Nell Gluckman, The Am Law Daily
Is there an ideal path for law
firm leaders to follow in the current legal market? Not surprisingly, it
depends who you ask.
Jami Wintz McKeon
Panelists who met to discuss
law firm leadership in New York City on Thursday agreed that clients are
bringing more work in-house, while also demanding more for less from their
outside counsel. As for how firms should respond, the answers—and the
evidence—are mixed.
"Law firms continue to be
in a period of flux," said Jamie McKeon, chair of Morgan, Lewis & Bockius,
describing the state of the profession at the Thomson Reuters Law Firm Leaders
Forum.
McKeon made the case for size
and breadth, saying that Morgan Lewis, a firm of 1,880 lawyers, can better
shoulder the cost of necessities like cybersecurity protection and systems for
storing and retrieving documents than a small firm.
She added that her firm's
clients say they spend a lot of time managing their outside counsel.
"If you can get it right,
they want to deal with fewer firms, not more," McKeon said.
But Beau Grenier, chair of the
much-smaller Bradley Arant Bolt Cummings, stood up for the regional firm model,
with support from the panel's moderator, Thomson Reuters Legal Executive
Institute chairman Ralph Baxter.
"Because we have a much
lower overhead, that gives us more flexibility in what rates we can
charge," Grenier said.
Those lower rates have helped
Bradley Arant, a Birmingham, Alabama-based firm of about 450 lawyers, attract
lawyers with big books of business who have decided that they can't continue to
charge their clients high rates at a larger firm.
In his opening remarks, Baxter
said that demand is flat at Am Law 100 firms because legal work is going
in-house and to regional firms "that have maintained their quality and
character in this time of change in the world. They've not over-expanded."
The devil, of course, is in
the details. The size and geographic scope of a law firm does not seem to
determine the profitability of a firm, according to data released at the event
by Thomson Reuters' Peer Monitor. William Josten, a senior analyst at Thomson
Reuters, presented the data, which showed that the top performing firms varied
in size and type.
Compared with size,
realization rates, the amount of money invested in business development, and
the ratio of equity partners to associates each had a higher correlation with
growth in profitability, Josten said. The data compared various characteristics
at the most profitable firms with the same characteristics at firms that saw no
growth in profits to show what sets the most successful firms apart.
Firms whose profit grew
annually by 10 percent or more between 2013 and 2015 had an average realization
rate of 83.3 percent, compared to 81.4 percent for firms that saw no growth in
profit, the Peer Monitor data showed. Both groups raised their rates by an
average of a little over 2 percent during that time, showing that rate
increases are not a differentiator.
That means that while everyone
is raising their rates, the most successful firms are those that can actually
collect on their bills.
On average, the firms that saw
profits grow also had more associates per partner, with an average of 32
percent equity partners and 39 percent associates, Josten said. The less
profitable firms were made up of 39 percent equity partners and 35 percent
associates. The portion of nonequity partners was roughly the same in both
groups.
Josten said the relatively low
associate ratios were a "legacy of the fact that a lot of firms were
reticent to hire first-year associates" during the recession. "Firms
don't have the depth that they used to," he added.
Finally, the more successful
group grew their business development expenditures by 4.2 percent, compared to
a growth rate of 2.3 percent at the less profitable firms. It wasn't clear whether
the profitable firms simply had more money to spend, or if their growth in
profitability was a result of the spending.
The panelists agreed that in
2016, law firms on the whole will most likely not see the kind of growth in
profitability they saw last year.
"Comparisons to last year
are going to be a disappointment," said Sheppard, Mullin, Richter &
Hampton chief operating officer Ted Tinson. "There's something going on in
the jungle out there. We're all reacting to it differently."
For all the challenges law
firms face, Aric Press, a partner in the legal consultancy Bernero & Press
and former American Lawyer editor in chief, said one thing has not changed: To
succeed, you must know your clients.
"You need to know which
of your clients are on the cutting edge, which of your clients don't want
change much at all, which of your clients are going to squeeze you for the
Wal-Mart price and which are not," Press said.
Contact Nell Gluckman at
ngluckman@alm.com. On Twitter: @NellGluckman
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