Two leading advisors to major law firms predicted a declining demand for legal services, a 15% drop in net income from 2008, the inability to raise rates, additional layoffs, salary freezes and cost cutting, heavier fee discounting, expenses rising faster than revenues -- and a long wait for better times.
"This recession is significantly different that prior recessions and could lead to fundamental changes in the law firm business model," including more contract and temp lawyers and fewer full-time partners and associates, said James W. Jones of Washington, D.C., Managing Director of Hildebrandt International, speaking yesterday at the Marketing Partner Forum in Dana Point, CA.
Joining him was Lucinda J. Tambourine, Managing Director and Senior Client Advisor of Citi Private Bank. "We are in a shift from a decade of growth and expansion to an extended period of reduced demand and resistance to increase in costs of legal services," she said.
2009 will be an extraordinarily bleak year because of one key factor, according to Jones: "The single factor that worked consistently to drive profitability in the past was the ability to drive up rates 6% to 8% per year, regardless of what else was happening. As we are entering a period of extended softness in demand, corporate clients are going to be more resistant to the overall cost of legal services. You are looking at a fundamental shift in the law firm economic model we've lived with for many years.
They also offered these new business models for law firms to respond to the recession. "Firms that are willing to think outside the box will come out of the crisis better than they went into it," Jones said.