Legal Rate Increases: Bold or a Boomerang?
February 15, 2010 | Filed Under Cost Control, Law Firm Trends
Some large law firms are trying to navigate the murky waters of rate increases. Not easy to do in this market; some would suggest it may not be wise, either, as most large corporate clients are looking to lower costs on an absolute and unit basis.
One thing for certain–it’s a hard issue to explain to the press. A case in point, as reported in Crain’s Detroit Business (reg may be required, sadly):
Rex Schlaybaugh, chairman and CEO of Detroit-based Dykema Gossett P.L.L.C., said his law firm pursued cost efficiencies to improve the bottom line during last year, and was still holding discussions with individual clients about rate increases for this year.
He expected the firm would not finalize rates for a few more weeks, but has generally raised rates an average of 3 percent-5 percent in recent years to keep up with costs.
I am impressed by the candor, and know that the annual rate increases (up until about 2007 or so) were something that managing partners counted on and corporate clients (sort of) expected.
But in the last few years, it’s harder to fathom for clients who are cutting costs themselves and seeing withering international competition for their own products and services.
It appears that some firms are initially using cost efficiencies to bolster profits and moving somewhat more gingerly about translating those actions into lower costs or clearer value for clients.
Mr. Schlaybaugh went on to say that alternative fees are about 15 percent of firm revenue, with volume-based discounts and fixed project-based fees the two most common options.
Of course, any firm with a history of rate increases is really just giving part of those back to clients, not really providing net savings. And GCs need to be able to show that sort of cost improvement to CFOs with a long memory and a short fuse.
Getting more guaranteed work (aka “volume”) in this market is hard for any firm. Saying we will raise your rates unless you do is the sign of a great firm whose talented lawyers are in consistent demand.
But you better be right, or it may come back on you when you least expect it.
Legal Recovery Watch: the Real Unknown
January 22, 2010 | Filed Under Legal Deflation, Law Firm Trends
There are glimmers of hope in the legal industry. And perhaps just a scintilla of wishful thinking.
The WSJ Law Blog story cites a new report from the Citi Private Bank Firm Group. It is their 4Q09 “Managing Partner Confidence Index,” and it shows an uptick in that metric, the strongest move in over 2 years.
The WSJ rightly expresses some skepticism as to whether things are really turning around, noting macroecomic factors, and concludes thusly:
One big looming unknown for managing partners, according to the report, is whether a step-up in demand will lead to a corresponding step-up in revenue. The reason why one might not perfectly track the other, reads the report: “The difference is probably due to continued discounting pressure from clients. For many law firms, the road to recovery looks to be a long one.”
Understanding this point requires a closer look at the report, specifically the Demand indicator (bottom of page 1) of the overall index. It is up, with the explanation that:
“Nearly two in three respondents (64%) expect demand to grow over the next 12 months; 23% think it will stay flat.”
While the managing partners, profit hawks that they are, understandably focus on (hope for?) an end to discounting, I think this view of demand is the key. Two-thirds of managing partners surveyed buy into the assumption that a rebound in the economy will result in a commensurate rebound in a demand for legal services.
I think that this assumption is partially true, but misses the work going on in aggressive legal departments to attack demand (i.e. the ongoing need for legal services), who satisfies that reduced demand, as well as the pricing thereof. This requires a deep dive, a real microeconomic view of corporate legal services.
Over the last 12-18 month the focus has been doing the same things cheaper. That’s called a good start.
The next frontier for legal pioneers involves long-term savings. It may be called doing some things less, others not at all.
I don’t know how you factor this into a “Managing Partner Confidence Index,” but something tells me it’s not an easy fit.
(Update: The Legal Intelligencer has a look at this report as well).
Law Firms Look at New Year with New Reality
January 4, 2010 | Filed Under Law Firm Trends
A new year should start with optimism, tempered with clarity.
UK’s The Lawyer has a good summary of the pulse of some major law firms at the start 2010.
My favorite nugget is from Charles Martin of Macfarlanes:
“Financially it would be brave to think that 2010 is going to be a vast improvement on 2009. Against that background, prudent law firms will continue to sharpen efficiency levels, look at better client service and improve ways of organising themselves internally.”
He hits at least three of what should be in the top five on the legal agenda.
The good news is that all three are related, the challenge is in the execution. I think what law firms will realize in 2010 is something that Corporate America has known for some time:
As painful as reducing headcount is, it actually is the easiest step to take. It is much harder to figure out how to do the right things with fewer people. Too many firms (or their clients) think that some talk about “doing more with less” will suffice. It doesn’t.
For a law firm to change how it is organized internally and deployed to clients externally requires a sea change in management substance and style. Most firms will find it exceptionally hard to do well. But it’s necessary and worth it.
So 2010 starts on a positive note, we will see if the managing partners can keep everyone on the same page.
(Update: Comcast’s GC Art Block gives a clear message from the client; it’s linked from our newstream site, Law River).
Orrick Fits Levi’s with Made-to-Measure Billing
November 23, 2009 | Filed Under Alt Billing, Law Firm Trends
The ABA Journal reported this morning that Levi Strauss is handing all legal work worldwide (save IP) to Orrick, Herrington & Sutcliffe. For a flat fee. Where Orrick doesn’t have a presence, it will refer the work to other firms, which can be the hardest part of a deal like this to make work in practice.
This arrangement sounds similar to that struck by Tyco and Eversheds a few years ago for international work, which I covered here. Last week, Corporate Counsel magazine described how Tyco’s domestic US product liability work is handled by Shook, Hardy and Bacon.
This shows how a global firm really can differentiate itself with a global client. For all the talk about value pricing, it comes down to a firm taking risk and a client taking a stand.
There’s no information thusfar about how many firms Levi’s is supplanting by converging on Orrick.
(Hat tip to Ron Friedmann via Twitter).
Hogan/Lovells: Welcome Sign or Smoke Signal?
November 6, 2009 | Filed Under Law Firm Trends
When the story about the potential cross-border merger of Hogan & Hartson and Lovells reached the business press a week ago, it surprised me as to the size and timing of such a combination. Bruce MacEwen had already explained why it could make sense.
This week, The Lawyer reported that the merger has been approved by management. It’s certainly not on a rocket docket: partnership approvals would come in December and the merger would be completed in May, 2010.
If Hogan-Lovells happens, it’s a sign that two strong firms want to move forward aggressively when other firms are retrenching. In the meantime, I can think of a least 3 reasons why I don’t think this is a signal of a bottoming of the legal market or the start of law firm merger-mania:
1. Clients are still trying to cut back, on the number of firms used, and the costs paid to each. There is a lag between law firm work in progress and client demand. Most firms will continue to experience downward pressure.
2. The cross-border work is appealing and often high-margin. But there’s a finite amount and much of it is linked to the global economy. There’s already probably excess capacity for this work for the next 12-18 months, unless two firms match up really well in terms of clients, offices, and areas of strong expertise.
3. Some firms looking for merger partners are doing it out of weakness: to shore up practice areas, fill in for key partner departures, or reverse falling realization rates. Why would a stronger firm want to take on a weak sister when you could cherry pick their best people?
So good luck to Hogan and Lovells. Six months is a long time; the rest of the industry will likely be watching.
Search
Powered By
Links
| ||||
 | ||||
| ||||
| ||||
