This is our 27th annual report on what’s going on in the legal profession. This year’s report has been the most difficult of all these reports to write because of the continuing and sometimes conflicting changes in the profession which many firms still have not recognized or accepted. As always, the report is based on information we compile throughout the year, not only from our clients and many other firms but also from surveys, legal departments, and providers of legal services and those businesses supporting the legal industry.
Some findings are not new, but we include them because they continue to affect the profession. Other findings have not yet been widely recognized, but we believe they already have or will have a significant impact on the profession. The resulting picture is a montage of a legal profession that will continue to change, not just in 2016, but for years to come.
This report presents the big picture but the local picture will vary by individual firm depending on its size, client base, nature of practice, and geographic focus.
Red Hot Practice Areas
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Cybersecurity is a red hot practice area in large firms, where security is also a red hot operational issue, which it should be in all firms.
Regulatory. This has become red hot due to continuing increases in governmental regulation in many areas, not just workplace safety (that is, Occupational Safety and Health Administration (OSHA) rules). This is a major concern of general counsel and corporate management.
Hot Practice Areas
White Collar Crime. We classified it as “getting hot” in our midyear report. The U.S. Department of Justice has since launched a program on prosecuting not only corporations, but also individuals, for corporate and financial malfeasance.
Labor and Employment. This will become red hot for many reasons, including increased OSHA enforcement in the construction, oil, and gas industries, and teachers’ unions ramping up efforts to organize charter schools.
Mergers and Acquisitions. This area is hot for those firms that already have a strong M&A practice. This will continue – unless the economy stumbles.
Elder Law. Although not discussed much, this area continues to grow; some people want to make changes in their estate plans because they are living longer.
Health Care was hot last year, too, and for the same reasons as this year: billing investigations and complaints from patients about HIPAA compliance, and provider self-reports related to privacy and security breaches. Health care also has become an industry group that includes at least 15 practice areas, such as finance, regulatory, and labor and employment.
Technology has become hot as an industry group, which includes multiple practice areas such as patents, regulatory, and telecommunications.
Same-sex Marriage Rights. In states that continue to ban same-sex marriage, this remains a hot practice area.
Immigration. Firms that already have immigration practice areas are finding this hot. It could get red hot even before the 2016 presidential election.
Firm Management and Business Development Issues in 2016
In addition to issues affecting legal practice areas, here are trends in firm management and business development practices.
Issues Affecting Business Development
Pricing Directors. Usually based in the Marketing-Business Development department, pricing directors continue to be hot in AmLaw 200 firms. In addition to being involved in developing responses to requests for proposals, the pricing director is often involved in project management. In the mid-size firms that have addressed the issue, the chief operating officer usually fills the role of pricing director.
Marketing Technology Specialists are also getting hot in AmLaw 200 firms.
Responsive Web Design. While currently a hot issue among marketers, this may cool down as firms recognize that effective websites are more about content and delivery than they are about design.
Client Interviews. As we reported at midyear, the importance of interviews continues to be recognized, but there is debate on who should conduct them. My associates and I introduced client surveys to the legal profession more than 30 years ago. Who conducts the interviews depends on the firm’s objective. If it is to cement client relationships, the managing partner is usually the best person if properly prepared. To obtain feedback on client service and quality of work, the relationship or responsible partner is usually the best. To obtain and evaluate meaningful information for market analysis and strategic planning, the chief marketing officer or qualified outside third party is best.
Social Media. Except for Facebook, social media continue to be hot. Blogs and firm websites are still among the most effective online means for reaching in-house counsel and potential clients, but some marketing experts say they may soon be surpassed by content syndicators.
Content Syndicators and Aggregators such as LinkedIn, Mondaq, and JDSupra push content to other sites and services.
Advertising. Whether it’s online, in print, or on television, radio, billboards, or bus exteriors, advertising is still the principal marketing strategy for personal injury lawyers and others.
Video News Broadcast. In October 2015, Epstein Becker & Green announced the launch of a weekly video news broadcast called “Employment Law This Week.” It will be anchored by a partner and supported by a production team that includes six other attorneys.
“Super Lawyers,” “Best Lawyers,” and “Leading Lawyers” lists proliferate, but because the firms and lawyers pay to be on many of these lists, which most of the public doesn’t know, they are really advertising. Therefore, the question for these and all other marketing expenditures is …
What Is the Return on Investment? Marketing legal services is not the same as advertising soup or cereal, where sales can be compared to expenditures. Except for personal injury cases or when a firm is marketing a “packaged service,” such as a simple will or uncontested divorce, most online marketing is still about building a reputation and firm brand.
