Survey Shows The Winds of Change in Legal Field

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A wide-ranging Altman Weil survey released Tuesday offers some perspective on a multitude of issues currently facing law firms today. The survey of 218 firms, which was conducted in April and May of this year, touched on topics including non-hourly billing, lawyer staffing structures, workforce reduction and financial performance.

According to the survey, 94.5 percent of all law firms now offer alternative fee arrangements (AFA). But that’s not all. That number reaches 100 percent if counting only firms with 150 or more lawyers.

The majority of firms offering AFA’s said the arrangement came at the request of clients and were not a proactive strategy.  Additionally, half of all firms say their fee arrangements are less profitable than hourly billing.

  

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“We’re seeing some systemization, especially in larger firms, but there is a long way to go before alternative fee programs are business-focused and profit-driven rather than being seen as concessions to clients,” said Altman Weil principal Tom Clay said.

According to the survey, partnership in U.S. law firms is now harder to attain and will remain. Nearly 40 percent of firms made fewer partnership offers in 2009, and 50 percent indicated that they will or might do so in 2010.

Over a quarter of all law firms reported de-equitizing partners in 2009 and 37 percent will or might do so this year.

An additional 14 percent extended the partnership track last year and 20 percent will or might do so in 2010.  The majority of firms expect each of these trends to be permanent going forward.

“This is a key element in the changing equation of law firm finance,” Clay explained.  “Firms will maintain their profits per partner, in large part, by managing the number of partners they admit.”

The short term outlook for associates is even more daunting. Sixty four percent of firms reported shrinking their summer programs in 2009 and 54 percent anticipate doing the same in 2010. Just over half of all firms reduced or discontinued hiring first year associates last year and 38 percent will do the same this year.

To perhaps help fill that staffing hole, firms are increasingly using contract lawyers. The study reports 39 percent of firms used contract lawyers in ’09 and more than half, 53 percent, will or might do so in ’10.

Despite the difficult economy, slightly more firms had revenue gains than losses in 2009.  Forty-six percent of firms reported increases in gross revenue; 44 percent reported decreases; and, 10 percent had no change from the prior year.

Revenue per lawyer was also up in 47 percent of law firms in 2009. Profits per equity partner (PPEP) increased in 56 percent of firms.

PPEP increases were driven by cuts in overhead costs in 69 percent of law firms which were primarily cuts of personnel.  Forty two percent of firms cut costs by more than 4 percent and an additional 27 percent cut costs by 1 percent to 4 percent.

Law firms raised their standard hourly billing rates in 2010.  The median increase was 3 percent. The survey notes that is closely aligned with the 2010 U.S. rate of inflation, currently reported at 2.2 percent.