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2011 to be a slow year for law firms ?

The year 2011 will see relatively modest profitability growth for law firms, with profits per equity partner expected to rise by only lower single-digit rates, according to the 2011 Client Advisory jointly issued by Hildebrandt Baker Robbins and the Law Firm Group at Citi Private Bank.  Noting that the growth in demand for legal services has been negative in each of the past seven quarters, the Advisory observes that most law firm leaders are confronting a radically changed environment in today’s legal market.

Anticipating a protracted period of sluggish demand and mounting client pressures for enhanced value in the delivery of legal services with only modest rate increases, the Advisory predicts that many firms will have to run hard just to stay even ie to maintain an acceptable level of profitability to satisfy their partners and to maintain stability.  The Advisory points out that, for the first time in recent memory, total legal spending by corporate clients for outside counsel declined in 2009, a trend that in all likelihood continued in 2010.  Moreover, for work that was available, the cost pressures exerted by clients were more stringent than ever before, as indicated by the fact that law firm realization rates declined in 2010 to less than 87%, an all-time low.

The overall prospects for the legal market are not, however, as negative as these trends might suggest.  According to the Advisory, many law firms are beginning to re-think their underlying assumptions about work processes, pricing, infrastructure, and administrative support, with a view toward delivering legal services on a far more efficient and cost effective basis.  Indeed, the Advisory cites several firms that have implemented creative strategies to expand their market share even in the current sluggish economy.  

As noted by James Jones, senior VP of Hildebrandt Baker Robbins and the principal author of the Advisory, “We expect to see firms continue to differentiate themselves in the coming year.  For firms with sharply focused strategies, with the insight and creativity to respond to changing client demands, and with the willingness to take some risks, the current market actually holds great promise.”

• A full copy of the 2011 Client Advisory can be found at www.hbrconsulting.com/2011ClientAdvisory

One reply on “2011 to be a slow year for law firms ?”

That certainly fits with how we see it. Firms have to get leaner, focus heavily on reducing their cost base strategically, to enable the business to share some of the improved profits with the owners (partners/shareholders/whoever that may be in the future – maybe even the banks who want their money back) and to generate enough cash so the business can afford to invest some profit in innovative development. It makes good business sense and you do wonder why more partners still really haven't got this yet. You shouldn't be too busy doing other things to do this … but too many feel they are. It's time to re-priortise if you want to stay in charge!

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