It is safe to say that the legal industry has never seen a year like 2020. But, a recent study of the legal market suggests that disruptions to law firm operations could end up being the impetus that the industry needs to finally adapt to the market’s competitive realities.
The 2021 Report on the State of the Legal Market, issued by the Center on Ethics and the Legal Profession at Georgetown University Law Center and the Thomson Reuters Institute, says the unprecedented events of 2020 could set off a wave of sweeping permanent changes, such as law firm business models, use of technology, and more flexible staffing and operations. The report raises the question of “whether the industry that bounces back will be the same industry that entered the pandemic this past March.”
“As firms turn the page on a challenging year, they may also be rethinking how they have been managing their practices and operations,” said Mike Abbott, Vice President of Market Insights and Thought Leadership at Thomson Reuters. “After previous downturns, we often saw firms going back to business as usual. As harsh as the COVID-19 situation has been, it presents an opportunity for firms to seize the new experiences, skills and technologies they’ve gained during the crisis to create sustained competitive advantages for the post-COVID-19 future.”
Since the Great Recession, the legal services market has been slowly, but inevitably, moving toward a new delivery model. The report finds evidence of this shift in:
- Changes in the roles and expectations of clients;
- Pricing and technology; and
- The growth of competition (including from nontraditional providers).
All of these have pushed the market toward a more efficient, predictable and cost-effective delivery model.
One thing has not changed, though — resistance from law firm partners. While senior management often embraces the need to evolve, the report says that partners largely continue to turn a blind eye. This finding jibes with those in Altman Weil’s 2020 Law Firms in Transition survey. More than half of the law firm leader respondents gave firms poor grades on how serious they had been about changing delivery models to provide greater value to clients (as opposed to just reducing rates). When asked why firms are not doing more, about 70% said because “partners resist most change efforts.”
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The tantalizing possibility that the report proposes is that “the combined effects of the pandemic may have softened partner resistance to fundamental change enough to create a tipping point” toward a major overhaul of the legal delivery system. Indeed, current conditions could present a ripe and unprecedented opportunity to get past previous hurdles.
The report cites numerous reasons that 2020 and 2021 could mark the time that “serious change finally accelerated,” including:
- Acceptance of Remote Work
Law firms have long resisted remote working arrangements, even as these became more common in other industries and boasted obvious advantages. But, the COVID-19 pandemic forced firms to allow work from home. Lo and behold, it turned out that law firm leaders’ fears were largely misplaced. And Thomson Reuters research (independent of the report) shows that the vast majority of lawyers, including partners, now favor remote working options.
Related Read: Making Remote Work…Work
- Recognition of Technology’s Role in the Delivery of Legal Services
“There are signs we may look back on the COVID-19 crisis as a moment that significantly accelerated many changes that firms had resisted in advancing their delivery of legal services, and introduced new changes as well,” said James W. Jones, a senior fellow at the Center on Ethics and the Legal Profession at Georgetown Law and the report’s lead author.
In the wake of involuntary changes to operations, partners probably have a broader acceptance of the role technology plays in effectively delivering legal services. This could create greater openness to experimentation in other forms of delivery. The study showed that an overwhelming 84% of firms plan to increase their technology budgets.
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- Persistent Client Pressures
The desire among clients for greater value from their attorneys has not waned during the pandemic; if anything, it has intensified. The report says this sentiment could undercut the belief of some partners that clients are not asking for change.
- Wave of Operational Adjustments
The report says that many firms have had to consider other changes to operations for the first time. Those include modifications to space planning; new training programs; revised technology strategies and investments; revamped marketing and business development strategies; and a new focus on staff safety and well-being. This type of momentum could facilitate new delivery models, too.
In other words, the pandemic has produced an opportunity for savvy law firms to seize the lessons they have learned to achieve competitive advantages for the long run.
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Positioning for the future
The report cautions that some long-standing economic problems remain for many firms, including issues of productivity and underperforming attorneys, recruitment and retention, and billings and collections.
Related Read: When It Is Time To Let a Partner Go
ORBA’s advisors can help you navigate these challenges and can help develop and implement plans that enable your firm to provide the alternative delivery models your clients and the market demands.
Sidebar: How the pandemic played out
In addition to providing insight into service delivery, the 2021 Report on the State of the Legal Market also reviewed how the COVID-19 pandemic affected law firms in 2020. Not surprisingly, the pandemic prompted some dramatic measures.
Beginning in March 2020, demand (as reflected in total billable hours) dropped in virtually all law firm practices except for bankruptcy and reorganization work. Nonetheless, according to the report, many firms were able to raise their rates last year. The increases were possible in part due to the fact that most were implemented prior to the end of 2019.
What about attorney growth? In 2019 and the first quarter of 2020, average lawyer growth jumped to 2.7%. As the pandemic took hold, though, many firms took immediate steps to reduce headcount growth.
Firms also reduced partner draws, cut salaries, furloughed support staff and terminated both support staff and fee earners. One of the unexpected results was the substantial improvement in profits per equity partner over 2019.
For more information, contact Justin Sylvan at [email protected] or 312.670.7444. Visit ORBA.com to learn more about our Law Firm Group.