HILDEBRANDT'S LISA SMITH ON THE 2007 LEGAL INDUSTRY OUTLOOK
In the second installment of our mid-year legal industry forecast series, our own Doug Anderson sat down with Hildebrandt’s Lisa Smith to get her take on both the national and local outlook for law firms. Based in Washington, Smith specializes in strategic planning, mergers and operational issues for global law firms.
- By all measures, 2007 is another great year for law firms. Though the entire industry is healthy and growing, the nation’s biggest firms have enjoyed particularly strong financial performance and are awash in profits. According to recent data, 59 of the AmLaw 100 firms are generating profits greater than $1million-per-partner and 15 of those firms exceeded $2mm-per-partner.
- Billing rates, especially those at the largest firms, continue to rise. However, clients are beginning to push back and request alternative billing methods. As much as 10% of law firm revenue now comes from alternative billing methods and look for this percentage to increase as clients become more demanding.
- The largest, most prestigious firms, however, continue to offer distinctive enough service that they are in very high demand and continue to enjoy significant pricing power.
- While nearly all firms are experiencing financial success, there is growing disparity in profits-per-partner. The rich are getting richer and now more than ever before, there are compelling financial reasons for partners and associates to move laterally in search of higher compensation. This has become a big issue for firms as the “war for talent” heats up.
Trends to continue through the rest of 2007:
- Globalization is real and not just a concept anymore. Firms need a global vision and strategy.
- More than ever before, global firms’ presence in DC is critical. As globalization increases, firms are expanding their DC presence to manage international regulatory and trade issues. Also, as New York loses ground to London as the financial capital of the world, DC’s stature grows as a center of global legal activity.
- There are not many firms left that have not opened new DC offices, but expansion will continue. Demand for top attorneys in DC offices is healthy.
- The headquarters concept for law firms is disappearing as firms are becoming more distributed across the globe. It is increasingly common for firm management to live and work in different cities.
- Mobility continues to be an issue. Managing partners must be focused on creating a culture that makes people want to stay and recognizes that not all associates want to be partners. Many will go in-house and potentially bring business back to the firm.
- The “war for talent” is hotter than ever. Top 10 law schools are not graduating significantly more lawyers but demand for these top legal talents is increasing.
- Firms need to keep up with the speed of change. New, lucrative practice groups like private equity are emerging. Other practice areas are becoming commoditized. The top firms will be the ones that proactively embrace change and quickly build practice groups in new areas.
- In general, the fundamentals remain strong, mergers will continue, demand for talent is strong, the market leaders in 2007 and beyond will embrace change.