Summary: According to a recent survey taken by Altman Weil, too many law firm partners do not have enough work to do, which hurts the profitability of their law firms.
Most of the leaders at large law firms across the country have stated that the firms’ partners are not busy enough, which damages the profitability of the firms. Altman Weil, a legal consultancy, conducted a survey on the issue and recently published the results.
Altman Weil collected responses from 320 managing partners and chairs at various law firms. Around 61 percent said that profitability is being harmed by overcapacity within the law firms. The issue is especially present at firms with over 250 attorneys. Close to three quarters—74%–of these firms reported that the lack of work on the partners’ desks is hurting the firms.
Last year, Altman Weil reported that law firm CLOs do not like legal service delivery models.
In most cases, the equity partners have more work than nonequity partners. Around 79 percent of firm heads reported that nonequity partners did not have enough work to do.
Eric Seeger, one of the authors of the report and a principal with Altman Weil, said that firms that are working on these issues were the ones that were profitable in 2014. He explained, “I think the biggest take-away this year is conclusive findings that firms that are doing more in the areas of pricing, staffing and efficiency are enjoying better financial performance than firms that are doing less.”’
Altman Weil also predicted last year that in-house legal work will increase.
Some firms have implemented layoffs to respond to a reduced demand in certain practice areas. For example, in March, Wiley Rein announced that over 50 secretaries, legal staff, and attorneys would be laid off due to the decline in demand for high end litigation. Due to a reduction in oil prices, Steptoe & Johnson PLLC laid off 18 attorneys and 14 other employees.
The baby boomer generation is also an issue impacting law firms. Seeger said that the approach of these attorneys to retirement age has not been balanced well by the oversupply of younger nonequity partners. Seeger commented, “That group of very senior partners aren’t retiring.” He added that many nonequity partners are not able to take over for these partners, who have established strong relationships with clients. “The nonequity partners tend to be nonequity partners because they’ve been unsuccessful at developing their own client relationships,” he said.
Only a few firms have succession plans that transition the workload from senior partners to younger attorneys. Only 31 percent of the firms surveyed have such a plan in place. Seeger suggested, “Ideally, when partners hit a certain age, they should be required to start talking with management about their future intentions.” Seeger noted that firms where management has more authority would be better suited to enact such a requirement.
Most law firm partners expect growth in the near future.
When asked what is preventing the firms from changing their ways, 63 percent of the firms said that “clients aren’t asking for it.” However, by sending their work to in-house counsel, or using technology somehow instead, the clients are indirectly asking for changes. Bloomberg adds that most firms are losing business to corporate legal departments, and according to the Philadelphia Business Journal, technology tools are replacing the work that paralegals and even attorneys were formerly hired to do.
Seeger predicts that demands will bring changes in how law firms operate. For example, he recalled how many firms resisted changing to an electronic billing process, but clients demanded the update, so all firms ended up making the switch. Seeger believes that the changes will be much more drastic than billing practices. He explained, “Artificial intelligence is coming to legal and will put some lawyers out of business. Firms that truly understand what the technology will do and what clients will do with it will have great competitive advantages as a result.”
Altman Weil has conducted the survey annually since 2009. In 2015, less than one third of firms that responded said that demand had returned to pre-recession levels.
Source: American Lawyer
Photo credit: American Lawyer