Friday, July 02, 2010

The Legal World on Its Future: The Winmark Looking Glass Report

(Thanks to gizmodo.com)

There have been a number of reports looking at the future of the legal profession recently (see here and here). This particular one by Winmark* looks at the factors "that are driving the future of [legal] sector from both sides", based on surveys of managing partners (MP), marketing directors (MD) and general counsel (GC).

The ten years up to the Lehman crash are portrayed as golden years for law firms, in profits, remuneration for partners and new lawyers. Since then the landscape is looking bleaker. And new factors such as the Legal Services Act and the introduction of alternative business structures (ABS) are compounding the sense of unease.

The first big indicator of this is the reduction in headcount in firms. 80% of law firms cut support staff levels and 76% cut lawyers. There were further cuts in IT, marketing, and training spends. Yet MPs are searching for stars or teams to lead them into pastures new.

While MPs are trying to boost growth and profits, GCs are looking to shrinking budgets, which is creating a mismatch of expectations. Although GCs seek simplicity and predictability in pricing of legal work, 85% still use hourly billing. Despite much publicity the billable hour is flourishing because purchasers of legal services are unsure what to replace it with whether it be premium billing or value billing. These are as yet incomplete concepts waiting for translation into reality.

One finding, surprising to me, was that GCs don't feel they have the "upper hand" when negotiating price structures with law firms. The introduction of ABSs could alter this perception as more competition enters.

How are these tensions being dealt with? Outsourcing of work is one route which is capturing the attention of GCs. This isn't the legal process outsourcing route but rather the sending of work directly to barristers--"companies' desire for quick, informal cost-effective access to advice". Correspondingly, the Magic Circle law firms have seen a reduction in use by GCs.

Even though client relationship management is the mantra du jour, it is not yet fully worked out by law firms. The report expresses doubt that clients really are at the centre of law firm thinking.

Winmark detail a series of gaps between the expectations of managing partners and general counsel that are going to be filled in interesting ways as the legal market becomes more complex following the shake out of the recession and the introduction of ABS. Expect to see new ways of managing pricing by perhaps pricing specialists and also new modes of work distribution, some of which we are seeing now.

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*I'm grateful to Winmark for giving me a copy of their report. Copies can be ordered from john.jeffcock@winmarkeurope.com.

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