January/February 2003  Volume 29, Issue 1
January/February 2003
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What's Hot and What's Not in the Legal Profession
by Robert Denney Associates
Some participants and observers of the legal services market are fortunate enough to be on Bob Denney's mailing list when he sends out his twice-yearly "What's Hot and What's Not" report on current trends. For readers who aren't so fortunate, we've again persuaded this renowned marketing consultant to let us print his year-end report on the highs and lows of legal services. We believe that, like us, you'll find Bob has his finger firmly on the market's pulse!
- The Editors

From Robert Denney Associates
This is our 14th year-end report on what's going on in the legal profession around the world. We have changed a few headings and also added a "New Ideas" category. As always, this epistle is based on information we compile throughout the year from many sources. Some of our findings are, of course, obvious, but should still be noted. Others are less readily apparent. Altogether, they paint the picture of the complex and changing legal profession at the start of 2003.
- Robert W. Denney


PRACTICE AREAS

HOT
Intellectual Property. Throughout the world. Often combined with information technology. Computer science law now the hottest sub-area.

Energy. Despite the collapsing power market, there's increasing need for regulatory counsel.

Securities & Corporate Governance. Thanks first to SEC Order 4-460 and then the Sarbanes-Oxley Act.

Litigation. Just about all types, particularly complex cases, class-action suits, employment matters, patents, mold, securities and fraud. (But see "Getting Hot.")


PRACTICE AREAS
Labor & Employment. Just keeps on growing.

Real Estate. Throughout the U.S. Despite high vacancy rates and tough leasing conditions, office building purchases actually rising. Residential development continues strong.

Natural Resources. Upgraded from its midyear "Getting Hot" rating.

Bankruptcy. Throughout the U.S. Getting hot in the U.K. and Western Europe.

Employee Benefits

Biomedical & Pharmaceutical

Public Sector. Hourly rates also going up.

Immigration. True just for solos and small firms a year ago. Large firms now getting into the act.

Education & School. Smaller firms specializing in this have been extremely busy and, even with the lower rates, quite profitable because they put in a high number of billable hours. Having noted the boutiques' success and growth of this area, larger firms now getting into the act.


GETTING HOT
Mediation/ADR. Because it saves clients money. As a result, however, young lawyers not getting as much trial experience.

Environmental. One reason: Shareholders and environmental groups putting increased pressure on publicly traded multinational U.S. companies to codify cleaner business practices-not just here but throughout the world.

Antitrust. Has been hot in Europe for some time.

Health Care. As reported last year. Already hot in some firms.


COOL
M&A. U.S. and European companies doing far fewer mergers and IPOs (for right now). However, LBOs are hot in Europe, with private-equity firms having one of their best years ever.

Telecommunications

Infrastructure Projects. In the U.S. and elsewhere, particularly in Asia. Foreign governments can't float huge projects without a stronger commercial basis.


GEOGRAPHIC MARKETS

UNITED STATES
Right now almost every area seems hot for new offices. Principal reason: Many firms don't see growth opportunities in their current "main office" locations, so they expand elsewhere (usually by merging in a local firm). State capitals one of the hottest markets; in some, "outside" firms have more lawyers in these offices than do the largest local firms.

INTERNATIONAL
In most areas growth continues, as much-or more so-from the expansion of certain practice areas as from the opening of new offices. Japan. Allen & Overy launched a U.S. practice in Tokyo owing to the increasing importance of U.S. law in Asian securities and M&A deals. Meanwhile, despite the country's economic problems, U.S. and U.K. firms continue to open offices.

  • China. Sidley, Austin has been strengthening its Chinese practice. Lee and Li (Taiwan) opened in Shanghai, its first offshore presence.
  • Hong Kong. Paul, Hastings arrived by merging in 250-lawyer Koo & Partners.
  • Australia. Despite a currency as weak as Canada's, some firms expanding through lateral entries, particularly for patent services.
  • Europe. U.S. firms continue to expand in the U.K., while U.K. firms continue to expand on the Continent. Germany one of the hottest areas, although there's concern about deflation.
  • Brazil. May cool off because rampant inflation continues.
  • Singapore. Last year's hot market has cooled off. At least three joint ventures between foreign and local firms were abandoned this year, and consolidation is occurring among other local firms.


NEW IDEAS

Paying Associates Not To Work . Brobeck (San Francisco) deferred starting dates for almost half of this fall's first-year associates. Some will receive a small salary plus health benefits until their new start date; others will receive just health benefits. Several other Bay Area firms reportedly did the same.

Support Staff Retreat . Conducted by the directors of administration, marketing and HR to improve communications, build teamwork and develop new ideas. The brainchild of Mary Hendrix, marketing director at DKW Law Group (Pittsburgh).

Inside-Outsourcing . Moving a substantial part of back-office operations to a less-expensive location. RGL Forensic Accountants & Consultants did this several years ago. Now Venable (Washington, DC and Baltimore) may be the first law firm to do so.

Diversity Consulting. Manatt, Phelps & Phillips (Washington, DC) recently inaugurated to provide "diversity assessments" for clients.

Lawyer Training . In a tight economy, reducing the cost instead of reducing the training. Kathleen Brady, manager of associate training at Millbank, Tweed (New York), discussed how in the September issue of Law Firm Partnership & Benefits Report.

Web Site Feature . Burr & Forman includes "Client Highlight," in which it profiles one client each month.

Pro Bono By Marketers . Being developed by the Legal Marketing Association's Chicago chapter under the creative leadership of its president, Mike Ralston.

Magazine . Midsize firm Smith, Gambrell & Russell (Atlanta) has replaced 17 newsletters with Leaders, a superbly done magazine for clients. This cross-marketing idea came from Connie Frost, the firm's director of corporate image.

