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All law firm leaders know what they should do, but almost half aren’t doing it, survey shows

Posted by Jack Bostelman on May 26, 2013 | 0 Comments

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There are gaps between what law firm leaders acknowledge they should be doing and what they are actually doing, according to Altman Weil's annual “Law Firms in Transition” survey, released last week. For example, while 96% of respondents believe more price competition and a focus on improved practice efficiency are permanent changes in the law firm environment, only 55% of firms with 250 or more lawyers have significantly changed their strategic approach to efficiency in delivery of legal services.

This post comments on improving efficiency in delivery of legal services, then presents a summary of the full survey, which also covers other topics.

There are many opportunities to improve efficiency in delivery of legal services

Law firms regularly reinvent the wheel. We know it, but we aren't sure quite what to do about it. Even when we know what to do, we aren't sure how to get our lawyers to make the necessary contributions. Some of us have knowledge management departments but the results seem often to fall short, despite significant expenditures on technology and a staff of former practicing lawyers.

Our legal practices can in fact become more efficient:

  • The key to discovering what to do is to start at the practice group level.
  • The key to avoiding the typical pitfalls is to understand and address the lawyer personality profile.
  • The key to getting it done is to apply the right techniques to motivate lawyers and overcome the personality issues.

Discovering practice efficiency techniques

Practice efficiency improvements should start at the practice group level, preferably with a pilot group or two. A sit-down with a handful of engaged lawyers in a practice group can quickly generate a list of good ideas.

Those ideas then need to be ranked based on difficulty and value, so that scarce lawyer time can be devoted to those that are high value, and can start with the least difficult.

Accomplishing practice group efficiency using this approach is discussed in my 3‑part post “How to improve law firm efficiency?Pt. 1 Ask the lawyers what's needed; Pt. 2 – Ask the lawyers about priorities, but don't ask them to help; and Pt. 3 – Make a plan that minimizes dependence on lawyers”.

Some specific efficiency ideas

In addition to the ideas that emerge from the practice group efficiency meetings, the following should be considered:

  • Knowledge base. Improve the ability to find work product when enterprise search produces too many hits by creating a practice-group-focused knowledge base employing a taxonomy for filtering, coupled with full-text search. See my post “Finding our work product should be as easy as shopping on Amazon.com”.
  • Practice group intranets. Revitalize practice group intranets by asking group members for content ideas, redesigning the interface with their involvement and keeping content fresh with their help. See my 2‑part post “Unify a practice group through fresh content”.
  • After-action reviews. Learn from past matter management mistakes and capture information learned during matters by conducting after-action review meetings with a neutral partner as facilitator, then share the results with the rest of the firm so they can benefit. See my 2‑part post “What's the fuss about after-action reviews?”.
  • Matter experience data. Get the lawyers to collect matter experience data that is reliable and complete (in contrast to the incomplete and unreliable data collected by the marketing department). This enables comparable matters quickly to be identified for purposes of fee estimates, finding precedents, making pitches and assigning staffing. See my post “Using psychology to improve practice efficiency (Pt. 2 of 3)”.

Understanding lawyer personalities

Personality studies have shown that compared to the general population, lawyers have:

  • Greater skepticism – They question the premises for management initiatives. They're bad at trusting and giving the benefit of the doubt, which are needed for collaboration.
  • Greater sense of urgency –Internal work doesn't start until client work is done.
  • Lower sociability – They work badly with others in team situations.
  • Lower resilience – They take criticism badly, and are afraid to take on new things for fear of failing.
  • Greater autonomy – They resist being managed and told what to do.

Applying techniques that motivate lawyers

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There are many techniques to overcome these personality traits. The step of consulting practice group members about efficiency improvement ideas, discussed above, not only produces idea but also creates needed buy-in on the part of the lawyers. Continuing to involve them as the efficiency projects progress is also important. Having group meetings where their commitments are made public among their peers is a strong motivator. Visible involvement of senior management is also important. Harnessing their natural competitiveness by comparing progress of various lawyer teams can also help. These and many other techniques are discussed in my 3-part blog post “Using psychology to improve practice efficiency”.

Survey summary

The Altman Weil survey of managing partners and chairmen, including those at 34% of the 2012 AmLaw 200 firms, covered eight topics. The questions regarding transition & change and clients & value showed some striking gaps between beliefs and actions.

Transition & change

Beliefs. More than two-thirds of respondents believe the following legal market trends will be permanent:

  • more price competition
  • focus on improved practice efficiency
  • more commoditized legal work
  • fewer support staff
  • more non-hourly billing
  • competition from non-traditional service providers
  • more contract lawyers
  • increased lateral movement
  • fewer equity partners
  • more part-time lawyers
  • smaller annual billing rate increases

Two-thirds of respondents also believe the pace of change will increase. They are reasonably confident their firms are prepared to keep pace with the challenges of the new legal marketplace (7 on a scale of 1 to 10).

