In the spirit of optimistic discovery, I noticed a few reports about law firms and the economy cross the wires. The starting point is a notice from Thomson’s Hildebrandt unit that details their latest reading of law firm performance, something they call the “Peer Monitor Economic Index.” The headline: “Cost Controls Helping Law Firms Counteract Weak Demand, Pricing.” Sounds promising.
WSJ’s Law Blog has a bit more tempered view of this report here, with the banner: “Has BigLaw Turned the Recession Corner? Yeah, But . . .” Finally, the NLJ completes the picture with an article entitled: “Survey Suggests Law Firm Economics May Be Stabilizing.”
This sort of stuff put a little wind beneath your sails as you make that final trip to the beach ahead of back-to-school time and a later-than-usual Labor Day.
When you look closely at the Hildebrandt press release, a few things readily become apparent. First, cost controls may do something in the short term about firm profitability, but they certainly have nothing to do with client demand and its related pricing. Many law firms deal with costs as a short-term tactic, not part of a longer term strategy.
Then you see these nuggets on demand, pricing and outlook:
Demand, as measured by billable hours, was down 7.3 percent in the second quarter compared with a year earlier. However, there are some signs that demand may be beginning to stabilize. Bankruptcy work continued to be strong. Litigation work was down from a year ago, but may be stabilizing. Transactional practice areas, including corporate, mergers and acquisitions, capital markets, and real estate were substantially lower but should show signs of recovery in the second half of the year if the general economy continues to improve.
Rate growth continued to be weak, up only 3.2 percent from a year earlier. Among practice areas, bankruptcy showed the strongest rate growth, up 6 percent. Litigation rates managed to increase 5 percent. IP litigation rates were basically flat. Antitrust and M&A were among the weakest practice areas, declining 1 percent and reflecting a lack of activity in many corporate sectors.
“Demand and pricing volatility will continue to pose challenges for firms in the coming months,â€ said Lisa Smith, vice president, Hildebrandt. â€œHowever, the legal industryâ€™s success in systematically reducing expenses will give firms greater confidence and leeway in exploring new approaches to the law firm business model, such as alternative compensation and pricing models, to position themselves for continued success in a low-growth environment.â€
The demand and pricing excerpts can be explained in one sentence, outside of a few practice areas, both are bad, and may still be getting worse. I believe that many firms still haven’t seen the low point of this downturn, since their current workload is a lagging indicator, one that tracks client decisions made years ago or relationships forged decades ago.
So let’s look briefly at the last excerpt, which to me is the most interesting. The premise is this: cutting expenses will give law firms more leeway in exploring new business models, particularly in a low-growth environment.
Here’s hoping, but I don’t expect anything across-the-board change amongst the so-called BigLaw firms. Changing a model in real time takes a lot of courage, and large amounts of leadership and consensus. Not easy tasks to initiate or manage.
What I really think is going on is that many firms hope that things will get better just in the nick of time to avoid the pain and uncertainty of making major changes.
If I’m correct, this leaves an opening for a few intrepid firms to develop a coherent strategy, and wrap it around a more flexible business model.
That would be interesting, even newsworthy.