Posted on April 26, 2004 by Larry Bodine

Get Ready for the Recovery

The economic recovery has arrived for law firms, and it's starting in New York, according to management consultant Ward Bower, an attorney who is a principal of Altman Weil, Inc. I just heard Ward speak the National Client Advisory Board meeting sponsored by Pitney Bowes Management Systems in Williamsburg, VA.

According to Ward, the recession lasted only two months in 2001 but law firms didn't recover during 2003. In the meantime there were a spate of mergers and law firm failures (more on that in a second). Here's what's coming up:

  • 59% of corporations plan to fire their outside law firm in 2004, according to a new A&W survey. The reason? No, it's not fees, it's because of bad cost management.
  • Bad news: law firms are going to cut overhead, which includes associate and staff salaries and benefits. It's because the associates got those monster pay raises in 1999. To save on costs, law firms will be giving out tiny raises and telling employees to pay more for health insurance.
  • Because of the glut of lawyers (1.1 million at last count), competitive intelligence is more important now than ever. Ward has been busy mapping the business landscape for law firm clients so they can see where they stand.
  • Law firms are actually stating to hire professional sales people, to identify specific targets and set up meetings with them. If you're a reader of the LawMarketing Portal, you've know about this for a while; the site has an entire section devoted to sales.
  • Law firms are expanding into new cities, not because there are any economies of scale, but because it's a way to find more revenue. Also, being an out-of-town firm gives the local office an immediate distinction.

    Look at this list of firms that merged in the last 12 months:

    1. Seyfarth Shaw acquires D'Ancona & Pflaum
    2. Ropes & Gray acquires Reboul MacMurray
    3. Heller Ehrman acquires the Venture Law Group
    4. Bingham McCutchen acquires Riordan McKinzie
    5. Jones day acquires Gouldens in London
    6. Reed Smith acquires Crosby Heafey
    7. Blank Rome acquires Dyer Ellis
    8. Wilmer Cutler merges with Hale & Dorr

    Why do they merge? For the money. The average merged law firm showed increased profitability of 11% after the merger, according to Ward.

    The list of failed law firms is a lot shorter: Altheimer & Gray, Arter & Hadden and Peterson & Ross. Ward predicts that there will be more closures among the AmLaw 200 in 2004 and he has two firms he's got in mind (but he isn't telling). He also noted that there are 108 US law firms in London now, but fewer than two dozen are profitable. A London office is a huge investment, producing a small return for more law firms.

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    Comments (1) Read through and enter the discussion with the form at the end
    Michael Lynch - June 27, 2005 6:23 PM

    What happens to the liabilities of a law firm, once the merge with another. Watch what happens when a judge in Chicago enters a judgement against Seyfarth Shaw that exceeds the firm's insurance coverage. It is clear that Seyfarth never disclosed this litigation liability to the partners of the firms they aquired.

    MWL

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