In addition to heat in regulatory, immigration, public finance and other practice areas, what else should you keep your eyes on for the new year? Here’s the annual scoop from Bob Denney and his firm as the legal services market moves into 2011.
This is our 22nd annual report on what’s going on, not only in the United States but also in other parts of the world, in an increasingly globalized legal profession. Like all our previous reports, it is based on information we compile throughout the year from many sources as well as extensive discussions with law firm management. Some of the findings are obvious. Others are not. And some are contrary to the conventional wisdom. Nevertheless, this is the picture at the beginning of 2011. —Bob Denney
- Regulatory. Both federal and state, particularly in health care, banking, pharmaceutical and energy.
- Health Care. Covering many areas and all types of providers.
- Alternative Dispute Resolution. Both mediation and arbitration owing to the high costs of litigation and potential delays.
- White-Collar Crime. Due to investigations into financial fraud and violations of the Foreign Corrupt Practices Act (as we first reported two years ago).
- Bankruptcy. Consumer filings are still increasing but new business filings are declining.
- Energy. Particularly oil, gas and nuclear as well as, in a few firms, “clean energy.”
- Labor & Employment. Fueled by wage-and-hour actions and government investigations in the health-care industry. Compliance-training programs are the best defense.
- Public Finance. Most states need the money!
- Litigation. Almost every type. Complex cases and construction are red hot. School-based litigation is getting hot.
- Immigration. Was cold a year ago. Arizona is just the tip of the iceberg.
- Emerging Companies. Even some BigLaw firms are developing this practice area. In addition, UpstartLegal.com, a Web site to give entrepreneurs the legal documents they need to start and run a business, has been launched. And Kaplan University’s Concord Law School has launched a Web-based small-business practice LLM program.
- Corporate. Particularly IPOs and M&A.
- Financial Services. Due to the Dodd-Frank Act, which could create work beyond banking and other financial institutions. Private equity and hedge fund firms are facing increased regulatory requirements, including registration with the SEC.
What’s Hot in … Geographic Markets
- San Paolo. U.S. and European firms continue to open offices there. However, the San Paolo Bar Association recently issued an advisory that foreign firms operating in alliance with local firms breach local practice rules.
- Singapore . At least three more major firms are opening offices.
- Luxembourg . Baker & McKenzie and Stibbe recently opened there.
- Chicago . Outside firms, emphasizing their lower rates, continue to open offices here.
- Texas . National firms plan to branch into Dallas, Houston and Austin. One reason: Energy.
- BRIC Countries (Brazil, Russia, India, China). They’re regarded by global firms as major growth opportunities, although obstacles must be overcome in India and China.
- Patent Litigation. However, according to Law360, a federal appeals court ruling, which invalidates patents on two genes linked to breast and ovarian cancer, “could have wide-ranging implications for gene patent law and the biotechnology industry.” And, in another development, some plaintiffs’ firms are taking cases on a contingency fee basis and hiring lawyers from big firms to handle them.
- Gaming. Casino revenues are down and there is little expansion except in Pennsylvania and the few other states where gambling is new.
- Real Estate. However, retrofitting of old buildings and leasing are hot for a few firms. Furthermore, some residential developers are buying up sites at bargain prices.
- Patent Prosecution. Was heating up a year ago, then it began to cool.
- Tax, Trust and Estate Planning. Until Congress acts or doesn’t. Then it will be hot.
- Elder Law. Still reeling from the recession.
Cooling Trends in the Legal Profession
Practice areas that are feeling the big chill include:
- Patent Litigation
- Real Estate
- Patent Prosecution
- Tax, Trust and Estate Planning
- Elder Law
MARKETING AND BUSINESS DEVELOPMENT TRENDS
- Growth Strategies. Since expense cuts have gone about as far as they can go, firms must now focus on increasing revenues. With overall demand for legal services forecasted to remain soft, growth must come by increasing market share—i.e., taking business away from other firms.
- Chief Value Officer. Reflecting its commitment to the ACC’s Value Challenge, Drinker Biddle & Reath recently became the first U.S. firm to create this position and appointed Kristin Sudholz. She and CMO John Byrne have equal oversight roles in the enlarged and restructured marketing department.
