They don’t think innovative; that’s not part of most lawyers’ DNA. The big firms, who are the respondents here, have been richly rewarded, many of them, for being risk averse, both in how they practice law as well as how they run their firms.”
Ginsburg said he does believe that lawyers have better business-savvy now as a result of surviving the recession, but that the motivation to pursue innovative ideas is lacking.
“I do agree that senior partners are coasting—but they have no incentive not to coast and I don’t blame them,” he said. “They’re not forward looking because they’re rewarded for ‘What have you brought in the door today?’ So it’s totally unrealistic to take one for the team for five years down the road.”
LaVern A. Pritchard, publisher of Law Moose and a law-practice innovation advocate with 38 years of experience, has a similar assessment.
“The key thing in the survey, I think, is the concern about the lack of change and partners’ resistance to change and also that firms are saying their partners aren’t busy enough,” he said. “If partners are underutilized, that’s not an indication that the business model or demand is where they would like it.”
While law firms are making money now, Pritchard contends that “there are plenty of dark clouds and they seem to be getting closer.”
In particular, he says, he is referring to the growing competition that traditional law firms now face.
“It seems like there’s already an erosion of market share, whether it’s going to internet companies at the very low end to outsourcers in the middle to Big Four accounting firms and others closer to the top,” he said. “There’s the legal profession and then there’s all these various ancillary things that people are moving into that surround the core of law practice.”
Like Ginsburg, however, he doesn’t see any motivation by lawyers to change.
“Most lawyer personality types are not innovative,” he said. “Lawyers have a tremendous capacity to do repetitive things to make money. They don’t want to invest in figuring out how to do things better in the short term, and real innovation takes a lot of hours.”
“They don’t get it, and the troubling thing in this new survey is that they apparently don’t want to get it,” Pritchard said.
Meanwhile, for the vast majority of Minnesota lawyers who don’t practice in large firms, Minnesota State Bar Association President Sonia Miller-Van Oort says similar competition has emerged.
“I think that where smaller law firms feel it is with the LegalZooms and those kinds of things that are trying to find a piece of the legal pie, saying ‘We can provide this limited thing. You don’t need a lawyer; you can use us.’”
In addition, she said, a general “do-it-yourself” mindset has arisen in the general population. While those do-it-yourselfers often end up needing lawyers more than ever in the end, she said, their reticence to seek legal help is having an impact.
At the same time, she pointed out, new lawyers are having trouble finding jobs.
“They’re coming out of law school with hundreds of thousands of dollars in debt and many of them just open up a solo practice. I’m sure the percentage of them who do that is exponentially more than 20 years ago, and that’s a big challenge for the profession, as well as for these new lawyers trying to start their practices.”
“It’s an interesting time for our profession and how it’s going to grow and adapt to market pressures.”