Profits For You; Fees for Me
May 2, 2007 | Filed Under Law Firm Trends, Legal Resources
Earlier this week the American Lawyer trumpeted the mother lode that certain Am Law 100 firms struck in 2006:
In 2006, for the first time since The American Lawyer started measuring the financial performance of law firms 22 years ago, a majority of America’s 100 top-grossing firms had profits per equity partner of $1 million or more.
Going even higher up the food chain, 15 firms had PPP of over $2 million and 3 firms topped $3 million. Good for them, I hope they are taking some time to enjoy it.
When a GC sees this (or CFOs, for that matter) there’s a bit of shock and awe that gives way to a realization as to who is picking up the tab.
So while some firms celebrate, what are the clients doing? Today’s Wall Street Journal today (temp link) tells part of the tale:
General counsels, in charge of their companies’ legal matters and budgets, are perpetually under pressure to trim and better manage expenses. But it hasn’t been easy to move away from the familiar billable-hour system, in part because neither companies nor law firms typically have a good sense of what a piece of legal work will end up costing. Now, new tools are helping both sides estimate costs up front, giving general counsels more confidence to move ahead with arrangements like fixed fees and “value-based billing,” in which the payment a firm gets depends in part on the results it achieves.
The WSJ goes on to describe what companies like Cisco, FMC, Chevron Phillips Chemical, and Pitney Bowes are doing to slow the clock down a bit.
Profits per equity partner are an important metric for law firms to track. When it starts to appear like the metric, clients take notice. Who is tracking VPHB: value per hour billed?
Any engaged GC is rightly focused on making law firm expenditures more prudent as they are incurred and defensible when they are reviewed.
The Am Law 100 should go ahead and party like it’s 2006; just remember it’s already 2Q07 and your favorite GC may be going into a budget forecast meeting as we speak.
Legal Hiring: Half-and-Half
April 30, 2007 | Filed Under Law Firm Trends, Legal Resources, In the News
Robert Half Legal reports that nearly 50% of “law offices” will add staff; and the other half will “stay the same.” The survey came from 300 attorneys among the 1,000 largest law firms and corporations. Only 2% reported staff reductions.
The leading areas of hiring gains according to the survey:
- Litigation 30%
- Ethics and corporate governance 22%
- Intellectual property 18%
- Real estate 11%
Since litigation is the biggest growth area, it tells me that the survey is skewed towards a law firm sample. Most corporations don’t staff litigation in-house. The executive director of Robert Half Legal, Charles Volkert, seems to acknowledge this:
“Litigation occurs in every industry and is a practice area that continually produces a significant volume of work. Because case demands vary, however, law firms often supplement their full-time staff with project professionals to meet peak workloads.”
This is why combining law firms and corporate legal departments in the same survey sample renders the results less informative for me. In many law firms, for example, the better question is whether you will see a net gain in staff (we know a high percentage of associates eventully leave).
Adding to ethics and corporate governance resources are more a bit more plausible, especially in financial companies with public reporting obligations.
One good bit of news for law firms with a global footprint from Mr. Volkert:
“As companies expand into overseas markets and enter into partnerships on a global scale, they’ll look to outside counsel for advice on operating within a foreign locale’s regulatory framework as well as for guidance on how to minimize risk while making the most of new business opportunities.”
Recent examples of this include Tyco/Eversheds and DLA Piper/Linde. These arrangements are examples of law firms and corporate legal departments working together to deliver services for companies that want to remain competitive globally.
From this perspective, “adding staff” is an attribute of the old economy; “partnering” and “risk-sharing” are tactics of the new economy.
Those are issues a bit harder to survey; this one’s not half bad…
Hedge Funds and In-House Counsel
April 20, 2007 | Filed Under Private Equity, Law Firm Trends
The New York Times profiles an increase in deal flow for law firms related to private equity.
Also noted is the need for GCs and corporate counsel with these new and growing companies:
The “demand for general counsel is multiples higher than it was only three or four years ago,” said Alan D. Hilliker, a partner with the executive search firm Egon Zander in New York. Brian Davis, a recruiter with Major, Lindsey & Africa in New York, said, “Until three years ago, we never did a hedge fund search, and now we have had dozens and dozens.”
The draw is both the work and the compensation, which, for senior associates, typically ranges from $400,000 to $600,000 at hedge funds with $2 billion to $3 billion under management, according to Laurie Becker, the president of E. P. Dine, an executive search firm in New York. Partners, she added, can command even more.
Mr. Davis said: “The hedge fund business is diversifying, and they feel like they need lawyers for all the businesses they’re getting into. Funds are looking for transactional lawyers to help to do the deals, and there’s also a big demand for compliance lawyers.”
The liquidity in these markets is touching a lot of people right now. It is one thing to buy businesses; it is another to build them and run them right.
Who gets the work?
April 13, 2007 | Filed Under Law Firm Trends, Managing
The Connecticut Law Tribune provides an interesting glimpse into the world of how GCs select law firms.
A good summary of the process:
Farming out legal work, a survey of 41 companies based in New England and subsequent interviews with their general counsel revealed, is a delicate balance of personal and professional relationships, budget management and hunting for first-class legal expertise. Though legal work often flows to the largest law firms, the survey found there’s room for solo practitioners to carve a niche, even with some big-name businesses.
I have had some very good results with solos who have big-firm experience and a focused area of expertise. It can really be the best of both worlds for a GC, and a good counterpoint to the large firms that are part of the outside counsel roster.
A concise summary of the process comes from Clayton Holdings GC Steven Cohen:
“You get a lot more out of developing relationships rather than parsing out work or creating competition for work, and pitting one firm against another,” Cohen said. “We build up a few very good relationships with firms interested in supporting our growth. We want the firm to get familiar with our business and grow with us. We want the firm to be excited to take our [telephone] calls.”
Any firm that’s not excited to take a client’s telephone calls may find an eerie quiet developing over time.
From OffShore to OnRamp
April 6, 2007 | Filed Under Law Firm Trends, Law 2.0, New Services
Last time, I looked at major companies that are showing an increasing interest in sourcing their work globally.
Today, a gaze into the rearview mirror on a stateside initiative that is gaining traction: Legal OnRamp. More than just a website, Legal OnRamp is a online hub that brings together corporate legal departments and leading law firms. Content, always a staple of law for business, is a starting point. But the brains behind Legal OnRamp understand a key fact about law in the 21st century: what really distinguishes lawyers is how they apply the law and drive business results.
That’s where the vein of value can be deep and rich and provide a common benefit.
To this end, the really interesting parts of Legal OnRamp, from my initial experience, are opportunities to work in a community and collaborate in ways that foster learning in new areas and lawyering in new ways.
The network created by Legal OnRamp is growing. Backed by Cisco and other leading law departments, it is helping ease the friction that can cause the gears of legal commerce to grind a bit.
My colleague in the law.com blog network, Bruce MacEwen, has a great overview of Legal OnRamp, including details on the law firms involved.
Further information is available by contacting Legal OnRamp here or me as well.
Technology is best when it is transparent to the user, so that the focus can be on solutions. Legal OnRamp is one example of how the law is moving forward. Which way are you headed?
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