This is our 23rd annual report on what’s going on in the legal profession, not only in the United States, but also in other parts of the world. Like our previous reports, it is based on information we compile throughout the year from many sources.
As always, some of our findings are obvious, some are not, and others are contrary to conventional wisdom. Nevertheless, this is the picture at the beginning of 2012.
Banking: It’s perhaps the hottest area in financial services due to uncertainty whether the “Volcker Rule” will be implemented in July 2012 when regulations that are part of Dodd-Frank take effect.
Health care: Another broad area that includes regulatory, finance, M&A, real estate, labor, and employment and professional liability.
Energy: Oil and gas in certain parts of the United States as well as Canada. Also coal. Nuclear power is getting hot due to safety concerns in the United States, but alternate energy has cooled somewhat.
Intellectual Property: Due to patent reform (“First to file”), this is an area of high volume. Copyright law may be getting hot in the entertainment industry. Patent litigation is becoming red hot, while rate-sensitive patent prosecution continues to cool off for larger firms.
White Collar Crime: Criminal investigations due to fraud are on the rise. Adding fuel to the fire are new issues related to the disclosure of inside information on social media.
Regulatory: Many states are passing laws in opposition to federal regulations, particularly in health care, energy, banking and environmental areas. Constitutional issues are beginning to arise as a result.
Financial Services: Mergers & acquisitions, IPOs and private equity are hot, although the latter, along with venture capital, may cool down soon.
Cyber Crime: It’s on the rise due to growing hacking and security issues at computer networks.
Labor & Employment: Violations of wage-and-hour laws are increasing. Collective bargaining is a hot issue. Right-to-work is heating up. Some labor and employment departments have added immigration lawyers.
Commercial Litigation: In most firms this remains a hot area, even though there continues to be a decline in cases going to trial.
Washington, D.C.: “The British are coming! The British are coming!” Four and perhaps five of the U.K.’s top five firms—the so-called “Magic Circle”—are opening offices here in an attempt to build U.S.-based regulatory practices. This is part of their broader strategy to enter the U.S. market in a big way.
Marketing and Business Development
Social Media: This remains a growing area of marketing and business development; however, some firms are starting to stress more in-person relationship building. Educational Online Videos: In a post on attorneyatwork.com, Bob Weiss says these are an excellent opportunity to build a practice.
Return on Investment: There is more of an emphasis on ROI regarding marketing and business development endeavors.
Recruiting & Marketing: Recognizing the relationship between these two functions, some firms are giving responsibility for both recruiting and marketing to the Chief Marketing Officer.
Other Trends and Issues
Revenue Per Lawyer: According to various reports, since 2007, for the most part, RPL has been flat or even down for most of the firms in the Am Law 100. This may be one reason for reporting of profits per partner instead. However, RPL in many MidLaw firms has been increasing.
Fewer Partners: BigLaw firms in particular are promoting fewer associates to partner. They are also making the partner- ship track longer and the requirements tougher. Legal pundits say this is probably a permanent change; one that will continue even after the economy recovers.
Fewer Entry-Level Associates: Although summer associate hiring has increased for 2012, some MidLaw as well as BigLaw firms plan to hire fewer first-year associates than in years past. Instead, in addition to recruiting lateral partners, in my experience, they are recruiting some two- and three-year associates believing they will not need several years of development before becoming profitable.
The New Leverage: The age-old principle of leverage, a high ratio of associates to partners, is steadily dying out. As discussed in the September/October 2011 Trends Report, it is being replaced by a “new leverage” based not only on associates, but also other forms of leverage—such as temporary or contract lawyers, paralegals, process management specialists—and also by outsourcing functions such as legal research, e-discovery and document management. This trend is not restricted to law firms. Many corporate legal departments, faced with senior management directives to reduce costs, are doing the same.
Non-Lawyer competition: According to a post on the kowalskiandassociatesblog.com, “Non-lawyers and corporate entities not owned by lawyers are actively delivering almost $2.5 billion in legal services through LPOs and Internet providers of legal services.” However, in a letter to the editor of The New York Times (after it ran an op-ed supporting this trend), ABA President Bill Robinson, stated “A rush to open the practice of law to unschooled, unregulated non-lawyers ... would cause grave harm to clients.” So stay tuned: This battle will continue. The Jacoby & Meyers suits are just one example. But keep in mind that other professions, such as accounting, architecture and medicine, have found an answer to this issue.
Globalization: This continues, of course, but the opportunities are not limited to just BigLaw firms. International networks offer opportunities for MidLaw and even Small- Law firms to grow internationally. On point, the ABA Commission on Ethics 20/20 has posted draft proposals to make it easier for U.S. lawyers to engage in cross-border practice.
Mergers: After declining in 2010, mergers have increased substantially as firms shift from a survival to a growth mode. Most legal experts expect this trend to continue. As I discussed in the October 2011 issue of “Law Firm Partnership & Benefits Report,” in the past as many as 50% of mergers fail because of an inability to meet the challenges and organizational adjust- ments requisite to a successful merger.
Capital: Historically, compared to other businesses (yes, a law firm is a business!), law firms have needed relatively little working capital. In most cases, firms have been able to meet their financing needs through short-term line-of-credit loans or off-balance sheet leases.
However, for BigLaw firms this may change in the future as a result of their emphasis on growth and the resulting need for capital. Adding to the pressure are the U.S. growth plans of U.K. firms who now have access to outside capital as a result of the Legal Services Act. This issue of non-lawyer investors having ownership in U.S. law will continue to heat up.
Non-Lawyer Advisors: We previously reported that national insurance firm Nelson Levine de Luca & Horst had formed an executive board of retired executives from prominent insurers. Now at least one other firm has added a non-lawyer business person to its executive committee. Will use of non-lawyer busi- ness advisors grow into a major trend?
The above is a condensed version of Mr. Denney’s report: “What’s Hot and What’s Not.” The complete report may be viewed on the firm’s website, robertdenney.com.