Chief Marketing Officers. In many large and some mid-size firms, the position continues to become more strategic in both operations and in driving firms’ growth plans. But the problem is that, while chief marketing officers are being given increased responsibility in many firms, few firms give them the authority they need to be as effective as possible.
Sales Professionals. Some firms have employed nonlawyers to make contacts and develop leads. It took accounting firms several decades to achieve worthwhile results with this strategy. Even with all the changes occurring in the legal profession, this is one strategy that has not been successful and may never be in our lifetime. However, …
Business Development Training and Coaching can be productive, especially for newer lawyers.
Lateral Hiring continues to be one of the hottest growth strategies in mid-size and, of course, large firms. But the results, that is, new clients and growth, are often not as expected.
Issues Affecting Law Firm Management
Project Management. This continues to be red hot because it produces efficiency, client value, fee transparency, and profits. However, although it should be the second most important concern of most law firms, many have not acknowledged this yet or are having difficulty implementing it.
Alternative Fee Arrangements. These continue to be more widely used. Some firms say they are easier to negotiate and budget, but many still feel that clients only want lower fees. This is true to some degree; but the major issue, whether hourly or alternative fees, is that there is an overall reduction in the legal spend. Many firms still don’t get it.
Millennials. Hiring, training, and retaining them, support staff as well as lawyers, will continue to be a challenge because many of them chafe against the historic law firm culture. Yet, they are the future of the legal profession.
Recruiting. According to a midyear report by Robert Half Legal, recruiting skilled lawyers is even more difficult than before. Half stated that the greatest need is in civil litigation, particularly insurance defense, followed by what it refers to as “general business.”
Departures. Although, as noted above, lateral hiring continues to be a hot growth strategy for many firms, most of it is at the partner level because firms want the book of business laterals can bring with them. However, fueled to a great degree by the expansion of corporate legal departments, associates and even partners who do not have a large book of business are leaving firms to join legal departments. Why? The workload is generally more consistent, without the pressure to record high billable hours and originate business – and the compensation is more consistent. Translation: The quality of life is better.
Business Training. Skadden Arps continues to be among the firms that provide basic business training, including finance, accounting, and valuation, to first-year associates.
Legal Operations. This growing, multidisciplinary field blends technology, business skills, and legal expertise. General counsels in companies such as Cisco, Google, and Oracle are giving experienced professionals the authority to improve legal department performance, including the hiring and managing of outside counsel. By using data, process, and technology, their mission is to make lawyers more productive.
Practice Economic Group. This group of attorneys at Bryan Cave work outside the traditional partner-associate model. It developed from a cost-accounting system and IT platform to track the firm’s work in progress, collections, and profitability. It now enables the firm to develop alternative-fee arrangements and make a reliable profit.
Mergers of law firms will continue, although not quite at the rate of earlier this year.
Succession Planning. This is more discussed and more needed than ever for the future of firms and the profession. However, there appears to be a dearth of interested candidates among the younger generations in the profession.
Financial Services is hot as an industry group, which includes multiple practice areas such as banking, IPOs, and regulatory matters among others.
3D Printing, Disruption is hot in the firms that have this practice. This is a new approach, not only to printing but also to manufacturing and even construction. According to the few firms that understand what it is and have already developed the practice, it saves huge amounts of time and money.
Practice Areas Getting Hot
Real Estate and Construction. Commercial real estate and construction have become hot in many parts of the country. Their residential counterparts will continue to have mixed readings even after interest rates rise.
Pro Bono. Firms want to give back to their communities and, as more clients refuse to pay for newer associates’ work, firms are expected to take on more pro bono work by which to train their less-experienced lawyers.
Warm Practice Areas
Alternative Dispute Resolution. This practice area has been around for a long time and is a cost-saving alternative to litigation.
Energy. All forms that include “clean” were hot in 2015. This practice area will become hot again as the movement against fossil fuels continues and oil prices eventually rise.
Cold Practice Areas
Bankruptcy is cold, as it always is until the economy takes a turn for the worse.
Practice Areas with Mixed Readings
Environmental. Surprisingly, the temperature of this practice area varies in different parts of the country.
Intellectual Property. Patent prosecution and trademarks continue to be at least warm if not hot because of the continued growth of social media and branding, but the picture on patent litigation is mixed. Some surveys of legal departments conclude that it will cool down in 2016. However, while a few IP firms and litigators expect that two U.S. Supreme Court decisions may eventually reduce the amount of patent litigation, they all report heavy caseloads. In addition, patent trolls continue to file suits, and the pharmaceutical industry is the source of much patent litigation.