- Chief Marketing Officer. The position is vacant in a number of major firms and few of them are recruiting a replacement. Instead, some are naming marketing partners to oversee separate marketing and business development functions. A few firms have appointed partners as full-time BDOs. On the other hand, MidLaw and some SmallLaw firms are hiring CMOs.
- Client Interviews. More firms are either conducting them themselves or retaining outside consultants. The findings are used for strategic planning and for developing action plans for specific clients.
- Radio Advertising. One firm in a major sports city is now running ads on sports talk radio to raise the firm’s name recognition.
- Social Media. Hotter than ever. LinkedIn is generally considered best for business purposes, Facebook for personal ones. But in many firms the results are mixed. Several experts comment that social media “is overhyped.” (Also see Other Trends and Issues.)
- Regulating the Internet. The ABA is starting to explore regulating marketing on the Internet—this is causing much discussion.
- Web Site Bios. Recognizing that Web bios have become increasing important in clients’ selection of outside counsel, firms such as Ballard Spahr are dedicating more resources to updating and improving them.
- LawyerBid.com. Houston attorney Chad Pinkerton has launched a new site that allows people to post a summary of their legal cases at no charge and then have lawyers bid to represent them.
- Lawyer Rankings. They’re not new, of course. But U.S. News & World Report joined the lineup with its ranking of law firms. Who will be next—Vanity Fair?
OTHER TRENDS AND ISSUES
- Alternative Fee Arrangements. There is some increase in their use, mostly as fixed or capped fees. But the fact is that many GCs are still not raising the issue and most law firms, even if they are willing to discuss AFAs, are not raising the issue unless the client does.
- Mergers. While U.S. mergers were down sharply in the first three quarters of 2010, they will get hot again. Some had merely been put on hold. In other cases, firms are seeing mergers as part of their growth strategy to increase revenues. A few much-discussed trans-Atlantic mergers were called off, but at least two were finalized. Look for one or two more to occur in 2011.
- Outsourcing. Most reports indicate its use is increasing, both by law firms and corporate legal departments, which have been outsourcing for years. However, many firms won’t discuss the subject because of concerns or misconceptions about the ethical implications.
- Social Media. Clients are increasingly asking for counsel on employees’ use and the management of social media. Firms, too, are now recognizing the need to develop electronic and social media policies for themselves. Furthermore, there are challenges for lawyers in maintaining the confidentiality of client information. And there are many issues with respect to the use of social media in litigation. As one report put it, “The law has significantly lagged behind social networking.”
- Rates: Rising or Falling? Some BigLaw firms have resumed their historic habit of raising rates. However, some MidLaw firms report that a few of the large firms, in their responses to RFPs, are “cutting their rates below what we’re at.”
- Secondments. A British Army term referring to officers assigned temporary duty in other regiments. The growing number of U.S. firms lending lawyers to the legal departments of major clients appears to have heated up again, along with the question, “Do we bill the client and, if so, how?”
- Dropping the Baton. A few firms are electing or announcing their new leaders a year or more in advance. However, most firms are still not planning for management or client responsibility transition. One reason is that older partners are not retiring.
- Firm Management. Various surveys and conferences report that over 70% of managing partners do not have a job description and that most partners do not know what their MP does. In addition, in firms of more than 100 lawyers, only 10% have full-time MPs. Question: What business with revenues of $40 million or more would have a part-time CEO and not have a job description for the position?
- Retreats. Many of the firms that had stopped holding them the past two years are now scheduling them again. More are also using outside consultants to plan and facilitate them.
- Strategic Planning. Firms are either updating their strategic plans or developing new ones. But the changes in the profession necessitate expanding the planning process to include more external research, such as through client interviews and competitive analysis. In addition, strategy development must address internal issues including firm, management and fee structures; lawyer recruiting and development; and project management. The resulting plan must contain definitive goals and metrics to measure implementation and, ultimately, the plan’s success.
- De-leveraging. Larger firms are decreasing the number of associates (at least for now) and lowering associate-to-partner ratios. However, there is a “new leverage,” which includes not just associates but all types of timekeepers as well as outsourcing and technology.
- “O Solo Mio.” Partners from large firms are leaving to start their own firms, often as solos. Some of the benefits they see are fewer conflicts, lower rates that appeal to more clients and better quality of life. Furthermore, since a growing number of law school graduates are starting out as solos, the University of Missouri-Kansas City School of Law has just started a program, the Solo and Small Firm Incubator, to help newly minted lawyers start their practices. Wonderful idea.
