Over the Christmas week, I read an Altman Weil report: 2018 Law Firms in Transition An Altman Weil Flash Survey.
It is certainly worth reading. I found this quote interesting:
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.
And this one even more interesting:
In 69% of law firms, partners resist most change efforts. – 2018 Law Firms in Transition
Finally, here was one of the bold headings in the report:
Pay close attention to the firm’s greatest asset – human capital
So, what is changing?
- More firms are merging,
- Law firm revenue in big firms are increasing, but, there still a problem
- Law firm size is greater
- There are thousands and thousands of more lawyers
- Senior partners are coasting to retirement and law firms are not developing the next generation
Merger mania. I recently read an American Lawyer article titled: Mid-Market Moves, ‘Serial Acquirers’ Drive Law Firm Merger Mania. Here is a quote from the article:
Almost every law firm we work with is actively considering its merger options in 2018, and some large firms are becoming serial acquirers.
Increased revenues per firm. I also recently read: BigLaw Growth Back in a Big Way. It included this quote:
After years of solid, if unexciting, 2 to 3 percent revenue growth, the American Lawyer’s Global 100 experienced 6.4 percent growth, amassing $105.7 billion.
More lawyers. In 1951, there were approximately 200,000 lawyers in the United States, 1 for roughly every 700 people in the nation. Skip forward to 2018 and there are 1.34 million licensed lawyers representing 1 lawyer for less than 200 persons. At this rate we are not far from the day that there will be a one-to-one relationship between licensed lawyers and American citizens.
Size of law firms. In 1960, there were only 38 law firms in the entire country with more than 50 lawyers. By 1985 there were more than 500 firms of that size or bigger. Today, a 50-lawyer firm is considered a small firm. In most cities, a firm that size is a relatively recent start-up, a merger candidate or a highly specialized boutique. Today’s largest law firms include thousands of lawyers. The average number of lawyers in the Am Law 100 is 781.
Increased Profit per Partner. Not too long ago, partners who claimed a $250,000-per-year share of profits, considered themselves well-off. But in today’s high-end, highly competitive world of business law, this would be a dangerous level of performance for a firm of any substantial size. Consider the PPP of the nation’s 100 largest law firms: In 2006, for the first time, a majority of America’s 100 top-grossing firms had profits per equity partner of $1 million or more. In 2018, 74 of the top 100 firms exceeded $1 million.
Litigation. Because large law firms are so focused on increasing profits per partner, they no longer want the kind of work that provided opportunities for young lawyers to go to court. I can remember when I started, a group of associates met at the courthouse frequently as each of us had small insurance subrogation cases, or court-appointed criminal defense cases to litigate. Now, I know litigation associates who become partners in their firms without ever trying a case. Needless to say, that can be disheartening for a young lawyer who aspires to try cases.
Firms are not Managing Transition:
In the Altman Weil report, this startling statistic appeared:
Almost 40% of firms surveyed attribute chronic lawyer under-performance to partners who are ‘coasting into retirement.’ The absence of rigorous management of lawyer and client transitions is a huge, ongoing problem in the legal profession as Baby Boomers extend their careers ever longer.
Law firms are becoming bigger and richer, and young lawyers are earning more than ever before, which seems more cause for cheer than concern. So why is our money-hungry profession in crisis, why are law firm clients dissatisfied with the quality of the legal services and why are so many young lawyers disillusioned with the legal profession?
Law firms are growing – and closing – at record rates, and our entire profession is being turned upside down. Many law firm leaders fail to recognize the need to change the main focus from profits and billable hours to clients and the development of the firm’s young lawyers.
I am reminded of our 2004 Olympic basketball team – talented losers. Compare that team to the first U.S. “Dream Team” that included Michael Jordan and Larry Bird. Those players never let their exceptional skills substitute for adherence to the game’s fundamentals.
Jordan, who often seemed like a one-man, high-flying, point-making machine, never forgot his philosophy,
“Talent wins games, but teamwork and intelligence wins championships.”
And Bird was a player so dedicated to fundamentals that he always showed up for a game hours before anyone else – so he could dribble the ball and detect any flaws on the court.Both men – and their teammates – recognized the power of focusing on the basket, not the scoreboard.
The 2004 U.S. Olympic basketball team included just as much talent but took a third-place bronze medal because they were less focused than the Argentine and Italian teams on the basics of basketball.
Partners in the 69% of law firms who are unwilling to change are focused on the scoreboard – The AM Law profits per partner – will ultimately lose to firms who understand the value of the fundamentals – training, motivating and retaining their best talent and providing exceptional service to their clients.