Leading Change in Law Firms An Altman Weil Commentary By Eric Seeger
Contact Altman Weil 3748 West Chester Pike, Suite 203 Newtown Square, PA 19073 (610) 886-2000 www.altmanweil.com info@altmanweil.com Eric Seeger: eseeger@altmanweil.com 2013 Altman Weil, Inc. Law Firms in Transition Survey
What Should Law Firms Do About Leading Change? An Altman Weil Commentary on results from the 2013 Law Firms in Transition Survey Law Firms in Transition The 2013 Altman Weil Law Firms in Transition Survey found that law firm leaders are acutely aware of the changes that the legal profession is facing. The survey also showed the evolution of thinking among firm leaders over the last five years, including some dramatic shifts in opinion since the first time the survey was conducted in 2009. However, there was a lot less evidence of tangible changes in how law firms operate. What Should Law Firms Do? Rethinking the law firm business model presents law firm leaders with many complex challenges, made more complex by the need to address them among partners with a variety of perspectives and with clients who have a range of differing needs. Law firm leaders often ask us, Where should we begin? This new series of Altman Weil Commentaries is designed to answer that question by providing practical first steps for law firms in a variety of key areas. The following report looks at leading change in law firms. About the Author of this Commentary Eric Seeger is a principal with Altman Weil, Inc. He advises law firms in the areas of strategy formulation, execution and implementation, practice group planning and training, merger search and organizational issues. His practice emphasizes the critical importance of translating ideas into action. He is the co-author of Altman Weil s Law Firms in Transitions survey series. About the Survey Conducted in March and April 2013, the Law Firms in Transition Survey polled Managing Partners and Chairs at 791 US law firms with 50 or more lawyers. Completed surveys were received from 238 firms (30%), including 37% of the 250 largest US law firms. The survey has been conducted annually since 2009. The full survey is available online to download at: www.altmanweil.com/lfit2013. 2013 Altman Weil, Inc. An Altman Weil Commentary - 1
The Changing Legal Market 2013 Which of the following legal market trends do you think are temporary and which will be permanent? More price competition 95.6% Focus on improved practice efficiency 95.6% More commoditized legal work 8.1% 89.7% Fewer support staff 5.4% 89.7% More non-hourly billing 7.1% 13.4% 79.5% Competition from non-traditional service providers 8.0% 13.4% 78.6% More contract lawyers 6.3% 19.2% 74.6% Increased lateral movement 14.3% 12.9% 72.8% Fewer equity partners 12.4% 15.5% 72.1% More part-time lawyers 7.1% 22.3% 70.5% Smaller annual billing rate increases 21.0% 11.2% 67.9% Smaller first-year classes 23.0% 14.9% 62.2% Reduced leverage 19.2% 24.1% 56.7% Slowdown in growth of profits per partner 27.4% 17.0% 55.6% Outsourcing legal work 22.8% 30.8% 46.4% Holding the line on associate salaries 58.1% 17.1% 24.8% 0% 20% 40% 60% 80% 100% Temporary Not sure Permanent 2013 Altman Weil, Inc. An Altman Weil Commentary - 2
Keeping Pace with Change Going forward, do you think the pace of change in the profession will increase, decrease or remain about the same? Pace of change Under 250 lawyers 250 or more lawyers ALL Increase 64.7% 71.2% 66.7% Remain about the same 34.0% 28.8% 32.4% Decrease 1.3% 0.0% 0.9% Not sure 0.0% 0.0% 0.0% Rate the following elements of change preparedness in your law firm: Your overall level of confidence that your firm is fully prepared to keep pace with the challenges of the new legal marketplace Your partners awareness of the challenges of the new legal market Your partners level of adaptability to change Change Preparedness LOW MODERATE HIGH Confidence of firm leader 21.0% 66.0% 12.9% Awareness of partners 43.8% 50.9% 5.3% Adaptability of partners 53.6% 44.1% 2.2% Has your firm significantly changed its strategic approach to the following elements of the law firm business model? Significant change in strategic approach to: No Under consideration Pricing 53.6% 17.4% 29.0% Partnership admission / retention standards 42.8% 12.6% 44.6% Efficiency of legal service delivery 33.0% 22.3% 44.6% Overhead cost management 29.6% 5.4% 65.0% Yes 2013 Altman Weil, Inc. An Altman Weil Commentary - 3
What should law firms do about leading change? THE SURVEY SAID: 96% of firm leaders think more price competition and the need for greater practice efficiency are permanent changes in the legal market 90% of leaders believe there will be further commoditization of legal work 80% of leaders believe there will be more non-hourly billing arrangements 79% expect more competition from non-traditional legal service providers 72% think firms will have fewer equity partners; 75% believe there will be more contract lawyers 71% expect more part-time lawyers, and 62% predict smaller first year classes 68% expect smaller annual billing rate increases in the future In the face of so much expected change, firm leaders are reasonably confident that their firms are fully prepared to keep pace with the challenges of the new legal market, rating their confidence at a median 7 on a 0 (low) to 10 (high) scale. However, firm leaders assessed their partners awareness of the changing marketplace at a median 6. Only 5.3% of leaders considered their partners to be highly aware (rating them 9 or 10 on the scale). Law firm leaders rated their partners adaptability to change at a median of 5, with only 2.2% describing them as highly receptive to change (rating them 9 or 10). Many firms have made limited progress in changing core elements of their business model. About two thirds of firms have addressed overhead costs. Slightly less than half of firms have made strategic changes in the efficiency of their service delivery or partnership admission and retention standards. Only 29% of firms have changed their strategic approach to pricing. WHAT SHOULD LAW FIRMS DO? The survey highlights a significant challenge for law firm leaders tasked with leading change in their organizations. Along with an array of external market pressures, there is internal drag from partners who don t fully understand the need for change, don t feel enough urgency to change, or are simply resistant to doing things differently. 2013 Altman Weil, Inc. An Altman Weil Commentary - 4
What should law firms do? Don t try to turn the entire ship at once it s probably not possible. Instead look for partners who are open to change and willing to experiment and work with them. Seek out partners who have a longer-term outlook and a greater stake in the firm s 10 to 20 year horizon. Get forward-looking partners into leadership seats as Practice Group Leaders, Office Managing Partners, Project Leaders and Committee Chairs throughout the firm. Get agreement from partners who don t want to be actively involved in change initiatives to at least stay out of the way. Listen to your clients and let their input drive innovations in staffing, pricing, and service delivery. Bring together a group of 5 to 10 partners (with appropriate staff support) in an Entrepreneurial Laboratory that pursues controlled experimentation. Make sure the group has a clear charter and timeline, an operational budget, compensation protection for the term of the initiative, and full access to firm resources. Be sure that an entrepreneurial group has both the blessing of the full partnership and accountability back to firm. Position their efforts as a low-risk investment that allows the firm to experiment and learn without disrupting the status quo for the majority of partners. Draw on non-lawyer resources in the firm to explore new technology tools, mine existing data in new ways, and develop new metrics to support and measure progress toward change. Rethink traditional compensation systems to include rewards for useful experimentation and successful innovation. Make change profitable. Strive to make entrepreneurial initiatives meet or exceed firmwide profit levels by year three of each project. Let your clients know what you have accomplished and how it positively affects them. 2013 Altman Weil, Inc. An Altman Weil Commentary - 5