New Survey Measures How Law Firms Are Weathering the Storm

Newtown Square, PA, May 12, 2009 – The newly released Altman Weil Flash Survey on Law Firms in Transition reports that law firms are adjusting to the economic downturn but are not currently contemplating any radical shifts in strategy or operations.

“The survey was designed to measure how law firms are weathering the economic storm in a number of key areas, including strategy, growth, pricing, staffing and business development,” explained Altman Weil principal Tom Clay.  “We wanted to know if all the noise in the marketplace about a new law firm business model was translating into real change.  We didn’t find much evidence of that beyond the expected staffing cuts, overhead reduction and extra attention to clients that any downturn would bring.”

Conducted in March and April of 2009, the survey polled 687 US law firms with 50 or more lawyers.  Completed surveys were received from 208 firms (30.3%), including 32% of the 250 largest US law firms.

Changing times – or not?
The survey asked firms to assess whether thirteen emerging strategies represented permanent or temporary changes to the law firm business model. 

The top four areas of permanent change identified by all survey respondents were:  more price competition (chosen first by firms in all size categories), a longer partner track, more contract lawyers and more non-hourly billing. The top four changes identified as temporary were: reduced first-year classes, reduced associate salaries, lower profits per partner and reduced leverage.  Law firms with over 500 lawyers differed from the overall group on leverage, with about 40% of those firms tagging leverage reductions as permanent.

Opportunities in the downturn
Most responding firms saw opportunities in the economic crisis.  Firms of all sizes believed that they could win new clients with lower prices, attract high-quality laterals and groups, and use the downturn to address inefficiencies in staffing and performance that were ignored in boom times.

Seventy-one percent of respondents indicated that the size of their law firm made it more competitive in the current economy; 26% felt their size was not a factor, and 3% were not sure.  Not one law firm saw its size as a disadvantage.

“Right now there is an almost universal hope in firms from 50 to 500 lawyers that a smaller firm can take business away from a larger one based on price competition.  It remains to be seen how that will play out and which firms will truly be the winners,” remarked Clay.  “Some firms seem to be taking an ‘if we build it, they will come’ approach.  We don’t think that passive approach will work.”  

Competitive pricing
Despite their belief that competitive pricing is key to winning new clients, a very small number of law firms, and none with 250 or more lawyers, reduced any of their billing rates in 2009.  Instead, the most common practice was to make “smaller than normal” increases – with about 60% of all firms choosing that option for equity partner, non-equity partner, associate and paralegal billing rates. 

The use of alternative billing is nearly universal in law firms and is expected to represent an increasing proportion of total fees collected in 2009 according to the survey.  When asked about the profitability of non-hourly work, only 15% of firms reported that non-hourly projects were more profitable than those billed at an hourly rate.

“Law firms are slowly increasing the amount of alternative fee work they do, but most still haven’t figured out how to structure and staff projects so they are more profitable – which they can be, if done right,” said Clay. 

Staffing shifts
In the last six months, personnel reductions have occurred broadly across the industry, with the greatest reductions coming in larger firms and with non-lawyer staff taking the hardest hits.  Forty-six percent of all law firms surveyed have reduced support staff positions; 33% have cut paralegals, 32% have cut their associate ranks, 24% have cut non-equity partners and 19% of law firms have cut equity partners.  

When asked if further reductions were likely or possible in the remainder of 2009, significant percentages indicated that more cuts may be on the horizon.  Thirty-two percent of law firms said they may make additional staff cuts; 29% may cut paralegals; 24% may cut associates; 20% may cut non-equity partners; and, 10% may make cuts in their equity partner ranks. 

The Full Survey
The complete, 100-page survey, with detailed breakouts of law firms in five size categories from over 1,000 lawyers to under 100, will be available exclusively to those who register for a special Altman Weil webinar, The Real Legal Market 2009, or purchase the webinar CD.  For more information, call (610) 886-2000 or go to www.altmanweil.com/RealLegalMarket.

About Altman Weil
Founded in 1970, Altman Weil, Inc. is dedicated exclusively to the legal profession.  It provides management consulting services to law firms, law departments and legal vendors worldwide.   The firm is independently owned by its professional consultants, who have backgrounds in law, industry, finance, marketing, administration and government.   More information on Altman Weil can be found at www.altmanweil.com.

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Contact Information

Download excerpted survey highlights.

The complete, 100-page survey will be available exclusively to those who register for a special Altman Weil webinar, The Real Legal Market 2009, or purchase the webinar CD. 

For more information, call (610) 886-2000 or go to www.altmanweil.com/RealLegalMarket
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