Bar News - April 5, 2002
What's Hot & What's Not? Law Firm Trends in 2002
By: Charles F. Huxsaw
IN ANY BUSINESS climate, one of the most predictable certainties that law firms will see is publication of Robert Denney & Associates’ annual list of "What’s Hot and What’s Not in the Legal Profession." Denney, a law firm management consultant based in Wayne, Penn., has compiled and published an annual assessment of developments in the legal services industry for many years. Based on information gathered in the course of his consulting practice, Denney’s trends analysis is a benchmarking resource more predictive than most.
Among Denney’s 2002 trends for lawyers and law firms to watch are:
- Fewer Law Firm Layoffs. The layoffs of last summer and fall lead by large firms in California and New York will abate. Mid-sized firms that resisted quick moves to a layoff mentality will avoid downsizing altogether.
- Performance-based Compensation Plans. Even partners will find new pressures to embrace performance-based compensation plans as law firms grapple with how to measure and reward qualitative contributions. The crude measures of billable hours and collections will be replaced by more refined compensation systems.
- Merit-based Pay and Promotions for Associates. Lockstep compensation plans for associate classes will continue to be replaced by merit-based reward systems.
- Business Diversification. Law firms will continue to explore development of ancillary businesses as a means to diversify business activities and income. Hot new business areas will include crisis management consulting and restructuring.
- Cross-marketing Supercedes New Client Development. Law firms will find new ways to mine their existing clients in preference to less certain investments aimed at landing new clients. Mid-sized firms especially will pursue this strategy as they respond to clients’ preferences for "one-stop shopping."
- Multijurisdictional Practice. Pressures from within the organized bar will keep MJP issues at the forefront of law firm business development plans. The ABA Commission Report on MJP, to be released this spring, will further open the gates to law practice beyond state lines.
- More Consolidations and Mergers. Bigger will continue to be better in 2002 as the trend toward mid-sized firms uniting for a bigger piece of the regional pie or going national will continue. Overcapacity, as well as pursuit of opportunity, may be driving this trend.
- Greater Emphasis on Technology. Driven by the need for still closer communication with clients (often demanded by clients), law firms will continue to develop extranets and to explore new technologies such as interactive Web sites.
- Greater Use of Professional, Non-lawyer Managers. Law firms will look more like their business clients as COOs replace executive directors and administrators, CFOs replace finance managers and HR managers, and chief marketing officers replace marketing directors.
- Diversity Planning and Hiring. To compete for or retain corporate client business, law firms will have to meet new diversity standards. Many corporations are now requiring that all of their vendors, including law firms, report the number of positions held by women and minorities and that those numbers meet or exceed the corporation’s own diversity hiring standards.
- Support Staff Shortages. Demand for experienced legal secretaries and paralegals will continue to outstrip supply and inflate salaries. Some firms will turn to in-house training of clerical staff to address the shortage. Others will embrace flextime and creative scheduling to stretch the support staff supply.
- Fewer Summer Associate Programs. Mid-sized firms especially will abandon the competitive talent hunt for top law school grads in favor of experienced lateral hires. The need for summer associate programs dissipates in such firms.
- Pressure on Net Income Per Partner. The downward pressure on net partner income is nothing new. Many firms now experience flat net income per partner and are struggling to stave off net declines. Costs keep rising, market pressures cap billing rates, and partners can’t work more hours. Innovation and new sources of revenue are the way out.
- Enhanced Business and Management Training. Legal CLE providers will follow the lead of the accounting profession’s CPE providers in offering credit courses designed to help practitioners run their firms as profitable businesses.
- Better Lifestyle Choices. More firms will recognize that a better balance between work and lifestyle is the most desirable "employee benefit" for both male and female lawyer employees. Firms will win the loyalty of associates and junior partners by developing programs that offer balanced work and lifestyle choices.
For a complimentary copy of Denney’s "What’s Hot and What’s Not in the Legal Profession" report for 2002, contact Robert Denney Associates at 610/964-1938 or via e-mail at bob@robertdenney.com. The full report contains a wealth of insights, far more extensive than reported here, on what lawyers and law firm managers should be aware of as they face the uncertainties of law practice in these unsteady economic times.
Charles Huxsaw is Director of Professional Development for the New Hampshire Bar Association. With a particular interest in law practice management, he monitors pertinent legal industry reports and literature and, from time to time, offers commentary on developments of note. Contact him at chuxsaw@nhbar.org with your ideas, suggestions, or feedback.
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