Legal market downturn is focus of CLE

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The economic decline of the legal market since the Great Recession is old news to most lawyers, but experts say the significance of the changes has not been fully accepted and many firms have done little to prepare for the future in terms of changing technology and client demands.

“I think lawyers generally have a sense that things are changing around them and they need to be aware of it,” said William Josten, one of the authors of the 2017 Report on the State of the Legal Market.

But many firms still aren’t acting on the information, in some cases because the partners and managers in control are close to retirement.

“I’m not sure that they have a sense for just how dramatically things are really shifting. I think that when you look at a lot of lawyers, their event horizon isn’t necessarily long enough to see the threat as it may exist further down the road,” said Josten, who will be the keynote speaker at a CLE on the topic scheduled for Wednesday.

Josten noted a recent survey of law firms done by the consulting firm Altman Weil Inc. asked why firms weren’t instituting more changes. About 59 percent of respondents said they weren’t doing more because the clients weren’t asking for that.

“The clients are asking for it. They’re just not explicitly saying I want you to do ‘X,’ but they’re voting with their dollars,” Josten said.

The report was a collaborative project from the Center for the Study of the Legal Profession at Georgetown University Law Center and the Thomson Reuters Legal Executive Institute.

The report is based on “real hard financial metrics” submitted to a secure database called Peer Monitor by subscriber law firms, Josten said. The system allows client firms to see how they compare to similarly sized firms.

“That report identifies statistics that indicate that billable hours are down, profits are down. There’s a lot of statistics that suggest that there has been a clear decline, that companies are spending less money on legal services than they had previously,” said Michael R. Wolford, partner at The Wolford Law Firm LLP, who is a co-sponsor and moderator of the CLE.

“I don’t think it’s been as widely disseminated as maybe it should be.”

Before the Great Recession, law firms were averaging nearly double-digit growth in annual revenue and profit per partner, while demand for services grew 4 percent to 6 percent per year, the report showed.

Since then, billable hours per month have steadily declined. In 2007, lawyers were billing an average of 134 hours per month. By 2016, that dipped to 122 hours. The overall drop in productivity has cost firms an average of $66,672 per lawyer per year, the report found.

Many other studies have reached the same conclusions about the challenges faced by the legal market, in large part due to the impact of new technology.

“Law firms have traditionally not used technology in terms of being able to do analytical strategic research on their own business. They’ve never used big data. They’ve never tracked things as carefully for project management purposes, for pricing purposes, for margin analysis purposes,” said Hilary Guthrie, chief business development officer, Harris Beach PLLC, who will be a speaker at the CLE.

There also has been an advance in the tools firms can use to communicate with clients and work with them. But that requires a significant investment at the same time firms are facing pressure to operate more efficiently, which makes it even more difficult to keep rates down.

Firms also should be using technology to track staffing in different aspects of work to more accurately set rates and other fee structures. These issues apply more significantly to larger firms with major clients who require a high level of physical and cybersecurity protections.

Smaller law firms still feel the pressure to show that they are expanding their scope of services to compete, Guthrie said. For many small firms, their competition is online where potential clients now can obtain virtual legal services on their own.

One of the most widely publicized findings of the report was that clients are forcing a shift away from hourly billing, in favor of set fees and capped budgets. But Guthrie said hourly billing has always been scrutinized and there is no indication that it will be ending soon.

Large law firms have traditionally charged a flat fee for certain types of work, such as commercial and public financing transactions.

“Every single proposal we do just about asks us for alternative fee arrangements, flat-fee arrangements or fees based on outcomes or whatever we come up with,” Guthrie said.

“Inevitably they fall back on the hourly rate. While this is talked about a great deal, and they keep saying it’s coming, it’s coming, I’m sure it will be eventually, but right now it’s still a little bit of a slow go to get there.”

If you go

What: CLE on the economic decline of the legal marketplace

When: Noon to 2 p.m., Wednesday (Lunch and registration starts at 11:30 a.m.)

Where: Rubin Center for Education at the Monroe County Bar Association, 1 W. Main St.

Speakers: William Josten, Thomson Reuters, Eagan, Minn.; Hilary Guthrie, chief business development officer, Harris Beach PLLC; Rosemary Wahl, CEO of Wahl Media Inc.; Mitchell Leclair, director of digital strategy, Wahl Media.

Moderator: Michael R. Wolford, the Wolford Law Firm LLP.

Cost: $60 for Bar Association members; $110 non-members.

CLE credits: 2.0, practice management.