- Midsize Firms. Although some major clients continue to reduce the number of firms they retain, most MidLaw firms continue to do well, and some are thriving.
- Law Firm Networks. They are more important than ever because they enable small and midsize firms to provide services through member firms in other jurisdictions and, with the international networks such as LEGUS, in other countries.
- Partner Compensation. During the recession, the spread in high-to-low partner compensation increased dramatically in many large firms. Now some of these firms are being faced with the need to address the situation. This could lead to even more lateral movement and splits or break-offs of high-performing practice groups.
- Subsidiaries and Joint Ventures. One of the hottest trends in the 1990s was firms forming subsidiaries to provide ancillary or nonlegal services such as lobbying, public relations and foreign trade consulting. That trend cooled but may now be heating up again. Stevens & Lee and investment banking firm Griffin Financial Group are merging with an insurance consulting firm to construct and market insurance-related products for certain industries as well as state and local governments.
- Firm Structure. As recently as three years ago, various sources estimated that over 60% of the firms with more than 150 lawyers and 50% of firms with 50 to 150 lawyers had at least one non-equity tier of partners. Since the recession began, a number of firms have abandoned the multitier structure—but it may be reversing with DLA Piper’s announcement that it is putting its plan to move to an all-equity structure on hold.
- Diversity. Various sources have reported that the percentage of minority and women attorneys in U.S. law firms has declined. However, Building a Better Legal Profession, a student group at Stanford Law School, says the data it compiled indicates that much of the decline can be attributed to only 25% of the firms and has been due to lawyer layoffs and a slowdown in associate hiring.
- Associate Compensation. Morgan, Lewis & Bockius is dropping its previously announced plans to adopt merit-based compensation for associates. However, other major firms continue to announce they have dropped lockstep and are instituting merit-based systems. And “across the pond,” earlier this year Clifford Chance changed its associate bonus program to consider not just billable hours, but also business and technical skills, client satisfaction, teamwork and community work.
- Limited Scope Services. Several attorneys in Arizona (and perhaps elsewhere) are offering limited-scope representation to make their services more affordable for clients facing economic hardships. The services are foreclosure, divorce and bankruptcy. To date, about 60% of their case work is family law.
- Homework. For several reasons, including economics and a better work-life fit, a small but growing number of lawyers are moving their offices to their homes.
- Summer Associate Hiring. Some leading law schools reported an increase in the number of 2L interviews for summer associate positions. And some BigLaw firms were expected to increase the number of hires for next summer compared to last year.
- CLE Accreditation. Wading through the maze of various states’ regulations to get CLE programs certified is costly and confusing. Tim Baran in New York saw this as an opportunity and has created uMCLE, an online business to help law firms and companies obtain accreditation for their CLE programs. This is a great example of entrepreneurship—identifying a need and filling it.
- Legal Department Budgets. Several reports state that, for the first time in many years, corporate legal departments plan to spend less on outside counsel in the next year. However, they are increasing their internal budgets to hire more lawyers and paralegals.
- Law School Applications. The number of lawyers in the 250 largest firms continued to decline in the past year, with 70% of the decline in the associates ranks. Yet law school applications increased 7% in 2010. What’s going on here? Is a law degree topping the MBA as the ”degree of choice” (as it did many years ago)?
- Law School Curriculum. In fall the University of Buffalo Law School began requiring students to take a third semester of courses in legal analysis, writing and research as part of its Legal Skills Program. Professor Charles Ewing, who directs the program, says, “Anybody who calls themselves a litigator has to do a trial.”
- Boutiques. The label stems from their focus on certain specialties, not necessarily their size. They are more successful than ever.
- A Final Word on the New Year. Even in the face of expected political wrangling, the U.S. economy will continue to recover. While the year might start off in an atmosphere of uncertainty for the profession, and despite the layoffs and problems in some firms, as well as the projected cuts in spending on outside counsel, just look at the number and importance of Red Hot, Hot and Getting Hot practice areas. That seems to indicate most law firms will do well in 2011. To paraphrase Mark Twain: “The reports of their death are greatly exaggerated.”
Note: Discussion of other issues, as well as more detail on some of the trends reported here, are posted in the Writings and Legal Communiques sections at www.robertdenney.com.