Commercial Litigation. Except for “bet-the-company” cases, many major firms are reporting declines. There are at least four reasons for this: 1) Corporations have been increasing the size of their legal departments and are handling more cases themselves; 2) clients are more prone to settle out of court to save cost; 3) nonlaw service providers are doing more discovery and document management and some of them are providing other services – all at lower costs than firms can afford to charge; and 4) the use of technology, such as 3D printing, is growing. These are irreversible trends, but many firms still have not recognized them.
Hot Geographic Market
Washington, D.C. Several firms have opened offices in the nation’s capital, and others are expanding existing offices due to continued increases in governmental regulations and enforcement as well as in public affairs and lobbying work.
Other Issues
Cybersecurity. As noted under “Red Hot Practice Areas,” this is a red hot operational issue in large firms. It should be in all firms, regardless of size.
New Practice Area Subspecialties. Several new subspecialty practice areas have surfaced in a small but growing number of firms. Examples include 3D printing, drone law, brand and digital governance, biometric recognition technology, and social media defamation.
Industry Groups. Two years ago we reported that a few firms were forming industry groups as opposed to practice groups. This trend has slowly gained momentum. Recently, Schwabe, Williamson & Wyatt reorganized its practice structure into six industry groups: technology; health care; real estate and construction; ports and transportation; manufacturing and distribution; and natural resources.
However, in defining this as a “go-to-market strategy,” Schwabe, like the other firms that have adopted this structure, has recognized that industries are really broad marketing groups that include multiple practice areas and what recognized authority Patrick McKenna calls “subindustries.” For example, health care includes at least 15 areas such as finance, regulatory, and labor and employment; financial services includes banking, IPOs, and regulatory; and technology includes patents, regulatory, and telecommunications.
Outside or Nonlawyer Service Providers. Outside competitors for legal services continue to grow in number and in the breadth of services they provide. Furthermore, they are providing services not only to law firms. Legal departments are increasingly retaining them directly and bypassing law firms because their fees are lower.
Start-up Law Firms. Because of the continuing tight market for new lawyers, and the need to make legal services more affordable, law schools in California and several other states are funding start-up firms.
Mindfulness Movement. Reportedly at least two dozen law schools offer for-credit courses in Zen-inspired blends of meditation, breathing exercises, and focus techniques, with support from companies such as Google and General Mills. At least one law firm and the legal department of a major corporation retain a mindfulness coach.
Debt. Historically, law firms have not incurred debt to provide cash when needed but have used short-term lines of credit and capital contributions or buy-ins from equity partners. Now, alarmed by the collapse of Dewey & LeBoeuf almost four years ago, large U.S. firms have considerably reduced their bank debt even further and are leaning more heavily on their equity partners to provide capital. As a result, more partners are taking out bank loans to provide this capital, which effectively shifts debt.
The Accountants are Here! In the last decade, accounting firms have been quietly but steadily building their legal services divisions. According to The Economist, they have focused on “mid-tier, process-oriented work rather than the big deals and lawsuits that elite law firms chase.” Of course, accountants can’t practice law in the United States or in most European countries.
However, as we reported two years ago, several countries – notably Britain, Australia, and Mexico – have authorized multidisciplinary practices, which allow attorneys to share profits, without restriction, with members of other professions. Since then the Big Four – Deloitte, PwC, EY, and KPMG – have been buying small law firms, hiring partners from other firms, and recruiting on campuses. Rather than trying to build full-service practices, they are concentrating on areas of law that complement their existing services, such as immigration, which fits with expatriate tax work; and labor, which fits with human resources consulting and compliance, commercial contracts, and due diligence.
Bar Exam Scores. The average score on the 2015 summer exams reached its lowest level since 1988. Law school deans have said the test was unfair and that a software glitch made it harder to submit test results. The president of the National Conference of Bar Examiners, which created the multiple-choice section of the test, replied that law schools have been admitting students with lower qualifications who may encounter difficulty in taking the exam. And, of course, applications to law schools continue to decline.
Foreign Laws. U.S. Supreme Court Justice Stephen G. Breyer wrote a new book in which he argues that there is a growing need for judges and lawyers in the United States to take foreign laws into account as they seek to resolve disputes that arise, not only in the United States but also abroad.
Summary
As we were in the midst of preparing this report, one of my collaborators said to me:
“From where I sit, all I’m hearing is ‘change!’”
“We’ve gotta change.”
“We are experiencing a tsunami of change.”
“The profession is experiencing radical change.”
“And yet, as far as I’m concerned, we ain’t seen nothin’ yet.”
Those comments sum up what we have reported here while pointing out some examples – but by no means all – of the developments that are affecting and changing the legal profession. But the question in my mind, and in the minds of some far-sighted people is, “Will the legal profession survive?”
Yes, I believe it will if the profession follows the message my late father-in-law constantly repeated to his family:
“Do what you have to do, when you have to do it, whether you want to do it or not.”