Actions. Strikingly, actions did not match beliefs. Only one-fifth of firms with 250 or more lawyers have significantly changed their strategic approach to pricing. Only half have changed their approaches to efficiency of legal service delivery, and to partnership admission and retention standards. Instead, three-quarters have focused on the short-term strategy of overhead cost management.

Clients & value

Beliefs. Half the respondents believe corporations are putting at least a moderate amount of pressure on law firms to change the value proposition in legal service delivery, as opposed to simply cutting costs.

Actions. Two-thirds of law firm leaders, though, believe law firms have a low level of seriousness in actually changing their service delivery model to provide greater value. In a 2012 Altman Weil survey, chief legal officers rated law firm seriousness in this area even lower.

Lawyers

The median change in lawyer headcount was modest across all five categories tracked – equity and non-equity partners, partner-track and non-partner-track associates, and other full-time associates. The highest median change was a 3% increase (for non-equity partners) and the lowest was no change (for non-partner track associates and other full-time associates).

About half the respondents' firms have tightened their standards for admitting equity partners since 2009 or adhered to existing standards much more rigorously.

Over 90% of firms with two-tier partnership structures do not have an “up or out” policy for non-equity partners. Almost three-quarters of respondents believer fewer equity partners will be a permanent trend going forward.

Almost two-thirds believe reduced first-year associate classes will be a permanent trend going forward, and over 50% believe reduced leverage will be a permanent trend. About three-quarters of responding firms use contract lawyers and part-time lawyers, and believe those are permanent trends going forward.

About 90% of responding leaders believe more commoditized legal work will be a permanent trend going forward.

Growth

All responding leaders at firms with 250 or more lawyers believe acquiring laterals will be among their growth options pursued in 2013, but only half set a two-year deadline for laterals to ramp up to expectations. Over 90% of respondents believe acquiring practice groups will be among the options. Almost half expect growth options to include acquiring other law firms.

Half the respondents believe growth in lawyer headcount is a requirement for their firms' continued success.

Succession planning

One-quarter of respondents have a formal succession planning process in place, half have an informal or ad hoc process and the rest have none or are working on one.

The two biggest stumbling blocks (three-quarters of respondents) in succession planning are that senior partners don't want to retire and don't want to forfeit current compensation by transitioning client work. The next (half of respondents) is that the subject is awkward to discuss.

Pricing

The median change in standard hourly billing rates for 2013 is a 3% increase, which is comparable to the results of prior years' surveys. Yet two-thirds of respondents believe smaller annual billing rate increases will be a permanent trend going forward, and 96% believe more price competition will be a permanent trend.

Two-thirds believe their firms' realization rates will be up in 2013 from the prior year, which is similar to the results of surveys from the previous two years.

Over 90% of law firms with 250 or more lawyers require approval before partners may offer discounts, either at all or above a certain percentage or dollar amount. The median proportion of legal fees attributable to discounted rates is about one-third. More than half the firms generated over 10% of their fees from non-hourly based billing in 2012.

Still, two-thirds of law firms reported their use of non-hourly billing is primarily reactive. Of those firms, half reported that non-hourly billing arrangements were less profitable than hourly billing or weren't sure. Of firm using non-hourly billing in a proactive manner, less than one-quarter reported them to be less profitable than hourly billing or weren't sure.

80% of respondents believe more non-hourly billing will be a permanent trend going forward.

Economic performance

Almost two-thirds of respondents reported that gross revenues were up in 2012 vs. the prior year, in line with surveys from the previous two years. About half reported overhead costs were up.

About half the responding leaders believe a slowdown in the growth of profits per partner will be a permanent trend going forward, while only 15% believe lower actual profits per partner will be permanent.

The future

Altman Weil categorized responses to an open-ended question about firms' single greatest challenge in the next 24 months. No one reason predominated. Increasing revenue, new business, growth and profitability were each mentioned by more than 10% of respondents. Other reasons included change management, cost management, attracting client value, economic pressure and succession planning (5-10% each).

Survey demographics

The published survey results covered 34% of the 2012 AmLaw 200 firms. Firms with 250 or more lawyers represented 29% of the respondents.

The survey covered 238 firms, representing 30% of the 791 US firms with 50 or more lawyers and 46% of the 69 firms with 250 or more lawyers.

[Photo credits: © Can Stock Photo Inc. / focalpoint & AnatolyM]

About the Author

Jack Bostelman

Jack Bostelman is the president and principal consultant of KM/JD Consulting LLC. Before founding KM/JD Consulting, Jack practiced law in New York for 30 years as a partner of pre-eminent AmLaw 20 firm Sullivan & Cromwell.

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KM/JD Consulting LLC renders impartial practice management advice to law firms on improving efficiency, increasing profits and reducing risk, emphasizing knowledge strategy.

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Before founding KM/JD Consulting LLC, Jack practiced law in New York for 30 years as a partner of pre-eminent AmLaw 20 firm Sullivan & Cromwell.

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How a practice management technique called knowledge strategy can help law firm leaders achieve strategic goals – ideas from a former AmLaw 20 senior partner.