Hildebrandt and Citi Report Predictions for 2012 No Ray of Sunshine

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The Hildebrandt and Citi Reports continue to depress us, telling us this time that 2012’s legal market is as backwards as 2011. Amidst the series of predictions the reports made, little put a rainbow of hope on the rain cloud of the present market.

“Many of our Clients agree with us that 2012 may well be more challenging than 2009,” said Dan DiPietro, Chairman of Citi’s law firm group. He also wrote, “Since it is unlikely, based on overall economic conditions, that the demand for legal services will grow robustly for the foreseeable future. The legal industry will be forced to live with uncertainty for some time to come… that uncertainty will be exacerbated by both constrained growth in revenues and rising expenses.”

Firms are seeking new ways to cope. With 45 law firm mergers in 2011, up from 27 in 2010, we can expect the trend to continue, as law firms use merger strategies to fight the difficult market. Globalization and emphasis on emerging markets in Asia seem key strategies for larger firms. The strategy of laying off waves of associates, as in 2008 and 2009, seems to have subsided.

  

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2011 saw a bankruptcy reduction, but intellectual property litigation increased by almost 6 percent. This trend may continue, and with the use of alternative fee arrangements, which increased from 10.8 percent to 11.8 percent last year, and are anticipated to soar to 13.4 percent this year, firms are making the moves to fight the frigid market.

Nevertheless, DiPietro had this to say, “Continued sluggishness in demand growth in much of the world will exacerbate the ongoing struggle in many firms to maintain profitability at acceptable levels. This is particularly true given other economic factors that are also at work in the current market: continuing client resistance to fee increases, growing levels of direct and indirect expenses, and the increasing cost of maintaining leverage.”

Hildebrandt concurred with the creative alternatives firms must seek to maintain competitive. “If current conditions persist, firms will be increasingly challenged to examine new models for the delivery of legal services,” said Michael Abbott, general manager of the Hildebrandt Institute. “New business models based on redesigned work processes, greater emphasis on project management, and new approaches to expense management and professional development may unlock greater efficiencies. The most successful firms will continue to be those that can achieve and deliver the greatest value to their clients.” Self evident advice. But perhaps useful when the market’s a bear.