Annual Report . In publishing its first one, Stoel Rives took a new approach by profiling some of the firm's lawyers-and also support staff. Well-done.


MARKETING STRATEGIES & TACTICS

Cross-Marketing . No. 1 talked-about strategy for large and midsize firms. But still "more honored in the breach than in the observance." Reasons: Both financial and cultural. Most compensation systems don't reward it, and many partners don't trust others to work with "my client." (But see "New Ideas.")

  • Client Relationship Management Systems. More firms are acquiring, but there's a lot more involved than just having the right CRM software-it must be used.
  • Webinars. Web-based marketing seminars continue to be popular.
  • Annual Reports. We've reported these for three years; now they're becoming more elaborate. Portland, OR-based Stoel Rives took a different approach with its first one. (See "New Ideas.")
  • Branding. While a number of firms have dived into this headfirst in the past few years, we've continued to be skeptical about the value of slogans or "tag lines." Now, some firm leaders and knowledgeable observers of the legal scene have become totally negative. The most recent is Larry Smith (of Levick Strategic Communications), in his new book Inside/Outside: How Businesses Buy Legal Services, in which he lists six reasons why branding hasn't delivered for law firms-and never will. (You can order his must-read book at www.lawcatalog.com.)
  • Client Audits/Surveys. Few firms conduct them regularly, but Burr & Forman (Birmingham) is one that believes strongly in them, thanks to director of client services Laura Meherg. We've been preaching the value of these ever since we did the first one 21 years ago. (Also see "New Ideas.")
  • Client Service. Few firms, however, are serious about it. Cox & Smith (San Antonio) is one that is, which is why it brought in marketing director Nancy Mangan in 2002. She trains the lawyers in how to talk to clients and elicit their concerns.
  • Pro Bono. As a marketing strategy. See the October issue of Strategies, the Legal Marketing Association's publication. (Also see "Other Trends & Issues.")


OTHER TRENDS & ISSUES
Merger Mania . Continuing. And despite potential obstacles such as culture and comp systems, U.S. and U.K. firms still exploring. This may be the biggest year ever.

Staff Reductions . Continuing in large and some midsize firms, but much less publicized.

Foreign Trade . As a result of 9/11, U.S. Customs Service dramatically increased scrutiny of both exports and imports. Furthermore, getting approval for exports and licensing agreements with foreign parties has become more difficult. All this causing frustration for foreign trade attorneys and corporate legal departments in certain industries.

Doing Well By Doing Good . Despite billable hour pressure, more firms stressing both pro bono and community services (there is a difference)-but not for marketing.

Lawyer Stress . Increasing. Not only because of pressure for more billable hours, but also because of technology-clients expect immediate responses.

Ancillary Businesses . No longer a question of whether to do or not to do, but rather "which ones?"In Beyond Legal Practice, the Hildebrandt Institute gives lots of practical information. One key point: Market the new venture first to the partners.

Intellectual Property . Several large full-service firms have been expanding their IP practices, threatening the historic dominance of the boutiques.

Partner Compensation . Despite what they say, many firms still base it on billable hours or collections. However, some firms that evaluate a partner's total value to the firm have eliminated the comp committee and now have the XCom determining compensation. Also, increased presence of U.K. firms with their lockstep comp has a few U.S. firms reexamining that age-old system.

Associate Compensation . Except in a few cities (e.g., Philadelphia), first-year salaries have stayed flat. However, there's increasing use of formula-based bonuses at all levels for exceeding billable hour goals, particularly in litigation. Really another way of raising salaries, but ignores other factors such as quality of work, efficiency, client service, marketing skills and community service.

Midsize Firms . Despite the conventional wisdom, many are thriving and not interested in merging into a large firm.

Unhealthy Partnering . Enron's relationships with Andersen and law firms raise the question: When is a professional's independence compromised by partnering too closely with clients?

Associate Dissatisfaction . With many factors, from emphasis on billable hours to lack of training and professional development. A critical issue, not just for big firms (e.g., Clifford Chance, the world's largest) but also for midsize ones.

Partnership Agreements . Although many small and midsize firms still don't have one, that is changing.

Two-Tier (Or More) Partnerships . Continue to increase. Principal reasons: (1) avoiding cutting the profit pie into more-and perhaps smaller-pieces; (2) recognizing that some former equity partners weren't fulfilling the role of business owner; and (3) realizing that some associates don't want the responsibility or aren't ready for it yet.

Multijurisdictional Practice . In August the ABA House of Delegates eased restrictions on practicing law across state lines. Although not talked about much in most firms, this could have a major impact on future growth and client service strategies.

Contract Lawyers . Their use continues to increase substantially in both law firms and corporate legal departments.

More Law School Applications . Increased almost 18 percent this year, but expected to drop off again once the economy gets stronger. In the meantime, however, it will allow firms to be even more selective in their hiring. Should be a big boost to midsize firms.

Business Development Partners . Cozen O'Connor (Philadelphia) created this as a full-time position years ago; more recently, Patton Boggs (Washington, DC) did the same. If this becomes a trend, what happens to the chief marketing officer?

General Counsels Under Fire . As more corporate scandals are uncovered, in-house attorneys facing increased scrutiny and new regulatory pressures.

Diversity . Becoming more important to major corporations in selecting law firms. (Also see "New Ideas.")


Bob Denney ( bob@robertdenney.com) is President of Robert Denney Associates, Inc., a strategic marketing and management consultancy. He is a regular Marketing columnist for Law Practice Management.

To receive copies of the "What's Hot and What's Not" report (which includes information not reprinted here), contact Robert Denney Associates at 110 W. Lancaster Ave., Wayne, PA 19087, (610) 964-1938; Fax: (610) 964-7956; www.robertdenney.com.