Firm Leader Survey Shows Trends, Keys to Differentiation

In the midst of the recession, large firms are recognizing an adaptive business model is the key to sustained short term success. In Alan Cohen’s recent Dec. 1 article “Building a Breakout Firm” for The American Lawyer, he breaks down a number of wide-ranging insights and trends found in the Lawyer’s ninth annual survey of AmLaw 200 firm chairs, leaders and managing partners.

The first revelation is that traditionally-strong corporate practices are expected to struggle in 2012, as 29% of firm leaders expect it to be their most challenged practice group. Also, deal flow is expected to remain relatively stagnant, though 98% of firm leaders expect to charge increased billing rates. Leadership also expects changes in terms of partner makeup, compensation and profit. 39% of firms deequitized at least 1 equity partner this year, and 38% expect to deequitize in 2012. Moreover, 71% will ask partners to leave and the vast majority will hire new partners laterally—74% in corporate, 82% in litigation.

Changes in partner compensation and profit also appear imminent. Nearly half (49%) of firms are realigning compensation with a willingness to work on new initiatives, and 58% of firm anticipate growth in per partner profits (up from 41%). Firms are also looking to stay debt-free as much as possible to attract top lateral talent. 46% of firms reported carrying no debt (up from 43%), while 22% of firms reported carrying more than $10 million in debt (down from 28%).

Meanwhile, there is a growing emphasis on client relationships. 53% of firms reported they have formal feedback systems in place; many also noted they are now turning to outside consultants in order to obtain more candid responses. Clients are also receiving increased secondments, up to 78% this year from 70% last year. Changes have also been made to billing, with the rise of alternative fee agreements (AFAs) that allow customization to meet client needs.

First year associate classes are also getting back on track. Only 14% of firms deferred starting dates in 2011, down from 46%. Additionally, 29% anticipate a larger first year associate class (up from 13%). Similarly, the use of contract attorneys is on the rise with 76% of firms using this approach, up from 55%. Contract attorneys are a cheaper, more attractive solution that helps drive efficiency for clients and also provides great experience for young lawyers.

All this is to say, the model for “building a breakout firm” is changing, with firm leadership adapting in order to differentiate. Among many different trends and an ever-changing paradigm for firms, one thing is clear: there is a growing emphasis on client relationships, tailoring services to clients and bringing in established, high-performing lateral talent to spur growth.

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