New Carnivores – An Interesting Look at the Numbers Behind the Business of Law

On 20.09.16, In Resources, by Blake Houser

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By Roger Davis, Account Executive, Wells & Drew

In September, the Rocky Mountain Chapter of the LMA (Legal Marketing Association) had Brent Turner with Thomson Reuters’ Peer Monitor program speak and it was very insightful. In short, the Peer Monitor group has been gathering financial data on nearly half the AmLaw 200 (and other) firms for 10 years. I thought this would be something to share and that even folks outside the profession might find it interesting.

As most know, 2008 was a year of change with the legal services market. The subtext of Brent’s talk seemed to be that private firms providing these services have been somewhat lukewarm and reactive in their response. Some firms were doing better than others and the data seems to point out how the industry has bifurcated with the “rich getting richer and …” well you know the rest of the story. So, we end up with more and more M&As within the practice of law … not to mention outright failures.

From his background working with a publicly traded company (and an implied high level of accountability), Brent seemed somewhat baffled that law firms continued growing capacity despite relatively flat demand. Further, he didn’t seem too confident that these bets on higher demand around the corner were justified, especially with corporate counsel continuing to control (and budget for) costs by keeping more work in house, parceling out matters that end up going to outside counsel, and using non-traditional providers.

Some good news – other spending seemed to be in pretty good check with most firms.

One interesting insight from Brent was that these alternative service providers were currently getting about $1 billion of the $471 billion/year global legal business (think I got that number right) and that Thomson Reuters was expecting double digit growth in the very near future for this segment. He went on to mention many UK firms were bundling these providers into their RFP responses as partners and he even hinted this might be a tactic more US firms should consider.

Non-traditional providers included something he called “cloud firms”. One of these based in Atlanta has 170 all-partner attorneys. Brent mentioned he had a two hour chat with the managing partner recently, and when asked, Brent said the partner claimed their matters included “high end” work along with just the commodity stuff you might expect.

Another tidbit, Brent pointed out (something pretty obvious) – that this sort of model wasn’t just attractive to the many “burnt out” AmLaw100 partners who already made up the ranks of the firm, but was something those fitting the “Millennial” profile as well as those seeking a better work-life balance could find attractive.

Brent was very engaging and by highlighting significant and meaningful data, he was able to keep the group in rapt attention. I thought the Q&A could have gone on for at least another 30 minutes. Before he did run out of time, though, Brent pointed out that the “levers” firms have been utilizing to ensure profitability – diligent expense management, reducing equity partner ranks through new levels of compensation and even modest rate increases – have all pretty much ran their course.

Thompson Reuters, among others, points out that the entire partnership model prevalent in private law firms is at risk in this entirely new market. More obvious operational questions about traditional firm leadership structures (committees for everything, for example) are certainly things one might ponder was well. Maybe these cloud firms are on to something? Someone in the audience had pointed out that not only is disruption a fact of life in many industries today (and “coming soon” to most of the rest), but that the real entrepreneurs out there … well, they want to be the ones doing the disrupting.

By Roger Davis, Account Executive
Wells & Drew
T. 720.507.8635
rogerd@wellsdrew.com

Blake Houser

Client Relations Manager at The Wells & Drew Companies
About the author:
Blake Houser is Client Relations Manager at Wells & Drew. In addition, he is the third generation in this family-owned speciality printing business.

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